The fund will invest in medium term loan notes secured on UK commercial property, originated through its mortgage platform.
The company has appointed corporate finance specialists, Brandenburg Securities, to structure and distribute the fund.
The aim is to generate investment returns of c.250 basis points over the three month sterling Libor to investors, whilst at the same time ensuring only the highest quality secure assets are chosen for the fund to invest in.
Stuart Parfitt, managing director and founding shareholder says the recent constraints in the banking market have allowed it to bring forward plans for the fund launch.
He says: “We developed the idea for a secure credit fund almost three years ago but the property lending market was too hot to enable us to deliver good quality returns to investors within the levels of capital security we would be comfortable promoting. Events of the last 16 months and particularly the international banking crises since September 2008 have reversed this, and the opportunity has ripened.”
He adds:“Our lending methodology has always been to identify businesses with a good business model, proficient management and strong stable cash flows. This, coupled with the security of the underlying commercial property, creates an asset with a good quality medium to long term income profile with capital security.
“While this asset class has been available for many years, it has not commonly been placed in a transparent fund structure.
“With the help of Brandenburg Securities, we have put together a framework anchored on simplicity and transparency through which institutional investors can participate in this asset class with confidence. We are working closely with Brandenburg Securities on the distribution of the fund and are very excited by the response we have already had from interested parties.”
He says the commercial property market has had a torrid time over the last 16 months but with values down by over 1/3rd, the market is beginning to look attractive again for investors, although activity will be muted until early 2009.
He adds: “There remains some downside risk that values could deteriorate a little further but as a senior lender we limit investors’ exposure to this whilst they continue to benefit from stable cashflow. The fund will only invest in loans with security that has been valued after 31st January 2009 by which time we expect to see fair value in some sub-sectors of the market.”
William Brooks, managing director of Brandenburg Securities, says, “When Business Lending first brought the idea to us we immediately identified this would be an attractive asset class for medium and long term income investors seeking returns well above the cash market, but with a very low capital risk profile.
“We have initially targeted investors with a direct exposure to UK commercial property, who know and understand the dynamics of that market, but are perhaps cautious about increasing exposure at this time.
“By investing in a credit fund with a transparent structure, investors will be able to see and assess the underlying commercial property proposition but benefit from the downside protection of having a borrower with an equity cushion of 25-30% of the value of the property. However subscribers will still benefit from an interest coupon of around 250 basis points above Libor.
“A fixed rate option is possible where there is investor appetite.”