Listed fund notes signal further evolution of Australian retail demand

A new segment of Australia’s capital market is emerging, as asset managers head to the listed market to raise money for credit funds. The demise of the additional tier-one asset class that used to dominate the retail fixed-income market in Australia has provided a demand tailwind, but issuers that have accessed this type of funding say local investors’ growing need for income product is an even more significant trend.

The emergence of listed note issuance by asset managers is reshaping the Australian debt market by opening institutional-grade assets like securitisation to retail investors via broker and wealth networks, offering yield alternatives that complement and compete with options like the growing exchange-traded fund sector. Market sources suggest this activity signals a maturing listed debt market with growing credibility, driven by robust structures, clear pricing and strong demand.

RAM and Realm Investment House have issued ASX-listed notes in recent weeks, targeting the wealth and broker channels. Doing so delivers a broader and more balanced funding mix, and market sources say the success of these structures could encourage wider adoption and further innovation in Australia’s listed-credit market.

RAM took a mortgage-backed, secured-note route while Realm built an unsecured, diversified credit platform with a first-loss buffer. The two paths both lead to the same goal of offering retail investors a listed income product with a known investment horizon.

The listed debt market’s resurgence is part of a wider institutionalisation of retail fixed income – driven by advisers, platforms and technology, especially separately managed account and broker-distribution channels. Market users say it is now not just a cyclical trend but a structural shift in how retail investors access credit.

Listed investment trusts have been in vogue in Australia in recent years and fund managers are now exploring new ways to reach a wider, longer-term investor base and secure capital that is locked in for defined terms.

This is also part of an international trend. UK credit-focused investment trusts and US interval funds have opened institutional private credit to retail investors. Australia’s listed-credit evolution is following the path of bridging private markets and listed fixed income.

RAM and Realm have joined names like Challenger Investment Management, MA Financial and Perpetual in giving retail investors access to institutional-grade credit and fixed-income returns through ASX-listed, income-paying vehicles.

“The listed market is shifting: investors and brokers are actively looking for new yield products to replace hybrids. We believe this kind of asset-backed, senior-secured listed note is a compelling fit for this need.” – Michael Frearson RAM

RAM, which manages more than A$6.4 billion (US$4.2 billion) across Real Asset Management and Brighten Home Loans, listed its inaugural credit product – RAM Secured Income Notes – on 15 October. The issue combines a secured retail bond format with a debt listing backed by a credit pool of mortgages originated by Brighten.

Already an active RMBS issuer through Brighten, RAM used a special-purpose vehicle holding A$310 million in mortgage and securitised assets, raising A$300 million from investors and contributing A$10 million of its own capital. The 3.2 per cent equity slice – which the issuer points out is well above the 0.3-0.4 per cent typical in residential mortgage-backed securities (RMBS) deals – adds resilience to the structure, according to Michael Frearson, RAM’s Sydney-based head of fixed income.

Meanwhile, Realm’s Dominion Income Notes 1 (DMNHA) –  a floating rate note –  began trading on the ASX on 17 October. Realm raised A$425 million from its second listed transaction this year.

Unlike RAM’s secured notes, DMNHA is unsecured and relies on an internal first-loss equity buffer for protection – meaning investors take slightly more credit risk in exchange for what the issuer says is greater flexibility and yield. The notes sit above an equity cushion, fund a diversified credit portfolio and pay deferrable yet cumulative interest over a defined seven-year term, giving investors bond-style income and maturity certainty rather than a perpetual trust structure.

“We are being realistic. The market has had a lot of issuance this year and will need time to digest. But we expect the listed note sector to keep building from here.” – Broc McCauley REALM INVESTMENT HOUSE

DEMAND DRIVERS

Frearson says the RAM transaction received demand sufficient for lead managers Ord Minnett, Taylor Collison, Westpac Institutional Bank, FIIG Securities, Shaw and Partners, and Real Asset Management to close the book on day one despite not targeting institutional money. “Our strategy was to reach the wealth and broker networks, and we brought in more than 1,500 new investors to RAM,” he tells KangaNews. “About 10 per cent of the book was institutional, driven by the strength of the structure, but we capped this volume to avoid crowding out the retail allocation. This wasn’t a deal we wanted to upsize – it was about access and diversification, not volume for volume’s sake.”

RAM launched the offer shortly after the 22 September call date of a Westpac Banking Corporation AT1 note to capture reinvestment demand. “We knew A$1.7 billion was coming back into the market,” Frearson continues. “The listed market is shifting: investors and brokers are actively looking for new yield products to replace hybrids. We believe this kind of asset-backed, senior-secured listed note is a compelling fit for this need.”

Broc McCauley, head of distribution at Realm Investments in Sydney, tells KangaNews the issuer, together with its leads National Australia Bank, Morgans, E&P Capital, Commonwealth Securities, Canaccord Genuity and Wilsons Corporate Finance, worked on the structure for nearly two years. The goal was to deliver an instrument that can price like fixed income and provide an alternative to bank hybrids in retail portfolios.

“From a credit perspective, our structures are built with significant equity buffers,” McCauley says. “We are targeting a triple-B attachment point with 6 per cent credit enhancement beneath the note. We don’t do single asset lending or construction finance – we stick to private and public RMBS, ABS [asset-backed securities], structured credit, and public corporate and bank capital. We think this gives investors confidence in the resilience of the structure.”

Realm worked with the ASX to structure a floating-rate note that would bring debt-like features to the listed market, McCauley adds: fixed margin, a call date and equity support to underpin performance. 

While the hybrid roll-off is providing near-term demand boosts as securities mature, issuers say it is only one catalyst for demand. The entire listed income market has evolved: after several tough years LIT spreads have tightened, volatility has eased and investor confidence has returned.

