Private Loan Income – an alternative investments

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Private Loan Incomes - An Alternative Investments Australia

Have you ever considered alternatives for your investment portfolio? If you don't, your portfolio could be missing out on the potential gains and diversification these can offer.

What are Alternative Investments?

Alternative investments generally refer to anything other than stocks, bonds and cash. They include real estate, private equity (including venture capital), hedge funds, commodities like gold or silver coins, oil futures contracts or options, collectables like artworks or coins. Private market investments such as private property loans and direct assets are also considered alternatives as they are not available via publicly traded markets and are harder to access for regular investors.

Assets in alternatives have grown more than three-fold since 2008, with assets under management increasing from $3.1 trillion to $10.3 trillion at the end of 2019, according to Preqin’s “Alternatives in 2020.” That growth will likely continue, believes Preqin, reaching $14 trillion by 2023.1 Institutional investors have increased their allocations to alternatives dramatically. Willis Towers Watson’s “Global Pension Assets Study 2020” found that alternative allocations for the world’s largest pension funds now average 23%, up from roughly 6% in 1999.2 That’s another trend likely to persist. The Preqin study found that 84% of the investors surveyed planned to increase their alternative allocations over the next five years.

For individual investors and family offices the moves have been similar. With index investing and ETFs now so common for the core part of portfolios, investors are looking for something different to generate outperformance. Private debt and private real estate are two key areas of growth in alternative investing, Avari are very experienced in both of these fields.

With less liquidity, alternative investments are mostly targeted at institutional investors, high net worth individuals, and other wholesale investors who have large initial capital available, however often smalled amounts can be invested in this sector relatively easily. Avari Capital Partner is a licensed Australian funds management company, we offer alternative investment in private lending and direct commercial property. We take a value add approach to generate returns for investors, we do not buy and hold and wait for growth, which makes us stand out from our competitors.

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* Wholesale Investors only

Alternatives Investment - Private Lending/Credit

When it comes to alternative investment, most people would think of hedge funds and direct real estate. Another alternative investment which has been gathering momentum in Australia is private lending or private credit.

Private lending in property is otherwise known as non-bank lending, as the name suggests this is simply loans provided by groups other than banks. While this is a common part of financial markets in Europe and the USA, it has been slower to became mainstream in Australia. Traditionally the realm of family offices lending to single property projects at higher than bank rates, this market has grown substantially. With funding for property development harder to come by from the major banks, funds management groups and super funds have stepped in to provide a solution and generate solid returns for their investors at the same time.
A private loan operates in much the same way as a bank loan, the lender holds a mortgage over the property and the borrower pays a set level of interest. If the borrower cannot pay, the lender has the legal right to sell the property to recoup their loan. The borrowers generally use private lending for a short period of time and transfer to bank loans when they meet the criteria. The private loan can be a way to get a project off the ground that otherwise might not have gone ahead.
At Avari, we are a licensed fund manager, we raise funds from our investors and lend out to commercial projects such as land, construction, commercial, residual stock, and bridging loans. We are an active and well-known player within the financial service industry. Our track record and connection in the industry have given us access to deals and referrals from brokers, bankers and institutional investors.

AVARI, as a property investor themselves, seeks to contribute to the borrower's success by sharing its in-house property expertise, including advice on asset management, development, leasing and sales. This also allows AVARI to access deals which may not be available to a standard lender. AVARI's property market knowledge allows fast and efficient due diligence, we have a deep understanding of how to acquire and manage assets and complete a development. AVARI's experience in property development allows its team to analyse loan deals to identify potential issues that may arise during development.
We have been an active player in the private lending market since 2015 and have a 0% losses on loans we have originated. Our Private Loan Income Fund is a great way to access this market, the fund contains a pool of loans originated and managed by Avari and targets 9%pa return. Since inception the fund has returned 10.76%pa (as at October 2021).

Mitigating Risk in Private Lending

The Private Loan Income Fund is not a guaranteed investment, capital and income can vary with property market moves. Avari take risk management very seriously and aim to avoid capital loss at all costs, Avari staff and management invest in every deal so their own capital is at stake along with investors. A key risk management measure is to limit the loan to value ratio, if property prices fall, investors have a level of protection as the borrower takes the first loss up to the loan level. The Private Loan Income Fund has a maximum 65% LVR across the portfolio, meaning property prices need to fall considerably before any losses could occur on the portfolio.

Alternative Investment Strategies

If you are interested to learn more about alternative investment options, particularly in private lending, submit your contact details below. Our team will arrange for a callback and answer any questions about our private loan investment strategies.

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* Wholesale Investors only