Investment Highlights:

• Access to a well-seasoned, institutional quality, global private credit portfolio through a single listed vehicle. Investors benefit from Mercer’s institutional manager selection, diversification across 24 specialist funds, and exposure to strategies typically inaccessible to individual investors.
• Attractive income and low volatility in a low spread, high volatility world. Consistent monthly income, currently yielding ~8% p.a.
• Portfolio resilience built for uncertainty. Over 3,500 loans across predominantly senior secured positions in defensive, non-cyclical businesses provide stability amid economic, earnings and policy uncertainty.
• Low correlation to listed markets improves robustness of diversified investment portfolios.
• Built-in liquidity and price stability features. Daily ASX trading and off-market buybacks helps mitigate discount to NAV common in listed investment structures.

Market Commentary: Constructive for Now but Direction Unclear

The global macroeconomic environment appears resilient but, beneath the surface, market dynamics and geopolitical risk create a more fragile reality, one where exuberance and disappointment create significant volatility. Within this context, we believe diversification, income stability, and downside protection are extremely important.

In the US, the Q2 earnings season was better than expected, with S&P 500 earnings growing 11.9% year on year, predominantly driven by tech and financials, with 30% of companies raising guidance. However, under the surface, corporates remain cautious given uncertainty regarding the trajectory of demand, inflationary cost pressures and market compression, particularly in consumer-facing industry sectors.

Consumers have been a pillar of strength, with continued spending across income segments, underpinned by solid labour markets and easing inflation. However, sentiment data and early signals from corporates suggest that fatigue is emerging, especially in lower income households.

At the same time, in fixed income markets, risk appetite remains elevated with investment grade credit spreads remaining near all-time lows, driven by strong demand and tight supply. High-yield spreads are also close to all-time lows, predominantly driven by investor demand for yield. The leveraged loan and CLO markets are experiencing the same dynamics. This tight spread environment offers limited buffers to downside risk. Any negative macro surprise could quickly unwind these levels.

By contrast, in Europe, earnings growth remains subdued, with flat to modest EPS trends, weighed down by exporters amid FX and tariff pressures. Banks and healthcare however continue to perform strongly supported by resilient margins and defensive demand. In the fixed income markets, bond yields are rising amid fiscal and political risks.

What does all this mean? Overall headline strength in markets masks fragility. While equity markets are rallying, gains are narrow and forward visibility remains uncertain. Credit spreads are compressed, offering limited premium for risk. Fixed income may not deliver yield without duration or credit risk, especially in Europe. With increasing macro uncertainty, particularly given geopolitical dynamics and mixed macroeconomic data, market participants remain wary of increased volatility.

Within this overall context, PCX continues to be a compelling alternative:

• Floating rate income provides a natural hedge in increasing or volatile rate environments;
• Senior secured loans to resilient, cash-generative businesses offer capital stability;
• Diversification across 24 US and European managers, with over 3,500 loans and a diverse range of strategies helps mitigate regional and sectoral risk; and
• Daily liquidity, and our quarterly off-market buyback mechanism, provide flexibility and pricing confidence.

In short, PCX is a resilient structure offering income, stability and diversification, in an increasingly choppy investment landscape.

Portfolio Update

Despite the fragile macro environment described above, our managers continue to identify and invest in attractive opportunities across all strategies, a testament to their relevant competitive advantages in origination, structuring and portfolio management.

Within this backdrop, the Trust’s underlying funds continue to perform at or above target with no signs of credit deterioration.

The August NAV per unit decreased from $2.04 to $2.02, reflecting the impact of the outsized 3.32c dividend declared in July to return approximately 2c of NAV accumulation to investors. The underlying portfolio returns remain positive, driven by continued strong performance from our underlying funds. With increased stability in global markets, peripheral volatility of returns has subsided, allowing the core investment thesis of our managers to drive results. In August we declared a 1.32c dividend, continuing the recent trend of distributions exceeding our target minimum.

At 31 August, the Trust has maintained its target allocation mix, with capital diversified across fund types and managers as follows:

• Income: $103.7m invested across 9 managers
• Balanced: $25.1m invested across 4 managers
• Total Return: $31.2m invested across 11 managers

The portfolio remains within stated limits across geography, seniority and investment strategy. Diversification by vintage, style and manager continues to underpin downside protection and liquidity planning.