FAQs

The information set out in these FAQs is intended to be a summary only and should be read in conjunction with the more detailed information in the PDS.  In deciding whether to apply for Units under the Offer, you should read the PDS carefully and in its entirety. If you are in doubt as to the course you should follow, please consult your professional adviser.

About the Offer

What is the offer timetable?

The offer timetable is as follows:

  • Lodgement of the PDS with ASIC 19 September 2019
  • General Offer and Broker Firm Offer expected to open 14 October 2019
  • Broker Firm Offer expected to close on 16 October 2019
  • General Offer expected to close on 16 October 2019
  • Settlement Date on 14 November 2019
  • Expected Allotment Date / despatch of holding statements on 18 November 2019
  • Units expected to commence trading on ASX on 21 November 2019 (normal settlement basis)

Please note that the above dates are subject to change and are indicative only. Times are references to Sydney time.

What is the Subscription Price?

The Subscription Price is $2.50 per Unit.

What is the proforma Net Asset Value (NAV)?

The pro forma NAV per Unit is $2.50, noting that the Manager is paying for all upfront establishment fees, costs and expenses of the Offer in full out of its own pocket to ensure that the Pro forma NAV per Unit at the beginning of the day on which trading of Units commences on the ASX is not less than the Subscription Price.

What is the minimum application amount?

The minimum application amount is 2,000 Units.  Applications in excess of the minimum number of Units must be in multiples of 500 Units. 

What is the minimum/maximum raise?

The minimum raise is $200m and the maximum raise is $750m.

Will you accept oversubscriptions?

Yes. The Responsible Entity may accept another $175m in oversubscriptions.

Will there be a Dividend Reinvestment Plan (DRP)?

Yes. The Responsible Entity intends to establish a DRP.

Will you engage in buy-backs?

Following Listing, the Responsible Entity may, subject to the Corporations Act and the ASX Listing Rules, at its discretion elect to purchase Units on-market with a view to addressing any unsatisfied liquidity in the Units or any material discount in the price at which the Units may have been trading to the NAV per Unit.

How do I apply?

In deciding whether to apply for Units under the Offer, you should read the PDS carefully and in its entirety. If you are in doubt as to the course you should follow, please consult your professional advisers.

In order to apply for Units under the General Offer, please complete the General Offer Application Form that forms part of, is attached to, or accompanies the PDS or a printed copy of the General Offer Application Form attached to the electronic version of the PDS. The General Offer Application Form must be completed in accordance with the instructions on the reverse side of the General Offer Application Form.

Once completed, please lodge your General Offer Application Form and Application Amount so that they are received at the following address by 5.00 pm (Sydney time) on the Closing Date. 

By mail to:
The Trust Company (RE Services) Limited C/- Boardroom Pty Limited
GPO Box 3993 Sydney NSW 2001 

By hand delivery to:
The Trust Company (RE Services) Limited C/- Boardroom Pty Limited
Level 12, 225 George Street Sydney NSW 2000

Can I apply online?

Yes. You can apply online at www.KKCAustralia.com.au and pay your Application Amount by BPAY®.

If you are applying for Units under the Broker Firm Offer, you should complete and lodge your Broker Firm Offer Application Form with the Broker from whom you received your firm allocation, in accordance with the instructions given to you by your Broker and the instructions set out on the reverse of the Broker Firm Offer Application.

What if I have a limit on my BPAY, can I make several payments for one application?

Yes, once you apply online and you are allocated your BPAY reference number, you can use this again.

 

About the Trust

What are the Trust’s investment objectives?

The Trust’s primary investment objective is to provide Unitholders with access to KKR’s global credit investments through the KKR Managed Funds, which seek to take advantage of the attractive opportunities that KKR sees in the market. The Trust’s investment objective is to provide Unitholders with an income stream as well as to achieve attractive long-term capital appreciation over a full market cycle by providing investors with exposure to underlying credit investments that are diversified (by number of investments and across geographies and asset classes). These investments will typically have a high-income component.  The Trust will seek to achieve this objective by investing directly or indirectly in the KKR Managed Funds.

There is no guarantee that the Trust will achieve its investment objective.

How are the Trust’s investments structured?

To achieve the Investment Strategy and target portfolio construction, the Manager intends to initially invest in the following:

  • the Global Credit Opportunities Fund; and
  • the European Direct Lending Fund (together the KKR Managed Funds).

