Pengana International Equities Limited (ASX: PIA) Webinar Transcript

Frank Gooch (Chairman, PIA):
Good morning, and thank you for joining us. My name is Frank Gooch, Chairman of Pengana International Equities Limited, or PIA as it is listed on the ASX.

The objective of today’s webinar is to provide further detail on our proposal to invest in global private credit, and to answer your questions. After my introduction, you’ll hear from:

• Nehemiah Richardson, CEO of Pengana Credit, who will explain global private credit, its risks and benefits.

• Russel Pillemer, CEO of Pengana Capital Group, who will outline the details of the proposal.

I have been involved in the LIC sector for almost 30 years. I joined Milton Corporation in 1996 and served as CEO and Managing Director from 1999 until 2018. I was appointed an independent non-executive director of PIA in 2017. During that time, I’ve seen the LIC sector grow substantially, both in number of companies and in market capitalization. Milton itself grew from ~$300 million in 1996 to ~$3 billion in 2018, with shares trading close to NTA.

Unfortunately, many LICs today trade at discounts to NTA, even those with long histories of trading at premiums. Investors continue to put significant funds into financial products, but passive vehicles like ETFs have grown rapidly while LICs have not maintained their share.

We conducted a comprehensive review of PIA, speaking with advisers, brokers, and shareholders. The feedback was consistent:

• Investors value our professionally managed global equity exposure and diversification.

• They value our reliable fully franked dividends.

• But they want stronger returns and, in particular, higher dividends – especially in the context of regulatory changes around bank hybrids.

This helped focus our thinking. We concluded that PIA must adapt to market realities. We should continue investing in global businesses, but not only through equities. We should also invest through professionally managed private credit. This would create a unique offering not easily replicated by ETFs or other vehicles.

The proposal has been designed to:

• Diversify PIA’s global exposure

• Deliver more reliable earnings

• Provide higher sustainable fully franked dividends

We are targeting an annual dividend of 8.4 cents per share, fully franked – a 56% increase on the current dividend. Importantly, dividends will be paid monthly.

PIA is better placed than most LICs to implement this strategy because Pengana Capital Group has expertise in both equities and private credit. Through our manager’s international banking relationships, we have also secured a competitive USD debt facility.

This proposal is subject to shareholder approval at the upcoming AGM, and I encourage you to use this session to understand it fully.

With that, let me hand over to Nehemiah.

Nehemiah Richardson (CEO, Pengana Credit):

Thank you, Frank. Global private credit may sound technical, but it’s actually simple when explained clearly.

In our definition, it refers to professional managers lending directly to mid-sized businesses (around $1 billion+) in the US and Europe, in stable non-cyclical industries such as software, healthcare, infrastructure, and business services.

These loans are:

1. Senior secured – first rights over assets and cash flows.

2. Held to maturity – not traded, so insulated from daily market volatility.

3. Carefully structured – with strong contracts, reporting obligations, and early intervention rights.

Why investors want it:

• Provides steady, contractual income from interest payments, not dependent on market rallies.

• Many loans are floating-rate, so income rises when rates rise—valuable during inflationary times.

• Historically low default rates and strong recovery rates due to strict upfront diligence.

• Different behaviour to shares and bonds, offering true diversification.

To build our portfolio, we partner with Mercer, one of the world’s most experienced private credit consultants. Today, the portfolio includes 24 top-tier managers and over 3,500 individual loans across geographies, sectors, and strategies.

Our principles:

• Capital preservation – priority on managing downside.

• Active management – early engagement with borrowers.

• Manager quality – only the best operators.

• Resilience – diversification across borrowers, managers, sectors, and countries.

Global private credit therefore adds reliable income, capital protection, and diversification – complementing PIA’s equities portfolio.

I’ll now hand over to Russel to explain the mechanics of the proposal.

Russel Pillemer (CEO, Pengana Capital Group):

Thank you, Nehemiah. The mechanics are straightforward:

1. PIA borrows funds from a global bank at low interest cost.

2. PIA invests the proceeds in a global private credit portfolio with higher yields.

The spread between borrowing cost and portfolio return becomes profit for shareholders.

