Aura Group’s private credit track record
In this video, Brett Craig and Roger Montgomery discuss why private credit has been the preserve of high-net-worth investors, and why the banks pulled away from lending small amounts over the short term to small and medium businesses. Brett also reveals the Aura team’s track record in private credit through disruptive markets, how they navigate rising interest rates and the types of businesses for which they provide lending.
Transcript
Roger Montgomery: I’m Roger Montgomery from Montgomery investment Management and with me today to discuss the Aura Core Income Fund is Brett Craig from Aura Group.
Roger Montgomery: I’m extremely excited about partnering with Aura to offer the Aura Core Income Fund. Why? Because it offers retail investors access to a space that has really been the preserve of high net worth and ultra-high net worth investors. Over the last few years, banks have been pulling away from lending small amounts for short periods to small and medium enterprises. It’s just too labour-intensive and capital-intensive and smaller lenders can do it better. The Aura Core Income Fund leverages off Brett’s experience and expertise, generating returns of over 9 per cent per annum for the last five years. And what’s particularly impressed me about those returns is that there were no monthly losses, investors didn’t experience any negative months, and that five-year period took into account the COVID lockdowns that occurred globally and disrupted not only businesses, but the entire world. The Aura Core Income Fund will offer investors a pool of loans with higher security and a slightly lower return, aiming to beat the Reserve Bank of Australia benchmark by roughly three or three and a half per cent.
Brett, over the last five years, you’ve developed a terrific history and track record. Can you tell me about Aura Credit’s track record?
Brett Craig: The Aura Credit team have been managing the Aura High Yield SME fund for just over five years now. Since inception, we’ve maintained a stable NAV. So the unit price has remained at a dollar in that strategy.
Roger Montgomery: And what’s a NAV?
Brett Craig: It is the net asset value. So that is the assets’ value within the trust. And we’ve also produced monthly income in every month since inception, with no losses for investors.
Roger Montgomery: Speak to investors about the volume of deals and the default experience over the last five years.
Brett Craig: In the wholesale strategy, the Aura High Yield SME Fund, we’ve run through over half a billion dollars worth of lending in the five years since inception. We have had defaults in the pool, but none that have impacted the investors’ capital or interest. So that’s been covered by the underlying lender. We have seen loss rates around that 2 per cent mark, but we build in protection to cover against those losses and to date, investors have not suffered any loss of interest or capital.
Roger Montgomery: When a borrower defaults and invariably, over time, there’s going to be defaults, how are investors protected?
Brett Craig: The way we structure our deals with the loan originators is that the loan originators will have their income and some capital at risk as a first loss piece. So if there is a default in that pool of loans that they’re managing, the first person to lose money is actually the loan originator, through their net interest margin, their income, or their capital. This keeps them really well aligned with our investors’ capital, because if they write a clean pool of loans, it maximizes their income and protects their capital, as well.
Roger Montgomery: What specific investor need does the Aura Core Income Fund aim to satisfy?
Brett Craig: The Fund was really structured with a view to target investors who are after monthly stable income for their portfolios.
Roger Montgomery: We’ve just had the RBA raise rates. Some investors might be concerned that the Fund could suffer in a rising interest rate environment. How does the Fund navigate rising interest rates?
Brett Craig: As an investment team, we look to manage interest rate risk either through the use of floating rate security, so security is where the yield will actually increase with the cash rate, or shorter duration fixed rate assets. So we can actually reprice those as they mature.
Roger Montgomery: So in other words, what you’re saying is because the loans are short term, they’re paid back perhaps at a lower interest rate, but the new loans will be written at a higher interest rate as interest rates rise.
Brett Craig: That’s correct.
Roger Montgomery: Investors will want to know what types of loans are in this Fund. Could you give me a specific example of a loan in this fund.
Brett Craig: One example is agricultural loans. So you might have a farmer looking to restock their property with sheep or cattle. Obviously, farming is very capital-intensive. So they’ve got a lot of that capital tied up in the land. They need money to purchase livestock. We work with one lender, in particular, who provides capital to farmers to restock their properties. These are maximum 12 month loans. We really like them because cattle, sheep, they fatten up over time, our LVR drops therefore reducing some of our risk there and we have weekly liquidity at the weekly cattle sales.
Roger Montgomery: How big are these loans? What security do you take? And what’s their duration?
Brett Craig: The size of the loans, the maximum we can do is 5 per cent of the fund’s asset to any one loan exposure. Based on our previous experience, the loans tend to be relatively small. Our other fund has an average loan size around the $100,000 mark with a maximum around the million dollar mark. From a duration standpoint in that agricultural example, we are looking at a 12 month duration through there. And the security that we take on that particular example would be first ranking security over the livestock, a general security agreement over the farming operation, which will generally wrap up the actual farm, and director’s guarantees from the farmers.
Roger Montgomery: Brett, thanks for your time today.
If you would like to learn more about the Aura Core Income Fund, please visit the fund’s web page to learn more: Aura Core Income Fund
You should read the relevant Product Disclosure Statement (PDS) before deciding to acquire any investment products.
Past performance is not an indicator of future performance. Returns are not guaranteed and so the value of an investment may rise or fall.
This information is provided by Montgomery Investment Management Pty Ltd (ACN 139 161 701 | AFSL 354564) (Montgomery) as authorised distributor of the Aura Core Income Fund (ARSN 658 462 652) (Fund). As authorised distributor, Montgomery is entitled to earn distribution fees paid by the investment manager and, subject to certain conditions being met, may be issued equity in the investment manager or entities associated with the investment manager.
The Aura Core Income Fund (ARSN 658 462 652)(Fund) is issued by One Managed Investment Funds Limited (ACN 117 400 987 | AFSL 297042) (OMIFL) as responsible entity for the Fund. Aura Credit Holdings Pty Ltd (ACN 656 261 200) (ACH) is the investment manager of the Fund and operates as a Corporate Authorised Representative (CAR 1297296) of Aura Capital Pty Ltd (ACN 143 700 887 | AFSL 366230).
The Aura High Yield SME Fund is an unregistered managed investment scheme for wholesale clients only and is issued under an Information Memorandum by Aura Funds Management Pty Ltd (ABN 96 607 158 814, Authorised Representative No. 1233893 of Aura Capital Pty Ltd AFSL No. 366 230, ABN 48 143 700 887).
Any financial product advice given is of a general nature only. The information has been provided without taking into account the investment objectives, financial situation or needs of any particular investor. Therefore, before acting on the information contained in this report you should seek professional advice and consider whether the information is appropriate in light of your objectives, financial situation and needs.
You should obtain and carefully consider the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the Aura Core Income Fund before making any decision about whether to acquire or continue to hold an interest in the Fund. Applications for units in the Fund can only be made through a valid paper or online application form accompanying the PDS. The PDS, TMD, continuous disclosure notices and relevant application form may be obtained from www.oneinvestment.com.au/auracoreincomefund or from Montgomery.
Montgomery, ACH and OMIFL do not guarantee the performance of the Fund, the repayment of any capital or any rate of return. Investing in any financial product is subject to investment risk including possible loss. Past performance is not a reliable indicator of future performance. Information in this report may be based on information provided by third parties that may not have been verified.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