The Trust will gain its exposure to the Global Credit Opportunities Fund by investing in a Profit Participating Note issued by the Global Credit Opportunities Feeder Fund, which will, in turn, invest in the Global Credit Opportunities Fund. The Trust will indirectly receive distributions from the Global Credit Opportunities Fund through its interest in the Profit Participating Note. The available proceeds of the Global Credit Opportunities Feeder Fund will be paid as interest on the Profit Participating Note. 

The Trust will gain its exposure to the European Direct Lending Fund by directly investing in the European Direct Lending Fund.

What is the percentage allocation of these strategies for the Trust?

The Manager intends to fully deploy the Offer Proceeds into the Global Credit Opportunities Fund. The Manager also expects the Trust to redeploy up to 50% of the Offer Proceeds into the European Direct Lending Fund over time.

What is the track record of the Trust?

Although the Trust’s Investment Committee has extensive experience analysing, investing in and managing the types of investments which reflect the Trust’s Investment Strategy, the Trust is a newly formed entity with no financial, operating or performance history upon which to evaluate its likely performance. The Trust will aim to provide Unitholders with attractive, risk-adjusted returns through a diversified portfolio of income-generating alternative credit investments managed by KKR’s credit investment teams.

KKR Credit Advisors (US) LLC (the Investment Adviser or KKR Credit) has a team of approximately 120 dedicated credit investment professionals across 9 cities in 8 countries, including Australia. The team brings decades of proven financial and operational experience, broad regional and industry expertise, deep understanding of global macroeconomic and geopolitical trends, and a powerful network of global relationships.

What is the Trust distribution Policy?

It is the Responsible Entity’s intention to pay quarterly distributions and to distribute 100% of the distributable income of the Trust on an annual basis.

Will the Trust use hedging or Derivatives?

Yes. The Manager intends to hedge currency risk back to the base currency of the Trust, which is the Australian Dollar.

How long will it take to invest the portfolio?

The Manager intends to fully deploy the Offer Proceeds into the Global Credit Opportunities Fund and subsequently redeploy up to 50% of the Offer Proceeds into the European Direct Lending Fund over time. The Manager estimates that it will take approximately 2 to 3 years to deploy approximately 40% to 50% of the Trust’s assets to the European Direct Lending Fund.

Will the Trust be leveraged?

While the Trust will not use leverage as part of its investment approach or investment strategy, the Trust does intend to borrow to manage its liquidity, including for short term financing to enable the Trust to undertake its investment activities and to meet the short term working capital requirements of the Trust.  It is expected that this liquidity facility will be no more than 30% of the overall size of the NAV of the Trust when the facility is entered into. The purpose of this facility is to allow the Trust to invest in European Direct Lending deals while awaiting redemptions from the Global Credit Opportunities Fund as the Trust allocates capital across these two strategies.

The Trust may also borrow for the purposes of satisfying margining requirements in connection with its use of derivatives for foreign exchange hedging purposes (by using a liquidity facility to fund any hedging costs). 

The assets of the Trust may be used as collateral for such borrowings.

The KKR Managed Funds which the Trust is expected to invest in may also borrow on a temporary basis for cash management purposes.

Investors should consider the risks relating to the use of leverage described in Section 8.26 of the PDS.

 

Risks

What are the key risks?

All investments are subject to risk which means you may lose all or a portion of the amount you invest or you may otherwise achieve distributions and returns that are lower than the Target Distribution and Target Total Return.  Before making an investment decision, it is important to understand the risks that can affect the value of your investment.  You should carefully review the key risk summary in Section 1 of the PDS, together with the other risks described in Section 8 of the PDS.

Key risks in relation to the Investment Strategy include:

  • Allocation risk: the Trust’s Investment Strategy relies on the Manager’s flexible mandate to allocate funds to underlying credit strategies, including through investing and reinvesting the assets of the Trust in the KKR Managed Funds. Any delay in the Manager allocating funds to investments or across the KKR Managed Funds will delay the Trust’s ability to achieve the Target Total Return and Target Distribution (which are not guaranteed).
  • Illiquid and long term investments: the KKR Managed Funds will invest in illiquid and long-term investments and the KKR Managed Funds may be legally, contractually or otherwise prohibited from selling certain investments for a period of time or may be restricted from disposing of them.  Illiquidity may also result from the absence of an established market for certain investments.  The realisable value of a highly illiquid investment at any given time may be less than its intrinsic value. In addition, certain types of investments made by the KKR Managed Funds may require a substantial length of time to liquidate.  As a result, a KKR Managed Fund may be unable to realise its investment objectives by sale or other disposition at attractive prices or may otherwise be unable to complete any exit strategy. The KKR Managed Funds may also only provide periodic redemption opportunities or prohibit redemption opportunities prior to the end of the fund term and, as a result, the Trust’s interest in the KKR Managed Funds may also be illiquid. Illiquidity (in all the forms described above) may have an adverse effect on how the market values Units and therefore the price at which Units trade on ASX).