“There is a broader trend driving these transactions – it isn’t just about replacing hybrids,” Frearson suggests. “The listed market has matured. Confidence is back, spreads are tight, and new issuers can come to market with high-quality assets and compelling risk-return profiles. This wasn’t the case for many years, when trust structures traded at discounts and investors pulled back. Now, they want product – and certainty.”

ASX’s Sydney-based general manager, investment products and strategy, Andrew Campion, tells KangaNews increased interest in listed notes reflects a market dynamic that was prevalent even before the announcement of the cessation of bank AT1.

“In addition to a range of listed investment trusts, there is issuance of fixed-maturity note structures that more closely mirror the characteristics of the hybrids they’re attempting to replace,” he says. “These newer structures help satisfy demand from retail investors who are familiar with the hybrid format and want something comparable in their brokerage accounts.”

Campion argues that it is “not unrealistic” to expect A$2-3 billion per year of listed note issuance. “Over time, this segment could take a quarter to a half of the hybrid share,” he notes.

“What’s particularly interesting is that this activity is taking place within a public market framework – but it’s essentially private credit,” Campion adds. “This hybridisation of market types is something we have talked about for a while. If we can demonstrate that institutional-grade private credit deals are raising serious capital in a listed format, it strengthens our hand when advocating for more corporate bond issuance and innovation in listed debt products more generally.”

PRICING APPEAL

The RAM and Realm deals offered investors returns commensurate with the typical margins on major-bank AT1 notes. RAM locked in a 300-basis-point margin over BBSW early in 2025 and did not pursue tightening even as the market moved in its favour.

“The pricing process started long before we launched,” Frearson reveals. “We had strong support from our lead managers and syndicate well ahead of the deal, and we ultimately set terms, including the margin, early in 2025. Since then, spreads have tightened and in hindsight we could have priced tighter. But we wanted to deliver a good experience for investors in this inaugural issue as we plan to return to market.”

Frearson says investor confidence was underpinned by the quality of the underlying collateral. RAM engaged Moody’s Analytics to provide an implied A1 rating. The Brighten-originated loans in the pool are capped at 80 per cent loan-to-value ratio with an average of less than 65 per cent.

“There are also structural credit enhancements, including the equity at note level and equity notes in the underlying warehouses,” Frearson tells KangaNews. “Investors aren’t exposed to risky corporate private credit or development loans. It is plain vanilla, first-mortgage residential lending.”

RAM can top up the portfolio as loans pay down, drawing on Brighten’s origination pipeline. “We view this structure as very resilient in asset quality and cash-flow stability,” Frearson says. “It’s not reliant on capital gains or market timing, just prudent mortgage lending and strong credit controls.”

Meanwhile, Realm sold its first listed transaction, the A$300 million DN1, at 350 basis points over bills in January and compressed the margin by 50 basis points for DMNHA. “Spreads had tightened and we had a track record in the market this time round,” McCauley explains. “We assessed closely where other listed notes and LITs were trading, as well as outstanding hybrids. We felt 300 basis points offered a decent premium, especially given the security provided a maturity date, fixed margin and an equity buffer for noteholders.”

Demand came from across the wealth and broker channels – which McCauley says reinforces the view that a listed structure offers a genuine home for capital leaving the hybrid market.

ISSUANCE OUTLOOK

Looking ahead, RAM says listed notes now represent the fourth pillar of its funding plan, alongside warehouses, RMBS and private credit funds. “Our treasury team, led by Adam Moore, group treasurer, has done a great job building a diversified funding platform in warehouse and term funding,” Frearson says.

This includes multiple warehouse facilities with local and international banks, three RMBS programmes, A$450 million in private credit funds and now a listed note programme. “Having diversified funding matters – it allows us to be an all-weather issuer. We expect to issue this type of structure again, potentially in listed, OTC or bespoke formats depending on market conditions and investor appetite. What matters is being ready and having the infrastructure to support repeat transactions.”

Still, there is a capacity limit at this stage of market development. “We are being realistic,” McCauley notes. “The market has had a lot of issuance this year and will need time to digest. But we expect the listed note sector to keep building from here.”

Realm’s intention is to be a repeat issuer – ideally once a year, markets permitting. “This will allow us to build a curve, which in turn helps investors value these notes more like fixed income,” McCauley adds. “It is all about asset-liability matching. We are issuing a liability when we bring one of these notes to market, and we need sufficient assets to support the structure without eroding capital.”

As with any new market, hopes for future development also rest on investors having positive experiences with the product. Campion says: “Performance in risk-off conditions will be closely watched. Hybrids benefited from size, liquidity and major-bank issuance, which gave investors confidence in periods of volatility. These new notes are smaller and come from different types of issuers so secondary market behaviour will be critical, particularly as the market matures and seeks to build credibility as a permanent fixture in the capital landscape.”

Market users say these deals are pricing rationally. Indeed, issuers argue that the RAM and Realm deals demonstrates how pricing in listed credit now tracks institutional benchmarks – a sign of market maturity and professionalism in how deals are structured and syndicated.

Campion argues: “Retail investors in Australia have long valued franking credits, which gave hybrids a strong tailwind. But these listed notes show that franking isn’t the only driver. Investors want access to reliable income from quality issuers and there is appetite for fixed-income style products in listed format even without the tax advantages of hybrids. This signals a broader shift in investor behaviour and a more open mindset toward innovation in listed debt.”

Listed fund notes also highlight a growing overlap between private and public credit markets, which some sources suggest reflects a gradual shift toward a more open and diversified listed-debt landscape in Australia.

The next tests are likely to be scale, liquidity and performance in more challenging conditions – factors that will determine whether listed credit becomes a lasting feature of Australia’s capital market.