Brett: Jono will give a quick overview and update on the Barwon First Mortgage Fund.
Jonathon: Thanks Brett, the Barwon First Mortgage Fund is our flagship fund for our investors to generate returns from debt investments that benefit from first ranking mortgage security over properties across Australia.
The Fund is available to our wholesale investors who are able to invest in the fund at anytime.
Many of our investors in the Fund are seasoned investors in the Australian real estate debt market and typically, we find they are particularly attracted to our Fund for a few key characteristics;
Firstly; it is a true first-mortgage fund, what I mean by that is that is that 100% of the funds investments benefit from first-mortgage security. We do not have any allocation to mezzanine debt, or other structured investments.
Secondly; we focus on transparency with our investors; this is in respect to the investments within the fund, our management processes and fees, and also importantly, our valuation process.
And finally, the majority of our loans are secured over either existing commercial property or land with improvements, as opposed to construction loans. This has placed us well in the current market where we are seeing significant issues across the construction industry as a result of inflationary pressures.
Brett: Jono, you’ve previously mentioned that the returns of the Fund have been increasing, what’s driving this?
Jonathon: Yes, like a lot of the market, we moved to adopting floating rate facilities as the RBA commenced lifting the cash rate this time last year.
The result being, that over the course of the last year, the percentage of our portfolio that benefits from rising rates has increased.
If we look at last month’s return on an annualised basis, the fund is returning approximately 8.5% net of fees and costs. As a result of this, we recently increased the target return of the Fund to 8 to 9% per annum and it’s been pleasing to see the returns of the fund continue to strengthen.
Brett: It’s obviously an interesting market currently, how have you and the team found the past few months and what’s your outlook for the coming quarter?
Jonathon: Over the past few months, we have continued to closely monitor the continued impact of high inflation and the resultant response from the RBA in raising rates. We continue to see the knock-on effects of this, with some developers under significant pressures on projects they have in construction and holders of existing property now needing to look to non-bank solutions for a period whilst their income coverage ratios are challenged.
With this, we have seen a significant up-tick in investment opportunity, but at the same time, it is increasingly important to select the correct loans that are best positioned to perform through a tougher environment.
In response to this, we are actively making investments in residual stock and existing commercial property where there is a plan to improve the income profile over time.
For the coming months, I anticipate it will be more of the same, with an increase in opportunity flow to non-bank lenders who at the same time will need to maintain sound investment discipline to secure the best investments.
Brett: Thanks Jono, for any investors looking to access our flagship Barwon First Mortgage Fund, please feel free to get in touch with the distribution team here at Barwon. Thank you.