Consumer trust isn’t something to be taken for granted, but reports from the UK, US and here at home are all pointing towards an uplift in trust levels around financial advice, which can only be a welcome development.
There are significant tailwinds behind the financial advice industry at the moment, but some major obstacles are still preventing advice practices from taking advantage of surging demand according to a new study from CFS.
Alceon rides tailwinds to deliver for yield-conscious investors
Investor awareness of the private debt sector is growing, and will only grow more as the dedicated funds in the marketplace continue to rack up strong performance, adding to the options available to hard-pressed yield-oriented investors.
The Alceon Debt Income Fund is certainly one of the products to which yield-focused investors have turned, with its offering of targeted high, risk-adjusted returns from real estate lending bearing ripe fruit since the fund’s inception in October 2019. In calendar-year 2021 the return came in at 8.03 per cent (after all fees and costs), comfortably above its return target range of 5 per cent-7 per cent a year (after all fees and costs.)
The fund mainly finances residential real estate but may also finance commercial property assets and is positioned relatively conservatively. All loans are secured by underlying real estate with a portfolio weighted average loan to value ratio (LVR) of 61% and weighted average loan duration of 12.8 months.
The manager noted that the residential market has experienced very strong growth over the past 12 months, with price growth in the range of 20% to 25%, providing an additional buffer to the reported portfolio LVR.
In light of the strong growth from the past year, Damien Cronin, managing director, real estate at Alceon, was keen to stress that the manager was “maintaining a conservative outlook for 2022,” and assuming an “orderly correction in the residential market in the range of 5% to 10% when assessing new transactions.
“Looking ahead into 2022 and with the announcement from the Australian government that international borders will be reopening on 21 February, we expect the return of tourists, students and migrant workers to be positive for housing demand.” said Cronin.
Cronin also noted that one of the major structural factors that has worked in the favour of non-bank lenders, the retreat from large parts of the lending market by the banks, remains in place.
“With interest rates remaining low and more lenders entering the market, developers are continuing to look elsewhere from large domestic banks who are at times restricted in the amount and circumstances they can lend,” he said. “This is particularly the case in construction where borrowers are offered very little in way of timeframes.’
As at 31 December, 80 per cent of the fund’s portfolio was exposed to residential real estate and the remaining 20 per cent exposed to commercial and mixed-use assets. At that time, Alceon had $1.8 billion in loans under management, with our open-ended funds comprising $500 million of those loans. New loans originated exceeded $350 million for the December 2021 quarter.
Despite plenty of speculation that interest rate rises may not be far away, the appeal for investors of a return stream from such a source is unlikely to be eroded any time soon.
“From an investor standpoint, the Alceon Debt Income Fund offers attractive risk-adjusted returns that are uncorrelated to equity markets,” said Cronin.
