AVARI 1st Mortgage Real Estate Fund

The focus of the Fund will be to invest in loans secured by 1st Mortgage over Australian real estate.

The loans will include loans taken out in respect of land, construction, commercial properties and residual stock loans. The diversified style of the Fund will enable the Trustee to access more deals and take advantage of shorter-term and higher-yielding opportunities unavailable to a syndicate structure.

Key Fund Details

• The Fund will target a return to investors of BBSW + 6% per annum net of fees (this is an objective only and not a forecast).
• There will be no cap on the amount of capital invested, or number of units issued, in the Fund.
• Opportunities to invest in the Fund will open monthly, subject to approval from the Manager.
• The Fund is an open-ended fund
• Withdrawals are permitted with one month’s notice subject to the liquidity of the Fund
• Principals of AVARI will also invest in the Fund and will hold the same class of units as all other investors

• Stable - predictable monthly income secured by mortgages
• Access to Loans - diversified funds allows access to short term or specialised deals
• Market - banks are reducing lending to this area of the market due to regulation
• Portfolio Diversification - returns not correlated with equities, bonds or property
• Higher Yields - private debt provides significantly higher yields than many fixed income investments
• Risk/Reward - the portfolio is backed by 1st mortgages over real assets with conservative LVRs which provide attractive returns for the risk taken

Private lending simply refers to loans provided by groups other than authorised deposit-taking institutions (ADIs).

While lending outside the banking sector is a well-established practice, in recent years lending by non-banks have become an increasingly important source of debt finance to individuals and small businesses.

Growth in non-bank lending has been experienced in terms of the number of new lenders, increased volume of loans and the broadening range of products offered. Non-bank lending growth is apparent in all major international markets.

The disintermediation of the banking sector in Australia is providing investors with attractive opportunities to diversify their investment portfolios by providing access to good quality loan assets that provide stable, attractive returns. 

Click here to view Fund Details and Performance.

Real return profile 

Unlike many asset classes, expected returns from private debt are generally fixed from the outset, allowing investors to plan their cash flow. While existing fixed-rate loans will not move with benchmark rates, the proceeds from these loans being paid down can be reinvested at the newly adjusted rates.

Portfolio diversification

The private debt asset class provides diversification away from more volatile asset classes such as shares. Private debt is less volatile given the focus on capital preservation in a downturn through contractual obligations to repay loans ranking ahead of equity and often secured against assets. Private debt is also less volatile as it can be less exposed to inflation than other asset classes to the extent that there are variable rate or short dated fixed rate loan exposures.

Asset-backed 

Borrowers of underlying loans have a contractual obligation to repay the loan amount and applicable interest and fees to lenders. Loan terms include pledged security of property and other security. Should a borrower fail, the equity holders will be responsible for the outstanding loan amount including applicable interest and fees to all creditors and debtors. First mortgage investors have the first right to any proceeds from the liquidation sale of the backed asset and other securities. Private debt offers high-risk adjusted returns when compared with many other asset classes, while the downside is a lack of liquidity. A typical term for a private loan is usually from 12 months to 18 months.