Fixed income managers react to adviser demand for enhanced income
Fixed income managers have shared how they are reacting to intermediary demand for defensive exposures, and whether they’d expand their ranges into private credit.
In Morningstar’s Australian Asset Manager report for Q2 2025, it has found fixed income – which also includes private debt, diversified credit, and unconstrained fixed income, as well as traditional strategies – and cash are the only products managed by traditional active managers reporting positive flows.
Meanwhile, research by Fidante has identified 32 per cent of advisers are looking to increase their allocations into fixed income, and 29 per cent plan to do so with cash.
Speaking to Money Management, commentators from fixed income specialist Kapstream and Yarra Capital Management shared the intermediary demand they have been seeing is particularly centred around enhanced income.
Dylan Bourke, managing director and portfolio manager at Kapstream, said demand from intermediary clients had “notably increased”, particularly for investment-grade fixed income.
“Demand from intermediary clients has notably increased, particularly for investment-grade fixed income. The appeal lies in the ability to earn yields in the 5–6 per cent range, which has become compelling in the current environment.”
He highlighted the firm is seeing “accelerated growth” into its Absolute Return Income Plus Fund and Private Investment Fund, which seek higher levels of yield. The former targets cash plus 3 per cent, while the latter targets cash plus 6 per cent.
Meanwhile, Roy Keenan, co-head of Australian fixed income at Yarra Capital Management, said the firm has been fostering relationships with the intermediary community and is experiencing strong growth into its fixed income funds. This is particularly the case in its Enhanced Income fund which has surpassed $2.5 billion in assets under management and invests in high yielding credit and hybrid securities.
“Generally, investors have responded to the higher running yields available in Australian fixed income, with return profiles on investment grade portfolios at levels akin to average longer term equity market returns without the associated volatility,” he said.
With advisers also stating they view private credit as part of a fixed income exposure rather than an alternatives portion, a recent report from Oliver Wyman said this could be a benefit for specialist bond managers who can use this as an opportunity to expand their existing fund ranges.
This could see development of “credit plus plus” funds which hold a higher proportion of investment grade assets or blended funds that mix public and private assets or hold higher volumes of private debt. Others will use a wider range of private debt types such as direct lending and asset-backed credit.
Kapstream said the firm is already leaning into this demand with the launch of its Private Investment Fund which is designed specifically for wholesale investors.
“This fund was developed in response to reverse inquiry from private bank clients and focuses on private securitisations,” Bourke said.
“We favour this segment of private debt due to its short, expected maturity (typically around one year), high diversification across thousands of underlying loans, and structural protections – such as originators providing first-loss protection through subordination. Compared to corporate or real estate private debt, which often carry greater concentration risk, we view private securitisations as a more resilient and attractive opportunity.”
For Yarra Capital, however, Keenan said it prefers to access private credit within its multisector funds for liquidity reasons as 70-80 per cent of assets in these funds have daily liquidity.
“We feel this is the right way to maximise risk-adjusted returns and provide genuine liquidity and price transparency for our clients. Many private credit funds offer monthly liquidity for pools of illiquid assets which can become problematic if redemptions exceed applications and maturity schedules.”
AUTHOR
Laura Dew
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