Investment-Risk

General Risks of Investing in the Fund

All investments carry inherent risks, and this Fund is no exception. These risks may lead to lower-than-expected returns, temporary suspension of distributions, or even a reduction in the Fund’s capital value. All investors are strongly encouraged to carefully review and analyze the information provided in this article and any investment proposal documents to fully understand the risks, benefits, and obligations associated with the investment. It is recommended that investors seek independent financial advice tailored to their individual circumstances from a qualified accountant or financial planner before making any investment decisions. This ensures that the investment aligns with their financial goals, risk tolerance, and overall strategy. 

The following general risks should be considered:

1. Economic and Market Volatility
   The performance of the Fund may be influenced by unpredictable economic conditions, market trends, inflation, and changes in government policies.

2. Uncertainty in Returns and Capital
   The Fund does not guarantee returns, distribution payments, or the preservation of your initial investment. Losses may occur, impacting both distributions and capital.

3. Liquidity Challenges
   Certain investments may be difficult to convert into cash quickly, which could delay withdrawals or payments. In some cases, the Responsible Entity may suspend withdrawals if liquid assets are insufficient.

4. Management Oversight
   The Fund’s success depends on the Responsible Entity’s ability to manage investments effectively. Poor decisions, such as misjudging market conditions or failing to execute strategies, could harm the Fund’s performance.

5. Regulatory and Legal Changes
   Adjustments to laws, regulations, or government policies may impact the Fund’s operations, structure, or returns.

6. Operational Errors
   Losses may result from internal failures, such as human error, technology issues, or external disruptions from third parties.

7. Market Influences
   Broader market factors, such as inflation, interest rate movements, and political or global events, may directly or indirectly affect the Fund’s value.

Risks Associated with Mortgage Investments

The Fund’s reliance on mortgage-backed investments introduces specific risks, including:

1. Property Valuation Uncertainty
   Property valuations may not always be accurate, and in the event of a forced sale, the property might sell for less than anticipated. Additionally, valuers may lack adequate insurance to cover any inaccuracies in their assessments.

2. Interest Rate Sensitivity
   Changes in interest rates can impact the Fund’s income. For example, lower rates may reduce returns, while rising rates could make it harder for borrowers to refinance loans.

3. Borrower Default
   Borrowers may fail to meet their financial obligations due to changes in personal circumstances or broader economic challenges. This could lead to losses for the Fund.

4. Property Damage and Insurance Coverage
   Secured properties may suffer damage or destruction, and insurance may not fully cover the loan amount. The illiquid nature of real estate may also cause delays in recovering funds through property sales.

5. Loan Repayment Delays
   Borrowers may not repay loans on time, leading to delays in returning investor capital. Short-term loans, which are common in the Fund, may experience higher rates of late repayment due to refinancing delays.

6. Enforcement of Loan Security
   If a borrower defaults, the Fund may need to take legal action to recover the loan. Any delays or costs associated with enforcement may reduce distributions or capital returns.

Specific Risks Related to the Fund

These risks are tied to the structure and operation of the Fund itself:

1. New Fund Considerations
   As a newly established Fund, there is limited historical performance data. However, the management team brings extensive experience in mortgage-backed investments.

2. Investment Term Variability
   The duration of investments may differ from expectations. Factors such as delays in sourcing investments or borrower repayment issues can impact the investment timeline.

3. Oversights in Due Diligence
   There is always a risk that certain factors affecting an investment’s performance may be overlooked during the analysis process.

4. Documentation Issues
   Errors or omissions in loan documentation could negatively affect returns. The Fund mitigates this risk by employing qualified legal professionals to prepare documents.

5. Difficulty in Sourcing Investments
   Finding suitable investment opportunities at favorable terms may be challenging, potentially affecting the Fund’s ability to achieve its objectives.

6. Changes in Fees or Fund Termination
   Fees and expenses associated with the Fund may change over time. Additionally, there is a risk that the Fund could be terminated under certain circumstances.

External Risks Beyond Control

External factors outside the Responsible Entity’s control may also impact the Fund’s performance:

1. Health and Social Events
   Events like pandemics (e.g., COVID-19) can create economic uncertainty, disrupt businesses, and amplify other risks.

2. Natural Disasters
   Events such as floods, fires, or other catastrophes can negatively affect property values and borrowers’ ability to repay loans.

3. Legal and Consumer Protections
   Changes to consumer protection laws, such as those governing unfair contract terms, may affect loan agreements and repayment terms.

4. Taxation Changes
   Adjustments to tax laws may impact investor returns or require changes to the Fund’s structure to ensure compliance.

Mitigation Strategies

The Responsible Entity employs various measures to reduce potential risks, including:

• Strict lending criteria to minimize borrower default risks.
• Regular reviews of loan performance and property valuations.
• Ensuring secured properties are adequately insured.
• Monitoring liquidity to ensure the Fund can meet its financial obligations.
• Engaging experienced professionals to manage and review documentation.
• Actively managing loan maturities and refinancing processes.

Notwithstanding the above mitigation strategies employed by the Responsible Entity, it is important to note that no risk management approach can completely eliminate all risks associated with investing in the Fund. While strict lending criteria, regular reviews, insurance coverage, liquidity monitoring, professional oversight, and active loan management are designed to reduce potential risks, they do not guarantee the performance of the Fund, the repayment of capital, or the payment of distributions. Investors should be aware that unforeseen circumstances, market conditions, borrower defaults, or other factors beyond the control of the Responsible Entity may still adversely impact the Fund’s performance. It is strongly recommended that investors carefully assess all risks and seek independent financial advice before making any investment decisions.