Mortgage and lending house, Squirrel, has launched a range of portfolio investment entity (PIE) funds offering investors access to NZ’s biggest asset class.
Dave Tyrer, Squirrel chief operating officer, said the new funds – three wholesale and one retail – tap directly into the huge NZ residential housing loan market that to date has been left largely to banks.
“It’s hard to access the residential housing loan market as an individual investor,” Tyrer said. “There’s little securitisation in NZ and just a few mortgage trusts.”
Residential mortgage debt in NZ currently stands at about $330 billion, he said, compared to about $100 billion for corporate lending, $60 billion for agricultural loans and even with its recent borrowing splurge, government net debt only about $80 billion.
“We want to democratise the home loan investment market and not leave it all to banks,” Tyrer said.
He said the PIE funds could appeal to retail investors (especially those on higher tax rates) as well as the wholesale market including fund managers.
“We already have one fund manager investing in our peer-to-peer platform,” Tyrer said.
The funds will also ultimately invest into the Squirrel peer-to-peer lending platform that has originated about $100 million in home loans since it launched in 2019.
Overall, Squirrel has facilitated about $8 billion in loans over its 13-year history through the firm’s mortgage-broking arm but the peer-to-peer platform – and now funds – further diversify lending and investment options, he said.
But melding the peer-to-peer platform rules with the licensed managed funds regime has not been simple.
“I think we’re the first to include a peer-to-peer platform in a fund structure and the two don’t fit together easily [in a regulatory sense],” Tyrer said.
Squirrel hired fund-hosting business, Implemented Investment Solutions (IIS) to create the legal structure around the products with some tweaking still underway before the retail launch.
The three Squirrel wholesale PIEs, now open, offer tiered levels of risk and return while the retail fund (that invests the wholesale strategies) targets an after-fees, pre-tax return of 4 per cent above the official cash rate.
According the product disclosure statement (PDS), the wholesale funds comprise “the Squirrel Wholesale Construction Loan Fund, the Squirrel Wholesale Home Loan Fund, and the Squirrel Wholesale Personal Loan Fund. Each of the wholesale funds holds a diversified portfolio of New Zealand loans in their respective target loan class; construction, home and personal loans”.
Priced at 0.65 per cent, the retail product “is designed to provide investors with a regular income return generated through exposure to a diversified portfolio of loans predominately secured against registered first mortgages on residential property across New Zealand”, the PDS says.
Tyrer said the underlying mortgages are subject to risk constraints including a maximum 80 per cent loan-to-value ratio.
However, he said the peer-to-peer platform loans that the funds have exposure to won’t conflict with the broader Squirrel mortgage-broking made via mainstream banks.
The group’s brokers are salaried with no preferential commission deals influencing loan decisions, including whether to use the peer-to-peer route.
“Our brokers would only recommend the platform if it was right for the clients,” Tyrer said.
“We have a specific target for the peer-to-peer loans that is often by-passed by banks that includes bridging finance or older borrowers. Also the [platform] loans are all below $2 million.
“While that’s a niche, we think a niche in a $330 billion market can be quite large.”
Public Trust serves as licensed supervisor for the Squirrel funds with Adminis providing administration and custody.