What is a mortgage fund?
A mortgage fund is a pooled investment vehicle that deploys capital into loans secured by registered mortgages over real property. Investors in the fund receive a return that is typically derived from the interest paid by borrowers on those loans, less the fund’s management fees and expenses.
Mortgage funds are generally available to wholesale investors only — that is, investors who meet the criteria set out in the Corporations Act 2001 (Cth), typically by investing a minimum amount or by qualifying on the basis of their net assets or income.
Key factors to consider
Before investing in a mortgage fund, wholesale investors should consider a number of factors specific to the fund and the manager. These include the fund’s investment strategy and lending criteria, the types of property accepted as security, the maximum loan-to-value ratios applied, and whether the fund lends on first mortgages, second mortgages, or both.
Investors should also consider the target return, the frequency of distributions, the liquidity profile of the fund (including any notice periods for withdrawal), and the fund manager’s track record and experience in property-backed lending.
Understanding the risks
Like all investments, mortgage funds carry risk. The key risks include borrower default (where a borrower fails to meet their loan obligations), property market risk (where the value of the security property declines), liquidity risk (where investors may not be able to withdraw their capital on demand), and concentration risk (where the fund has significant exposure to a small number of loans or a single geographic market).
The fund’s Information Memorandum (IM) should clearly outline these risks and explain the risk management strategies applied by the fund manager. Investors should read the IM carefully and seek independent professional advice before investing.
The importance of due diligence
Wholesale investors have a responsibility to conduct their own due diligence before committing capital. This includes reviewing the fund’s structure and governing documents, understanding the fee arrangements, assessing the quality and independence of the fund’s service providers (such as valuers, auditors, and custodians), and evaluating the fund manager’s governance and compliance framework.
A well-managed mortgage fund will provide clear, regular reporting to investors, including updates on the fund’s portfolio composition, performance, and any material developments.
Related resources from Granor Capital
New to wholesale investing? Start with our guide on what qualifies as a wholesale investor in Australia. Understand how pooled mortgage funds work and how monthly distributions are structured. Explore Granor Capital’s wholesale investment funds.
This article is provided for general information purposes only and does not constitute financial advice.
