The Launch of the 'Viking Securities Development and Mortgage Fund'
On October 17th 2014, our first 'Viking Branded' mortgage fund, known as Viking Securities Development and Mortgage Fund, was officially registered with ASIC. The new Fund, was run as a Non-Liquid Pooled Fund, in order to specialise in providing Development and Construction Loans to retail investors wishing to invest into a 'fixed term interest bearing' investment product.
Where required, all funding will be run by a suitably qualified and licensed Fund Manager who will provide assistance with the day-to-day running of the Fund, including management of the credit committee, and all day-to-day operations.
Essentially the funding line is designed to offer property developers with 'tailored' construction funding solutions for their projects and it will consider funding projects in major metropolitan areas of Queensland, New South Wales, South Australia and Victoria as well as providing 'Gap Funding' to Developer's in lieu of project equity.
Note: Given the state of the current Property Market, as at Q1 2019, the Fund is currently dormant.
Viking Fund Overview
Primarily the Viking Fund will operate as a 'Pooled' Fund. A pooled fund is designed for long term Investors who want to maximise returns from our loans. This is achieved by a number of mechanisms which include:
The Pooled Fund will operate as a non-disclosing entity (meaning it has less than 100 Investors). This reduces operational costs.
Updated information that is not materially adverse will either be posted on the Viking website or communicated directly to all Investors.
The amount of the Pooled Fund held in cash is restricted. The greater the percentage of the Pooled Fund working in loans, the better the return.
Less down time between investments.
Where required, the ability to subordinate the interests of the Fund in mortgages to other funds operated by other nominated Fund Managers, in return for a higher interest rate.
There are some features of a Pooled Fund you should understand before investing.
A non-liquid fund approach has been taken for two main reasons:
A major cause of other pooled fund mortgage scheme failures was the miss-matching of investment to loan terms. A liquid fund allows for short term withdrawal timeframes but many of those funds were secured in long term mortgages. Where there is a loss of confidence by Investors, there can be a “run” on a liquid fund. This would necessitate closure of the Fund and could lead to the appointment of external administrators. History has shown us the poor results which are achieved when this occurs.
A non-liquid fund is designed to facilitate a rational wind up should there be a loss of Investor confidence.
By restricting the amount of moneys held in cash to meet withdrawal rights, there is a greater percentage of funds invested in mortgages which assists in increasing the distribution rate.
Costs and Fees
Viking and its nominated Fund Manager (FM), and/or its nominees, are rewarded for their efforts by receiving a variety of fees (such as Application, Line/Progress Draw Fees and Release and/Exit Fees) which are paid by the Borrowers.
Where required, the FM, as the Responsible Entity for the Fund, receives the differential between the interest rate received from the Borrower and the distribution interest rate paid to the Investors and from this margin it pays the costs of the FM’s on-going 'Fund Management’ appointment and other management fees to the FM and to Viking. If under management of an FM, the FM will publish the indicative Distribution rate offered on a per current quarter basis on the homepage of its website, if a FM is not required then Viking will publish the indicative Distribution rate offered on a per current quarter basis on its web-site. The indicative Distribution rate is an estimate only and reflects the interest rate payable by Borrowers less the management fee payable to the FM, as the Responsible Entity of the Fund.
The indicative Distribution rate is not a guaranteed return to Investors and the actual Distribution received by Investors for a Distribution period will depend on the amount of distributable income received by the Fund for that Distribution period. The FM or the Fund may change the indicative rate for the quarter at any time (for example, due to unexpected market conditions) and will publish the revised indicative rate on its website. However, while the Fund and/or the FM has the right under their respective Constitutions to claim fees from capital in certain circumstances, the history of FM, and any other Managed Funds run my the FM, is that the FM has only been paid a margin once the Investors have been paid at the then current indicative Distribution rate.
The Pooled Fund invests entirely in first mortgage residential construction and development loans in CBD and metro areas of Queensland, New South Wales and Victoria and cash is held in Australian banks.
While all Responsible Lenders prefer to only take a first mortgage position as the Fund’s primary security it is likely that the Viking Fund may combine monies with the FM's Fund, and/or any other interested mortgage fund, whether managed by the nominated FM or not, to make a loan to the same Borrower as a single facility. In such a circumstance, the funds will be advanced by joint lenders with the loan secured by a first mortgage, in which case the FM's Fund may take a priority position whereas Viking's Fund would take a subordinated position for part and/or all of its investment in the loan. Alternatively, the Viking Fund may provide a loan to the Borrower secured by a registered second mortgage (with the other FM managed fund making a separate loan secured by a registered first mortgage). Where second mortgages are taken as additional security they are not included in the LVR calculations. Loans are generally made to projects with a 12 month > 24 month life span.
Where an FM is appointed, the Viking Fund is to be run by a two person Management Committee which consists of a Viking Representative and a person nominated by the FM. All decisions made by the Management Committee must be by unanimous resolution.
The Management Committee is responsible for selecting all investments and the long term investment strategy. All new Investors into the Fund must be approved by the Management Committee before they can invest. If the interests of the Fund are in a joint mortgage with another FM fund such interests may only be subordinated to the interests of other funds operated by the FM with the consent of the Management Committee.
The FM as ‘Fund Manager’ puts aside an amount of Fund cash each financial quarter to facilitate the making of a withdrawal offer to the Fund’s Investors. If the amount of the withdrawal requests from Investors exceeds that set aside and available under the withdrawal offer, then each Investor is paid pari-passu based on the amount they have requested to withdraw. The FM will endeavour to make more moneys available in the following financial quarter if there is a shortfall, but this will depend upon the loan pay-outs in that period. The restricted withdrawal rights are designed to maximise the Distribution rate and for there to be an orderly wind up, should there be a loss of Investor confidence.
This is only an overview only. There is a considerable amount of information in the PDS which can be forwarded to interested investors upon request.
If you have any queries or wish to further discuss the Fund, and/or its strategies or operations, then please contact Gary Simonite either via email on email@example.com or by telephone on 0438 331 116.