Our business has been built on “contributory mortgage” investments where investors get to choose which mortgage investment they want to participate in. For many investors this type of investment is preferred because they know their investment is restricted to the risks known and articulated for that particular investment. It also means that their investment is “quarantined” to that property, and the performance of any other mortgage investment will not impact their investment. That approach to mortgage investment has merit, which is why it has been our principal type of investment to date.
Notwithstanding the benefits inherent in a “contributory mortgage” investment, there are also some limitations which can often be addressed by investing in a “pooled mortgage fund”.
See our previous article for a more detailed discussion on the differences between a contributory mortgage investment and pooled mortgage investment.
TierONE Capital established its first pooled fund in May 2022 after many requests from investors looking to invest in first mortgage investments but wanting the benefit of exposure across different properties in different locations. Essentially, the “pooled fund” is a discrete investment fund that can only invest in mortgage investments pursuant to its Investment Mandate which includes:
- Investing only in TierONE Capital originated loans (i.e. no external or third party investments).
- Investing only in investments where the underlying assets/security is real estate.
- A maximum portfolio LVR of 75%.
- An independent review and audit of the facility.
- Funds not deployed into mortgage investments are held in a cash management trust.
- A minimum 12-month lock-in period where investments cannot be redeemed, thereafter funds can be redeemed with 90 days notice.
The fund targets a return to investors of 6% above the 3-month BBSW rate.
Is the risk management the same for a contributory mortgage and pooled mortgage investment?
The same risk management principles and practices are maintained across both investment types. This is an important aspect of the investment mandate and our Investment Team manages this mandate by way of due diligence, credit assessment of the asset, sponsor review, project feasibility etc. If it is good enough for us to support as a contributory mortgage investment to our investors, then it is deemed to be acceptable to our pooled mortgage investors (who often are the same investors!).
What are the benefits of investing in TierONE Capital pooled investments?
The additional benefit over the contributory mortgage investment is that an investor’s funds are exposed across a broader range of diversified asset types and locations. Diversification is probably the single most important consideration when investing. This can be achieved, of course, through investing in separate contributing mortgage investments by spreading your investment across multiple investments. However, that option will always be limited to the amount of investment dollars you have available to spread across investments. The alternative is the pooled mortgage investment which, by its nature, will deliver diversification even with a small amount invested.
We see our role as providing investment opportunities to our investors that represent strong risk adjusted yields as well the flexibility through different investment product types that meet your individual risk appetites.
If you have any further questions regarding our pooled mortgage investment, do not hesitate to contact our Chief Investment Officer, Kevin Said on kevin@tieronecapital.com.au.
Article written by Kevin Said, Director and Chief Investment Officer of TierONE Capital.
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