Key risks in relation to conflicts of interest include:

  • Potential conflicts of interests of the Responsible Entity and the Manager and its affiliates: The Manager and its affiliates (including affiliates managing certain of the KKR Managed Funds) are part of KKR’s global investment management firm, which includes amongst others, its private markets and capital markets businesses and KKR Credit.  KKR has, and may in the future, acquire interests in other businesses.  As a result of this broad range of KKR activities, the Manager and its affiliates, personnel and associates may have multiple advisory, transactional, financial and other interests and relationships that conflict with the interests of the Trust and the KKR Managed Funds in which it invests, and/or that generate fees and other compensation and economic benefits for KKR.  KKR also makes substantial investments for its own account, which may have an adverse impact on the Trust and the KKR Managed Funds in which it invests, for example by reducing the amount of an investment opportunity that is allocated to a KKR Managed Fund or acquiring a stake in another investment manager that competes with a KKR Managed Fund for investment opportunities.  KKR has established policies and procedures for mitigating and managing possible conflicts of interest as they relate to its global business. Section 13.5 of the PDS provides details in relation to how the Trust will manage these conflicts of interest as they relate to its activities.
  • Entities within the “Perpetual Group” (comprising Perpetual and its subsidiaries, including the Responsible Entity) may also act in various capacities (such as responsible entity, trustee and custodian) for other funds or accounts, which may conflict with the role the Responsible Entity plays with respect to the Trust. The Perpetual Group has implemented policies and procedures to seek to identify and manage conflicts in a fair and equitable manner as described in Section 13.5 of the PDS.

Key risks in relation to an investment in the Trust include:

  • Market and economic risks: a change in general economic and market conditions, including the availability of credit, factors affecting interest rates, currency exchange rates, economic uncertainty, changes in laws, trade barriers and national and international political circumstances may affect the level and volatility of securities’ prices and the liquidity of the investments in the KKR Managed Funds, as well as the credit quality of the underlying borrowers and the ability of the KKR Managed Funds and their managers to source investment opportunities. These developments could impair the Trust’s profitability or result in losses.
  • Currency risk: the functional currency of the Trust is the Australian dollar.  The functional currencies of the KKR Managed Funds in which the Trust invests are currencies other than the Australian dollar, and the KKR Managed Funds themselves may invest in assets denominated in a variety of currencies other than Australian dollars.    Although it is intended that the Trust hedge against foreign exchange movement risk, it may from time to time not be able to do so. For example, where a derivative hedge is not cost effective or not available. For unhedged investments of the Trust or a KKR Managed Fund, there is potential for adverse movements in exchange rates to reduce their value relative to the functional currency of the Trust or the KKR Managed Fund, each of which may adversely impact the value of the Trust.
  • Pricing risk: Units may subsequently trade on the ASX at, above or below the Subscription Price or NAV per Unit.
  • Liquidity risk relating to Units in the Trust: the Trust does not offer a redemption facility so Investors will need to sell their Units on the ASX if they wish to withdraw their investment.  The ability of Unitholders to sell their Units on the ASX will depend on the turnover or liquidity of the Units at the time of sale. Therefore, Unitholders may not be able to sell their Units at the time, in the volumes or at the price they desire.
  • Operational risk: there is a risk that inadequacies with systems and procedures or the people operating them could lead to a problem with the Trust’s operation and result in a decrease in the value of Units or otherwise disadvantage the Trust. These systems and procedures include, but are not limited to, those that identify and manage conflicts of interest. Operational risk is principally addressed through the Responsible Entity’s risk management framework, which includes internal controls to mitigate the risk that relevant systems and procedures are not followed.