Example:

• PIA has $200m of net assets.

• It borrows $100m at 5% interest ($5m p.a. cost).

• That $100m is invested in a portfolio yielding 9.5% ($9.5m p.a. income).

• Net benefit = $4.5m, equal to 2.25% of NAV—a meaningful uplift that supports higher dividends.

Crucially, the credit portfolio is entirely debt-funded. This means PIA’s existing global equity exposure is unaffected. Shareholders retain their equity exposure and gain additional credit exposure.

Why PIA is uniquely positioned:

• We can borrow in USD at rates equivalent to <4.5% if borrowed in AUD.

• Those of you who have tried to get margin loans on equities will know the cost is usually around 7–12%. By comparison, PIA’s loan is the equivalent of borrowing at less than 4.5% in AUD terms. So, by taking out the loan, PIA is effectively taking advantage of a highly valuable inherent benefit.

• SMSFs generally cannot borrow cheaply to invest in shares. This structure effectively levels the playing field for SMSF investors, allowing them indirect access to debt-funded yield.

• As a closed-end listed vehicle, PIA can distribute steady, fully franked dividends.

Alignment with shareholders:

• No management fee will be charged by Pengana Capital Group for the credit sleeve.

• The target return of the portfolio = loan cost + 4.5% (≈ 9% today).

• PCG only earns returns above this level.

• PCG has also agreed to cover the interest cost if returns fall short—a unique level of downside protection in Australia.

In summary:

• Diversification into high-quality global private credit

• Meaningful uplift in earnings

• 56% increase in dividends

• Additional resilience and appeal for investors

Now, I’ll pass to Paula for Q&A.

Q&A Session
Moderated by Company Secretary Paula Ferrao

• Why hasn’t any other LIC done this?
  Russel: This is common among family offices and high-net-worth investors, but rare in LICs. We’ve also taken inspiration from our largest shareholder, Soul Pattinson, which has raised debt cheaply and built a $1.2b+ private credit portfolio.

• What are the risks compared to the current strategy?
  Frank: Equities remain two-thirds of assets. The addition of global private credit—low volatility, diversified, USD-denominated—reduces overall risk. Debt is priced competitively, with natural hedging, and PCG has guaranteed the funding cost.

• Can dividends remain fully franked?
  Frank: As at June 2025, we had enough franking credits to pay 15.5c (at 25%), covering ~2.5 years at the current 5.44c p.a.. With the new proposal, we target 8.4c p.a. fully franked, sustainable to September 2027.

   

• Who drove this process?
  Frank: The review was initiated by the board, working with PCG. Independent directors negotiated terms. An independent expert’s report will be provided with the AGM notice.

• Harding Loevner’s underperformance?
  Russel: Their “quality growth” style has lagged during the tech boom (e.g. underweight Nvidia), but historically outperforms in down or sideways markets. It suits PIA’s lower-volatility mandate.

• Risks of a margin call?
  Frank: Very low. The facility has significant headroom and liquidity protections built in.

• Is this like Australian private credit funds that ran into trouble?
  Nehemiah: No. The Australian market is dominated by commercial property loans. US/Europe are mature, diversified, senior secured markets with experienced managers.

• WAM Strategic Value’s attempt to change the board?
  Frank: WAM has lodged notices to nominate four directors and remove three current directors (Sandy Olio, Russell Pilmer, David Groves). They have not explained why. They cannot change the manager—PCG’s contract has over four years remaining. Given WAM is a direct competitor, their proposal appears conflicted and unworkable.

• Why did the share price dip after the announcement?
  Russel: Initially, the share price rose, reflecting investor support. Later falls were due to WAM’s public criticism and announcement of a board spill, creating uncertainty. We believe AGM approval will restore positive momentum.

Closing Remarks – Frank Gooch:
Thank you for attending and for your questions.

We believe this proposal delivers:

• A unique, diversified exposure to global businesses

• Increased reliable earnings

• Higher monthly fully franked dividends

• Stronger investor appeal, which should narrow the discount to NTA

I urge you to support the proposal by casting your vote at the upcoming AGM.

Thank you, and I wish you a good day.