Mortgages are generally considered low risk investments in a stable or rising real estate market because they are backed by real property. In a declining property market, the value of the underlying real estate must drop to below the value of the mortgage registered against the property and recovery costs before the investment is at risk.

Based on the expected changes in the market, the LVR at the time of the initial loan is set conservatively to reduce the risk of loss.

Our Information Memorandums outline risks and our risk management processes. However, in particular:

Credit Risk

The risk that the security obtained and other accessible assets of the borrower will not be sufficient to fully discharge a loan.

Factors which influence credit risk include:

Liquidity Risk

The risk that withdrawals (unit redemptions) may exceed funds available to be withdrawn and may prevent you from redeeming your investment in a timely fashion.

Factors which influence liquidity risk include:

  • level and diversity of liquid assets held;
  • pricing structure of the mortgage portfolio;
  • maturity profile of the asset portfolio;
  • credit risk;
  • our internal policies for liquidity management;
  • a decline in investor confidence;
  • and the number of withdrawal requests at any given time being greater than the amount of liquid funds held.

Income Risk

The risk that the expected rate of return is not achieved. Investors should be aware that any target returns provided are targets only and there are no performance guarantees.

Income distributions to investors in the Pooled Fund primarily depend upon the net return that each Sub-Fund receives from the underlying mortgage investments.

Income distributions in the Select Fund may be impacted by a failure or delay by a borrower to pay the interest or repay the principal, resulting in a default on the loan.