Key risks in relation to debt investments in which the KKR Managed Funds invest include:

  • High yield investments risk: the KKR Managed Funds from time to time may hold debt securities and other credit investments that may be classified as “higher-yielding” (and, therefore, higher-risk) investments.  In most cases, such debt will be rated below “investment grade”. Borrowers of this type are considered to be at greater risk of not making their interest payments or principal repayments.
  • Credit risk: in relation to any debt security or instrument invested in by a KKR Managed Fund  (whether high yield or not), a failure by the borrower to repay the principal, make interest payments or fulfil other financial obligations in full and/or on time may cause the KKR Managed Fund and therefore the Trust to suffer loss which may impact on the financial performance of the Trust including its ability to achieve the Target Distribution.
  • Interest rate risk: certain KKR Managed Funds’ investments will expose them and the Trust to interest rate risks, meaning that changes in prevailing market interest rates could negatively affect the value of such investments. Factors that may affect market interest rates include, but are not limited to, inflation, slow or stagnant economic growth or recession, unemployment, money supply, governmental monetary policies, international disorder and instability in relevant financial markets. In a changing interest rate environment, neither the KKR Managed Funds nor the Trust may be able to manage this risk effectively.
  • Bankruptcy risk: investments of the KKR Managed Funds in companies or other borrowers involved in bankruptcy, restructuring or insolvency proceedings involve a number of significant risks.  Bankruptcy, insolvency or other court proceedings may result in the approval of actions which may be contrary to the interests of the KKR Managed Funds and the Trust. The duration of a bankruptcy, restructuring or insolvency proceeding may also give rise to substantial costs for the KKR Managed Funds.

 

Fee Structure

What Fees will the Manager receive?

Under the Investment Management Agreement, the Manager will be entitled to:

  1. a Management Base Fee of 0.88% per annum of the NAV of the Trust plus the net amount of GST of 0.022% (i.e. 0.902%, inclusive of GST), calculated and accrued monthly, and payable monthly in arrears out of the assets of the Trust; and ; and
  2. a Management Performance Fee of up to 5.125% (inclusive of GST, less RITC) of net annualised return for a “Performance Period” multiplied by when certain conditions, including a performance hurdle, described in section 9.4.1.4 of the PDS are satisfied.

 

Marketing

Is there an ongoing communication plan?

Yes. The Responsible Entity will release to the ASX and post to the Trust’s website a monthly statement of the net tangible asset (NTA) backing of its Units. The Responsible Entity may in the future elect to publish the net tangible asset backing of Units on a more frequent basis.

The Trust will also report in accordance with the Corporations Act and Listing Rules including under the continuous disclosure regime. The Responsible Entity intends to provide regular, accurate and timely disclosures to the market through releases to the ASX and posting of such material to the Trust’s website.

How does the fund value its NTA?

The Trust’s NTA backing will be calculated and made available monthly on the Trust’s website and on the ASX.  JPMorgan will also calculate this although it is not expected to differ from NAV per Unit.

The value of the Trust’s investment in each KKR Managed Fund will be calculated by the KKR manager managing the relevant KKR Managed Fund. The managers of the KKR Funds intend to engage an independent administrator for each of the KKR funds Managed Funds to provide independent valuation and other administrative services to assist the manager of that fund with the related administrative burden and to conform to market practice for funds of that type.

The NAV of the Global Credit Opportunities Fund is issued approximately 20 business days after month-end. The NAV of the European Direct Lending Fund is issued 3-4 weeks after quarter-end, with KKR’s financial earnings.  In some cases, the annual earnings may not be released until 5-6 weeks after quarter-end.

As a result of the difference in the frequency of the valuation of the Trust and the KKR Managed Funds and the timing of the release of valuations by the KKR Managed Funds, the NAV of the Trust will likely reflect the previous month-end or quarter-end.

 

About the Manager

Who is the Manager?

KKR Australia Investment Management Pty Ltd is the manager of the Trust. It is a proprietary limited company incorporated in Australia and, is an affiliate of Kohlberg Kravis Roberts & Co. L.P. (KKR), and KKR Credit.

KKR is a leading global alternative investment firm with approximately $206 billion in assets under management. KKR employs over 430 investment professionals globally, including approximately 120 investment professionals within the KKR Credit business.

KKR has over four decades of experience in investments, and a strong record of investment performance over the global economic cycles during that time.

 

Contact details

If you have queries about investing under the Offer, you should contact your stockbroker, financial adviser, accountant or other professional adviser.

If you have queries about how to apply under the Offer or would like additional copies of the PDS, please call the Trust’s Offer Information Line on 1300 131 856 (within Australia) or + 61 2 9290 9688 (outside Australia), Monday to Friday during the offer period between 8.30am and 5.30pm (Sydney time).