You’ve reached the end of Module 3, and of the entire public-private solutions learning experience. Congratulations! In this final lesson, learn more about the public-private opportunity space, the fixed income Public-Private+ Funds from Capital Group and KKR and how to perform your due diligence on managers when choosing whether to invest in a public-private solution.
Public-private solutions & ETF marketing lead at Capital Group
RIA division manager at Capital Group
Wealth management consultant at Capital Group
7MINVIDEO
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One of the advantages of public-private funds is that they can provide access to both traditional public markets as well as private markets, which historically were predominantly available to larger institutional investors and high net worth individuals.
Comprehensive due diligence, particularly in this emerging space, is necessary for financial professionals before making investment recommendations to clients. Knowing who to partner with is just as important as knowing what investment strategies to offer to investors.
The outline below is meant to offer guidance on how to approach this research. It lists questions that we believe are key to consider when choosing whether — and with whom — to invest in public-private funds.
We hope you’ll return to it, and to all the materials in this learning experience, when considering public-private+ funds for your clients.
Fund governance
Fund profile
Financial considerations
Client-product fit
When considering the Core Plus+ public-private fund for your investors, keep the following information in mind:
Objective
Provide a higher level of current income and seek maximum total returns, consistent with the preservation of capital.
Key takeaways
Data points
When considering the Multi-Sector+ public-private fund for your investors, keep the following information in mind:
Objective
Provide a high level of current income.
Key takeaways
Data points
*Expense ratios are as of the fund's prospectus available at the time of publication. The expense ratios are estimated.
The investment adviser is currently waiving/reimbursing a portion of other expenses. Net expense ratios reflect the waiver/reimbursement, without which The waiver/reimbursement will be in effect through at least April 22, 2026. Please see the fund’s most recent prospectus for details
Consider the following risks for the Capital Group KKR fund(s) discussed in this material: The fund is an interval fund that provides liquidity to shareholders through quarterly repurchase offers for up to 10% of its outstanding shares under normal circumstances. To the extent more than 10% of outstanding shares are tendered for repurchase, the redemption proceeds are generally distributed proportionately to redeeming investors (“proration”). Due to this repurchase limit, shareholders may be unable to liquidate all or a portion of their investment during a particular repurchase offer window. In addition, anticipating proration, some shareholders may request more shares to be repurchased than they actually wish, increasing the likelihood of proration. Shares are not listed on any stock exchange, and we do not expect a secondary market in the shares to develop. Due to these restrictions, investors should consider their investment in the fund to be subject to illiquidity risk.
Investment strategies are not guaranteed to meet their objectives and are subject to loss. Investing in the fund is not suitable for all investors. Investors should consult their investment professional before making an investment decision and evaluate their ability to invest for the long term. Because of the nature of the fund's investments, the results of the fund's operations may be volatile. Accordingly, investors should understand that past performance is not indicative of future results.
Bond investments may be worth more or less than the original cost when redeemed. High‐yield, lower‐rated, securities involve greater risk than higher‐rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not. The fund may invest in structured products, which generally entail risks associated with derivative instruments and bear risks of the underlying investments, index or reference obligation. These securities include asset-based finance securities, mortgage-related assets and other asset-backed instruments, which may be sensitive to changes in interest rates, subject to early repayment risk, and their value may fluctuate in response to the market's perception of issuer creditworthiness; while generally supported by some form of government or private guarantee, there is no assurance that private guarantors will meet their obligations. While not directly correlated to changes in interest rates, the values of inflation-linked bonds generally fluctuate in response to changes in real interest rates and may experience greater losses than other debt securities with similar durations. The use of derivatives involves a variety of risks, which may be different from, or greater than, the risks associated with investing in traditional securities, such as stocks and bonds. For example, the fund may purchase and write call and put options on futures, giving the holder the right to assume a long (call) or short (put) position in a futures contract at a specified price. There is no assurance of a liquid market for any futures or futures options contract at any time. Investing outside the United States involves risks, such as currency fluctuations, periods of illiquidity and price volatility. These risks may be heightened in connection with investments in developing countries.
The fund invests in private, illiquid credit securities, consisting primarily of loans and asset-backed finance securities. The fund may invest in or originate senior loans, which hold the most senior position in a business's capital structure. Some senior loans lack an active trading market and are subject to resale restrictions, leading to potential illiquidity. The fund may need to sell other investments or borrow to meet obligations. The fund may also invest in mezzanine debt, which is generally unsecured and subordinated, carrying higher credit and liquidity risk than investment-grade corporate obligations. Default rates for mezzanine debt have historically been higher than for investment-grade securities. Bank loans are often less liquid than other types of debt instruments and general market and financial conditions may affect the prepayment of bank loans, as such the prepayments cannot be predicted with accuracy.
Illiquid assets are more difficult to sell and may become impossible to sell in volatile market conditions. Reduced liquidity may have an adverse impact on the market price of such holdings, and the fund may be unable to sell such holdings when necessary to meet its liquidity needs or to try to limit losses, or may be forced to sell at a loss. Illiquid assets are also generally difficult to value because they rarely have readily available market conditions. Such securities require fair value pricing, which is based on subjective judgments and may differ materially from the value that would be realized if the security were to be sold.
The fund is a non-diversified fund that has the ability to invest a larger percentage of assets in the securities of a smaller number of issuers than a diversified fund. As a result, poor results by a single issuer could adversely affect fund results more than if the fund were invested in a larger number of issuers. The fund intends to declare daily dividends from net investment income and distribute the accrued dividends, which may fluctuate, to investors each month. Generally, dividends begin accruing on the day payment for shares is received by the fund. In the event the fund's distribution of net investment income exceeds its income and capital gains paid by the fund's underlying investments for tax purposes, a portion of such distribution may be classified as return of capital. The fund's current intention not to use borrowings other than for temporary and/or extraordinary purposes may result in a lower yield than it could otherwise achieve by using such strategies and may make it more difficult for the fund to achieve its investment objective, than if the fund used leverage on an ongoing basis. There can be no assurance that a change in market conditions or other factors will not result in a change in the fund distribution rate at a future time.
