Shareholders to Decide if PIA’s Private Credit Bet Raises Income Risks

Strategic Shift Towards Dual Income Streams

Pengana International Equities Limited (ASX – PIA) has unveiled a proposal to enhance its portfolio by incorporating an allocation to Global Private Credit (GPC). This move aims to diversify income sources beyond traditional global equities, targeting a more stable and tax-efficient yield for investors. The proposed strategy involves funding the private credit exposure through a competitively priced loan facility, designed to maintain the existing size and composition of the equity portfolio managed by Harding Loevner.

Dividend Growth and Income Stability

The key attraction of this proposal is a targeted 56% increase in fully franked dividends, lifting the annual payout to 8.4 cents per share. This translates to a gross dividend yield of approximately 8.9% based on the July 2025 share price. Notably, dividends are planned to be paid monthly starting November 2025, a shift from the current quarterly schedule, providing investors with more regular income streams.

Risk Management and Alignment

Pengana Capital Group (PCG) plays a pivotal role in this structure by covering the interest cost on the debt if returns from the global private credit investments fall short of expectations. PCG charges no base fees and only participates in returns above the target, aligning its incentives closely with shareholders. The target return for the private credit exposure is set at 4.5% per annum above the cost of debt, which is expected to contribute a pre-tax earnings uplift of around 2% of net asset value (NAV).

Why Global Private Credit?

Global Private Credit offers a low correlation to equities and public fixed income markets, providing diversification benefits. The asset class typically involves senior secured loans to mid-market companies in the US and Europe, offering contractual, floating-rate income streams. This income is expected to be more resilient across economic cycles, addressing the challenges investors face with concentrated dividend sources in sectors like banks and resources on the ASX.

Structural Advantages of the LIC Vehicle

PIA’s listed investment company (LIC) structure uniquely positions it to invest in illiquid assets like private credit without the liquidity constraints faced by managed funds or ETFs. This allows for long-term allocations and the retention of profits to smooth distributions. The LIC also enables fully franked dividends, enhancing after-tax returns for Australian investors.

Next Steps and Shareholder Vote

The implementation of this portfolio enhancement is contingent on shareholder approval at PIA’s Annual General Meeting scheduled for 10 October 2025. The proposal also requires final board approvals, transaction documentation, financing arrangements, and an independent expert’s report. If approved, this initiative could mark a significant evolution in PIA’s income strategy, blending growth with consistent, reliable income.