Geoff Wilson builds his own hybrid-like fund with $510m IPO

The veteran stockbroker has an income solution for the looming end of Australia’s multi-billion hybrid securities market.

Geoff Wilson, chairman of Wilson Asset Management is building his own hybrid style fund. Picture: Britta Campion/The Australian

The looming end to Australia’s $40bn hybrid securities market represents a big opportunity for stockbroking veteran Geoff Wilson, who has built his own hybrid-style listed fund with the promise of a steady income stream for inves­tors caught short by the shake-up.

The WAM Income Maximiser is aiming to raise $510m, mostly from retail investors through a fund that holds a combination of Australian shares and debt.

According to a prospectus lodged with ASIC and seen by The Australian, the Wilson Asset Management-backed fund is targeting payment of the Reserve Bank cash rate plus 2.5 per cent and franking credits.

That would be the grossed up equivalent of 6.6 per cent at current settings, comfortably ahead of the cash rate. Dividends are scheduled to be paid monthly.

WAM has priced shares in its new Income Maximiser at $1.50 each, with the latest addition to Wilson’s $6bn family of listed funds aimed squarely at retail investors. The move sees Wilson taking on Don Hamson’s Plato Investment Management, which pioneered the retail income space with a $800m fund. The Plato vehicle, which holds only shares, is one of the few ASX-listed funds that consistently trades above its asset backing, suggesting it has strong support among investors.

The WAM fund will be 60-70 per cent equity and the balance in high quality debt.

According to the prospectus, it is initially targeting a core portfolio of high-yielding blue chip shares, including names like BHP, Telstra and each of the big four banks. At the same time, debt held by the fund will be issued by the big four banks, regional lenders and Macquarie Group.

The Wilson fund has the option of holding cash and hybrids and corporate bonds, according to a presentation sent to brokers. The fund has eight brokers on the ticket, Taylor Collison and Morgans as arrangers and joint lead managers. Bell Potter, Shaws, Ord Minnett, E&P, CommSec and Canaccord are also on the ticket.

Wilson says the demise of the hybrid market will sharply reduce options for investors looking for lower-risk income through a diversified vehicle.

As the name suggests, hybrids are a combination of debt and listed equity. They pay a yield over the benchmark rate and have a maturity where they are redeemed or converted into equity.

The WAM Income Maximiser will hold a combination of debt and equity. Picture: NCA NewsWire/Gaye Gerard

Bank regulator APRA last year called time on the hybrid market, saying that in times of crises the instruments might not provide the capital cushion that banks needed.

From 2027 the regulator will allow existing hybrids to remain active, but they can’t be replaced as they mature. Not all hybrids are backed by banks but lenders make up the lion’s share of the market. Banks have already started to pull back on issuance.

The hybrid market has over $40bn outstanding, and around half of that is held by retail investors. As much as $7bn in hybrid funds alone are set to roll off in the coming year. “That’s got to find a home and be redirected into other income options,” Wilson says.

The offer is set to open from March 19 and close a month later, with the shares in the WAM income fund to list at the end of April. The income fund will be overseen by Wilson’s lead portfolio manager Matt Haupt and Damien Boey, the former Credit Suisse and Barrenjoey Australian equities strategist. It will charge a base fee in line with Wilson’s other funds plus an outperformance if it passes return hurdles.

This is the first move by WAM into an income style fund; it currently offers a range of listed options across growth, global and strategic value. There will be scope to scale up the fund across time, depending on demand and market conditions.

Originally published as Geoff Wilson builds his own hybrid-like fund with $510m IPO