MaxCap Investment Trust First Mortgage

Against a backdrop of macroeconomic uncertainty and heightened volatility across markets globally, Australian CRE debt provides an attractive return-for-risk proposition to investors seeking to stabilise portfolio returns and optimise investment performance. The Fund provides an opportunity for investors to access the asset class and obtain the numerous benefits it offers, with flexibility to determine risk, return and investment horizon parameters based on individual appetite and investment goals. To facilitate this, the Fund will focus on maintaining and growing a diversified CRE debt portfolio which leverages the Manager's knowledge and core expertise, as is reflected by its exemplary track record and performance to date.

The Fund will provide investors with various investment options by issuing separate Classes of Units, each class being referable to pre-set allocations to different types of CRE loans that the Fund will invest in directly or through one or more Loan Asset Pools. Each investment option will have a differentiated return target based on its specific risk profile. 

The Trustee may establish new Classes of Units, terminate any existing Class of Units or close Classes of Units from additional investments from time to time. This information memorandum outlines the key features of the Fund, including the key risks of investing in the Fund, as well as the features of each investment option. Prospective investors should review the Terms of Issue relating to the relevant Class of Units for further information regarding the rights and obligations of Unit Holders in that Class of Units. In the event of any inconsistency between this information memorandum and the Terms of Issue, the Terms of Issue will prevail.

The Trustee will use reasonable endeavours to invest the First Mortgage Class Units in accordance with the following guidelines. All percentage references below are based on the Gross Asset Value (GAV) of the Class.

Investment Allocation

• First Mortgage CRE Loans – 100% Maximum LVR
• No single loan to exceed a ratio of 75%.

Sector Exposure Limits

• Residential/Living and Core Commercial (Office/Retail/Industrial): Up to 100%
• Other Commercial (Hospitality, Medical, Social Infrastructure): Maximum 50%, with no more than 25% in any individual other commercial sector.

Geographic Exposure Limits

• New South Wales and/or Victoria: Up to 100%
• All other geographies in Australia and New Zealand: Maximum 50%, with no more than 30% in any other individual region 

Counterparty Exposure Limits

• Target Exposure Limit to any Single Borrower: 7.5%
• Maximum Exposure Limit to any Single Borrower: 11.5%

Loan Strategy

• Exposure to Construction Debt not to exceed 50%

In meeting its Investment Objective, the Fund will execute a comprehensive investment strategy that encompasses every stage of the investment lifecycle. 

This includes, but is not limited to:

• Deploying capital in line with prevailing macroeconomic conditions, benefitting from current and future tailwinds.
• Adherence to strict investment underwriting standards at a specific investment level.
• Effective risk control and mitigation, such that all investments have the requisite downside protection.
• Ensuring that the portfolio is of high-quality and sufficiently diversified such that exposure to any particular risk factor is limited to acceptable bounds.
• Target investment opportunities that provide an outsized return relative to the risk borne.

CRE debt has certain characteristics which distinguish it from other asset classes. These make CRE debt a powerful tool for both enhancing investment portfolio returns, and providing investors with downside protection during periods of market turbulence. Based on its research and direct experience, MaxCap is of the view that these characteristics are particularly pronounced within the Australasian market due to a range of macroeconomic fundamentals, banking sector structures, and regulatory interventions that have all combined to create conditions in which CRE debt investors can achieve significantly outsized returns relative to the risk borne. Key characteristics of interest include:

• CRE debt – An alternative asset class: Increasingly, investors are seeking alternative investment opportunities that provide a more attractive return-for-risk profile than what is currently provided by traditional asset classes. CRE debt offers investors the opportunity to capture the illiquidity premium available in private credit markets, which when properly managed, can translate into excess returns for risk.
• CRE debt – A portfolio enhancer: CRE debt has a low correlation with direct real estate and equities markets, with CRE debt returns typically outperforming during economic downturns. Quantitative analysis undertaken by MaxCap demonstrates that the key risk/return features of CRE debt are lowly or negatively correlated with other major asset classes, thereby providing a stabilising force which reduces volatility in portfolio returns.
• CRE debt – A portfolio diversifier: The low correlations between CRE debt and the real estate and equities markets reveal that the returns of CRE debt are countercyclical. Given equities and commercial real estate tend to perform poorly during deteriorating economic conditions, research conducted by MaxCap indicates that CRE debt acts as a portfolio diversifier as it tends to perform relatively well during such periods of strain in the economy and financial markets. CRE debt has proven resilient throughout historical economic downturns including during and post the COVID-19 pandemic and offers investors downside protection given its inbuilt loss-absorption (i.e. equity) buffer.
• Inflation and interest rates: CRE debt is usually structured on a floating rate basis, which provides an excellent natural hedge against rising inflation, as loan returns are tied to the floating cash rate.

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