Meeting investor needs in an age of economic uncertainty

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5 May 2024
| By Zagga |
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In a global economy defined by uncertainty, traditional low-risk income classes such as bonds and cash savings accounts continue to disappoint as investors continue to seek downside protection for their money pushing investors to 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. 

 

Unveiling the Zagga CRED Fund: A CREDible Unitised Fund Alternative for Private Debt Investors

 

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.

 

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 were predicted to provide more than $50 billion in CRED lending by 20242.

 

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: an INVESTOR-FIRST approach

 

Track record: Since its inception in 2017, Zagga has consistently demonstrated the value of incorporating CRED investments into portfolios. To date, Zagga has funded in excess of $1.5 bn, across more than 250 loans, and repaying more than $800m to investors, without any losses of principal or interest.

 

A new approach to income generation 

Zagga’s objective is to generate stable, fixed-income style, risk-adjusted returns through Commercial Real Estate Debt investments secured by high-quality Australian assets, predominantly 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 the option 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. 

 

Click here to find out more on the Zagga CRED Fund.  

 

Why zig when you can Zagga?

Real estate private credit is a specialised asset class that requires a specialist investment manager with deep expertise and a core focus on risk management. It’s historically exclusively been invested in by large institutional investors, however seven years ago we set out to change this and democratise access for all investor types via our suite of bespoke solutions.

 

Our flagship real estate private credit fund, the Zagga Feeder Fund since inception has provided investors with monthly income at attractive risk-adjusted returns*, portfolio diversification and exposure to the property market without the risk of property ownership. Today, the fund continues to deliver on all of these and continues to grow as more investors realise the benefits of real estate private credit.

 

Incorporated and licensed in 2016, we are a well-established, Australian boutique investment manager and non-bank lender, specialising in the private credit real estate (CRE) sector. A leader in our chosen niche of mid-market loan sizes ranging from $5M to $50M, we boast a team with over 200 years’ combined experience in credit, property, and investment management. 

 

Our investor base spans high net worth individuals, family offices, and quasi-institutional funders from Australia, China, Hong Kong, Israel, Japan, Mauritius, Singapore, South Africa, Switzerland, the UK, and the USA.

 

Transparency, integrity and trust are the cornerstones of our business, ensuring we remain steadfast in our commitment to always putting our investors first.

 

* The payment of monthly cash income is a goal of the Trust only and neither the Manager or the Responsible Entity provide any representation or warranty (whether express or implied) in relation to the payment of any monthly cash income. Returns are not guaranteed. The premium achieved is commensurate to the investment risk undertaken. Past performance is not a reliable indicator of future performance.

 

***

Disclaimers and references


1 Quarterly authorised deposit-taking institution property exposure statistics, APRA, June 2022 (released 6 September 2022)

2 Non-bank lending to hit $50b by 2024 as major banks cut back, AFR, 5 Oct 2020
3 Special Report: Commercial Real Estate Lending, BondAdviser, September 2021

Zagga
Zagga

Zagga is one of Australia's leading boutique investment managers and non-bank lenders....

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