It’s safe to say that no two mortgage funds are the same, even if they may appear similar at first glance.
Most mortgage funds are a subset of the private (non-bank) credit market, which is an ever-growing segment of the credit (lending) markets.
The Reserve Bank of Australia (RBA) estimates that the global private credit market is worth $2.8 trillion and that 15% of all loans to SMEs (small and medium-sized enterprises) and middle market businesses are provided by non-banks (Australian Investment Council, 2021).
With the move away from the big four banks, non-bank lending is expected to continue to grow as lenders capitalize on their ability to be more responsive and flexible and provide personalized services to borrowers and investors.
In Australia, mortgage fund investments fall primarily into two categories: pooled and selected mortgage funds. The Australian Securities and Investments Commission (ASIC) is the legislative regulator that regulates the activities of managers of these funds such as RMBL.
Mortgage funds are investment vehicles in which investors’ capital is used to finance real estate mortgages. These loans are generally secured by mortgages on properties, providing a level of security for investors. Investors receive interest from borrowers as a return on their investment, and when the borrower repays the loan, the principal is returned to the investors.
There are two categories of mortgage funds:
Select mortgage funds: Investors choose specific loans they wish to invest in, offering control over the risk and return profile of their investment.
Pooled mortgage funds: Investors invest in a diversified pool (portfolio) of loans, reducing investment risk through diversification, but do not have the ability to choose specific loans to which they wish to allocate their funds.
