PrivateInvest is a private commerical non-bank financier specialising in the Australian real estate sector.

PrivateInvest First Mortgage Fund

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This episode of PrivateInvest TALK covers:

How PrivateInvest First Mortgage Fund works as a pooled fund.

Investment strategy

Minimum investment

Average loan size

Type of loans that the fund would invest in

Fund returns and management fees

Trustee

Underwriting facility

Welcome to PrivateInvest TALK your update and insight into how our investment funds operate and the opportunities in the private debt market in Australia. 

The PrivateInvest First Mortgage Fund is a pooled fund, can you describe to me how that works?

Yes, the PrivateInvest First Mortgage Fund is an unregistered unit trust fund for wholesale investors.  

 A pooled fund, specifically if you like, is one bucket of a lot of loans, so investors invest into one unit trust and that unit trust then lends investment money to borrowers and the borrowers pay the interest and the line fees through from there. 

What is the Fund’s investment strategy?

The real estate sector – as a commercial non-bank lender, we lend money into the residential real estate sector, commercial developments, commercial fit-outs, industrial at site finance, for land finance but in what we call the “unloved sector” of the marketplace which is 3 million to 20 million dollars.  

 That objective is important because we believe at that level, we have better transparency with our Borrowers.  

 The financing maturity is usually only around 12, 15 or 18 months and we leave the bigger cheques to the bigger institutional investors, but it aligns with it and it’s not as competitive a sector as with the bigger financing projects. 

Mark, what is the minimum investment into the Fund?

Minimum investment is $100,000 (one hundred thousand dollars).   

Investors should have a look at the online application process on our website.  

It steps through the process and investors can choose to invest at a higher level, but $100,000 (one hundred thousand dollars) is the minimum investment.

Mark, do I get to choose which Loans I invest in?

No, the difference between our other Fund, PrivateInvest Select Mortgage Fund, is single Loans in a unit trust.  

That isolates each Loan from each other, whereas a pooled fund is a Fund effectively where you are looking at the credentials and the quality of the Manager, their credit guidelines, and their ability to select the right Loans.  

The advantage of it is the liquidity.  

The second is you are not investing in a single Loan, you are investing in multiple Loans across Australia in different asset classes, so it allows the smaller investors to effectively invest like an institutional investor.  

Is there an average Loan size?

In the $3 to $20 million loan bracket. I would say that our average Loans would be around the $6 to $8 million that would average it out when you average your costs. 

We’ve had Loans down as low as $1.5 million. We have a number of current loans just north of $20 million.  

For more information on our First Mortgage loans press here. 

You may have touched on this before, but can you run me through the type of Loans that the Fund would invest in?

Typically, one of the most asked questions we get is, why don’t these borrowers go to mainstream banks?

The first reason is the capital adequacy of the mainstream banks at the moment doesn’t allow banks the capacity to lend money as much as the non-bank lending sector.

Borrowers are generally looking for speed to market – meaning that they want certainty around the approval times and those type of loans can vary between.

We might do site finance where we’re bridging a developer for the infrastructure development to improve the site and then the borrower to refinance with a mainstream bank.

We look very closely at the quality of the borrower and the underlying asset and we need to have a strong understanding where our exit strategy is – how we’re going to get repaid back and look after our investors return.

Loans for property investment, development, construction and site finance PrivateInvest

How does the Fund generate its return?

Two things; interest and line fees. 

We don’t participate in equity or mezzanine in the Funds and usually sub 65% loan to value ratio (LVR) so the capital preservation strong. The borrower pays two types – a line fee or interest.

Interest then passes through the fund management fees are deducted and then the net return passes through to the investor. 

What is the target return for the Fund?

Target return is between 8 – 10%, post fees and expenses. 

We target a range because the multiple different loans can have capitalised loans or can have monthly interest.

The PrivateInvest First Mortgage Fund, since its inception, has returned north of 9%, post fees and expenses. 

How often are distributions paid?

The fund was established with quarterly distributions but, as of the 1 July 2021, the investment management and the trustee decided to do monthly distributions.

On 1 July 2021 Investors will enjoy a cheque in their bank account monthly. 

Fantastic, what management fees are charged?

Like every Fund, an investment manager charges fees. Our fees are 1.95% of the Funds Under Management (“FUM”), which is a midpoint in the industry.

There is also a trustee fee for the Trustee Board, which is usually about 25 basis points of FUM, but returns are post fees and expenses so it’s the cash return to the investor.

That sounds good, how long should I consider investing?

It is considered a good medium-term investment.  

A lot of investors are comparing against putting cash in the bank, as we covered in our earlier interview. 

It is not attractive to have money in the bank at sub 2 or 1 so most investors are looking to invest in a medium-term investment. 

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Mark, who is the trustee?

That is an important part of the whole investment structure of PrivateInvest.

We have an independent board with two directors, Greg Peel’s ex-CEO of community sector bank and Tom Ellen, who was in a senior position with NAB. Both Directors final sign-off on Loans so even though the investment manager assesses the Loan and then reviewed by Underwriter, the final sign-off and the final tick must come from the independent trustee.

This gives us another check and measure ensuring that those Loans are highly credit worthiness.

The trustee also holds the Australian financial services license.

Compliance and governance overlay over the whole business to ensure that we’re looking after our Investors’ money in the most correct manner, giving them that security.

That is great, have there been any capital or income losses to date?

No defaults to date. That is not to say there never will be, as we were touching in that earlier interview.

If there was a default with one of our Loans, our board, our management, and our technical skills have the capacity to roll up our sleeves up and step in and work it out with the Borrowers.

Fantastic, who holds the first mortgage and security documentation?

The trustee, PrivateInvest Capital Securities, holds the trustee in the mortgage.

That is important because, coming back to your question around default, you need a clear line of sight to the mortgage to protect Investor interests.

What is the underwriting facility?

An Underwriting facility is a 20-million-dollar facility, that is provided by one of the shareholders of the investment manager.  

It gives a point of difference to the borrowers, in the sense that when we take a loan application and if the loan meets our first due diligence screen test, we can issue an Indicative Term Sheet to the borrower within a week and then go into due diligence from there, because we have the comfort of the underwriter is going to underwrite the capital placement of the Loan. 

An advantage for investors is that when we have underwritten a Loan, we then sell that Loan down into the Fund so the Fund then always stays fully deployed.  

So, there are two sides, as a service advantage to our Borrowers of speed to market, and to our Investors because the funds are fully deployed. 

Mark, what information do I get when I invest in the fund?

Transparency and communication are particularly important for investors so they can be across all aspects of their investment.

The Fund has numerous Loans at any given time within the Fund, so it is good to for the Investors to be across where they are geographically placed, the asset types etc.

We currently produce a quarterly newsletter called ‘News & Insights’ and this covers both Funds and the performance and the distribution.

For details around their financial aspect, Investors can go online and access the Registry Services, our external agency where they can view their distributions, their statements, and all investment information.

The Fund is moving from quarterly distributions to monthly distributions and ‘News & Insights’ will be done monthly from 1 July 2021.

The more that we can keep our investors informed, the better we provide a good service.

Well, that’s helpful, thanks so much Mark.

Thank you, Pia. 

Thank you for watching PrivateInvest TALK.