Apart from their complexity in comparison to direct property investment, EFM vendors are also struggling for scalability in the Australian market It is understood only one provider, Rismark, has made it to market with institutional backing to date. Rismark opened in March 2007 in partnership with Adelaide Bank. Managing director Christopher Joye says it took three years to get Rismark off the ground, and he suspects his would-be competitors are having as much of a struggle getting funding as he did at the start.
Rismark has one fund called the Rismark Active Property Trust. It is an open-ended fund with no capacity constraints – Joye says it could easily take several billions. He says the trust holds investments in hundreds of homes, with over $150 million worth of residential properties in its portfolio. While a minimum investment is $1 million, Joye said investors are expected to make “commitments” of between $50 million and $100 million. Rismark has eight patents on its products, protecting various items of its intellectual property and any possible derivations of it.
A plug for the product by the Australian Labour Party in its ongoing campaign to address the country’s housing affordability crisis has helped Rismark’s cause, as have rising interest rates. “Every time interest rates increase, it makes our product more attractive. The relative cost of an EFM decreases as the interest rate increases,” he says. Rismark has a number of criteria around building an investment portfolio of these loans based on years of research of the housing market and borrowers.
Such criteria includes not lending to anyone over 65 years old (given reputational concerns around exploiting the retiree market), and putting a limit on how many first home buyers are funded. Rismark also ensures at least 60 per cent of the gains on the property remain with the borrower, to encourage the borrower to maintain their home.
The target return for Rismark in the long term (25 years) on an ungeared basis is around 16 per cent. The shortterm target return for a two to three year ungeared investment is pitched around 20 per cent plus. Joye says that Rismark hopes to deliver these return targets with volatility that is less than that of 10-year government bonds. Joye is confident of the long-term return prospects for Rismark’s funds as it is underpinned by the “exceptional historical performance” of the Australian residential market, which has outperformed almost all of its international peers over the last 30-40 years.