In response to the rising demand from financial advisors and discerning investors seeking defensive income streams amidst inflationary pressures, Zagga has introduced another CREDible solution: the Zagga CRED Fund (ZCF).
This unitised private debt fund aims to offer an attractive alternative to traditional choices to hedge against inflation, focusing on capital preservation and providing equity-like returns with debt security.
Meeting investor needs in an age of inflation
In a global economy defined by uncertainty, many investors are seeking downside protection for their money. Traditional low-risk income classes such as bonds and cash savings accounts continue to disappoint and investors must take shelter elsewhere.
Commercial real estate debt (CRED), a subset of the broader private debt market, is an increasingly popular way for investors to earn regular, determinable income and benefit from its non-correlated risk and return profile. Although nestled within the broader private debt market, CRED sits on the lower-risk end of the spectrum due to its mortgage security enabling investors to not only gain access to real estate, with different risk and return characteristics to simply owning an asset, but also to provide investors with opportunities to earn inflation-adjusted, regular income due to the underlying loan’s variable rates.
Why this unitised CRED fund is an appealing solution for income-focussed investors:
For investors looking for an alternative to shares and traditional fixed income and property investments, the Zagga CRED Fund provides a CREDible avenue for portfolio diversification and regular, risk-adjusted income by investing in a specifically curated portfolio of credit-vetted, mortgage-secured loans.
The Fund seeks to achieve its targeted return through a mix of high loan-to-value ratios and stretched senior loans within its loan investments. By investing in the Fund, investors can access opportunities not readily available to private investors on a direct basis, while accessing the specialist knowledge and skills of the Investment Manager.
CRED: Financing growth
One of the biggest impediments to meeting the demand for real estate is sourcing finance for projects. Real estate developers and owners need to secure loans for purposes such as site acquisition, construction, improvements and residual stock.
In Australia, the ‘Big Four’ banks (complemented by smaller, second-tier banks) have traditionally controlled around 85 per cent of the CRED lending market; these Authorised Deposit-taking Institutions (ADIs) currently have $357.4 billion in commercial real estate loan exposures (as at June 2022).1
However, this has been undergoing a shift for some years, driven partly by banks’ shrinking appetite. ADIs have regulated capital requirements which constrain their lending appetites, and this has opened up more opportunities for privately funded alternative lenders, especially in the smaller and middle end of the market. In fact, private lenders are predicted to provide more than $50 billion in CRED lending by 2024.2
A report by independent research house, BondAdviser, says that from around 2017, a “healthy influx of non-bank institutional lenders… marked the beginning of a permanent shift in market structure supported by a greater focus on risk management.”3
This is due to a confluence of demand among those seeking capital and those providing it. Borrowers are looking for flexible, tailored loans that meet their business needs, while investors are looking to deploy their capital to investments that can provide stable income, downside protection and competitive return.
Zagga’s expertise:
Track record: Since its inception in 2017, Zagga has consistently demonstrated the value of incorporating CRED investments into portfolios.
Given our organisation’s deep experience in development projects and construction funding, we’ve been able to look beyond what independent quantity surveyors present, to identify conservative contingencies to help manage a project seamlessly and successfully through to Practical Completion, and ultimately, loan repayment.
A new approach to income generation
Zagga’s objective is to generate stable, fixed income style, investment returns through funding high-quality, mortgage secured, loan transactions focussing primarily on the Commercial Real Estate Debt sector on the eastern seaboard of Australia.
Through the Zagga CRED Fund, investors are able to gain exposure to the private debt asset class to earn regular, risk-adjusted income, whilst also focussing on capital preservation.
The benefit that Zagga brings to investors is that they are able to add a ‘middle ground’ to their portfolios, providing regular, consistent income. Yet they benefit from greater capital protection than equities and higher returns than traditional bonds or fixed income products.
Zagga believes this type of income-producing investment will appeal to a growing class of wholesale / sophisticated investors who want transparency and returns from their investment products.
Speak with one of our team today
- Quarterly authorised deposit-taking institution property exposure statistics, APRA, June 2022 (released 6 September 2022)
- Non-bank lending to hit $50b by 2024 as major banks cut back, AFR, 5 Oct 2020
- Special Report: Commercial Real Estate Lending, BondAdviser, September 2021
