Stable Income Fund March 2021 - Monthly Update - Wentworth Williamson
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Stable Income Fund
March 2021 – Monthly Update
Wentworth Williamson Management
3 Spring Street, Sydney, NSW 2000Wentworth Williamson Stable Income Fund
March 2021 – Monthly Update
Feature article: Earning stable income from non-bank lenders in Australia.
The Wentworth Williamson Stable Income Fund is focused on capital preservation and
generating consistent stable income to our investors relative to the RBA cash rate.
1. Performance (Net of Fees)
We are pleased to report that the Stable Income Fund generated a distribution yield for
March of 0.50% which equates to an annualised return of 6.06%.
The consistent cash yield of the Fund relative to the RBA cash rate demonstrates the ability for
the Fund to provide, on a risk adjusted basis, the income yield solution with strong capital
protection that investors are increasingly requiring due to the current very low interest rate
environment and low dividend yields on listed equities.
2. Market and Portfolio Update
The Credabl receivables we finance continued to perform well in March. The book is now in
excess of $350m, with no charge offs and arrears at 0.11%. Importantly, Citibank has joined
their funding group as an additional senior lender, providing additional capacity for their
receivables book to grow.
From an additional opportunity perspective, we have been focusing on identifying suitable
other non-bank lenders to fund. Our March insights note on this topic is attached as an
appendix to this update, and is also available on our website.
Rob Hamer James Williamson
Portfolio Manager Chief Investment Officer
1 March 2021 – Monthly UpdateWentworth Williamson Stable Income Fund
March 2021 – Monthly Update
Feature article: Earning stable income from non-bank lenders in Australia.
A non-bank lender is a lender who is not a bank, building society or credit union, but one that
has its own source of wholesale funds and lends those funds out with an added margin for
profit 1. Since non-bank lenders do not take deposits they are not regulated by APRA as the
banks are, but they are regulated by for example ASIC and the National Consumer Credit
Protection laws.
Private credit funds such as Wentworth Williamson Stable Income Fund earn income yield for
investor clients by being a source of wholesale funds to non-bank lenders.
The Australian non-bank lending market is significant, rapidly growing and increasingly of
systemic importance. A brief look at the members of the Australia Finance Industry
Association (AFIA) or Fintech Australia gives some idea of the momentum in this sector. Some
broad comments on market size and sectors are set out in the table below.
Sector Comment Some well-known names
Commercial real estate Non-banks are expected to Think Tank, Qalitas, La
fund $50bn of commercial Trobe
real estate by 2024 (total
bank lending in that sector is
now $260bn) [1]
Residential mortgages Non-banks were estimated Resimac, Athena, Bluestone,
to have 5% of the residential Columbus, Pepper Money,
mortgage finance market in La Trobe, AFG
2019 . Since this is a $1.8
[2]
trillion market [3], 5% is
substantial at $90 bn
Consumer loans Statistics on the provision of Latitude, Pepper Money,
credit by non-banks in the Wisr
SME loans form of consumer and SME Get Capital, On Deck,
loans are harder to come by, Moula, Prospa
Asset leasing / finance but given the explosion in Metro Finance , Allied Credit
the number of these
providers we can safely the
assume the market size is
substantial and growing
Specialised niches Medical professionals Credabl
Strata funders Lannock Finance
1
https://www.loans.com.au/resources/home-loan-answers/applying-for-a-home-loan/what-is-a-non-bank-lender
2 March 2021 – Monthly UpdateWentworth Williamson Stable Income Fund
March 2021 – Monthly Update
Feature article: Earning stable income from non-bank lenders in Australia.
Insurance premium funding iQumulate, Attvest
Receivables financing Scottish Pacific, Octet, TIM
Finance
Next generation Residential rent to own,
specialised inventory
financing,
[1]
AFR 5 October 2020 https://www.afr.com/property/commercial/non-bank-lending-to-hit-50b-by-2024-as-
major-banks-cut-back-20201005-p56247
[2]
https://www.rba.gov.au/publications/fsr/2019/apr/pdf/box-d.pdf
[3]
https://www.spglobal.com/_assets/documents/ratings/191114-an-overview-of-australia-s-housing-market-
and-residential-mortgage-backed-securities.pdf page 20
Market development is being fuelled by the convergence and mutual synergy of two
important trends:
1. For many years, as has been well-documented, Australian banks have been
either withdrawing from certain sectors or have not provided borrowers in
those sectors with the service or risk appetite they require. SME borrowers and
residential mortgages are two sectors where this trend has been particularly
strong; and
2. FinTech has enabled non-bank lenders to provide efficient speedy accessible
transaction and lending solutions to both SME and consumer lenders.
The increasing systemic importance of the sector has been clearly acknowledged by the
Australia government in two important ways. $2.3bn was advanced to the sector via the
Structured Finance Support Fund administered by the AOFM to ensure wholesale funding
markets for non-bank lenders remained open through the tough Covid lockdown times of
2020. The SME guarantee schemes also provide significant support to the sector – the second
scheme guarantees 50% of the risk on eligible loans originated by eligible lenders from 1
October 2020 to 30 June 2021.
The non-bank lending market now comprises borrowers with size and scale in residential
mortgages, SME lending and asset finance as well as numerous up and coming businesses in
these sectors and others requiring more niched financing approaches.
Non-bank lenders generally use either private warehouse or public securitization funding for
the wholesale funding of their receivables. These structures typically have banks providing
the senior debt, institutions and private credit funds providing the mezzanine and junior debt
3 March 2021 – Monthly UpdateWentworth Williamson Stable Income Fund March 2021 – Monthly Update Feature article: Earning stable income from non-bank lenders in Australia. and the originator providing the equity. It is perhaps odd that banks fund non-bank lenders in this way but the senior debt in these structures is capital efficient for them and provides a pathway to other banking services for the bank to the non-bank lender. The mezzanine and junior debt tranches provide attractive opportunities for private credit funds and institutional investors to earn income yield for their clients. Our approach to add value for our clients is to identify niche non-bank lenders operating in sectors where the underlying borrowers have a structural propensity to pay and the management team of the non-bank lender have an extensive track record in the business. The first partner we have selected is Credabl, a leading financier of medical professionals. We provide them financing for their loan receivables, primarily via a tranched structure where we rank ahead of their equity but behind their other funding. They have in excess of 1600 medical professional obligors all personally liable for the loans advanced and with security over the assets financed. Given the responsible nature of the medical professional obligors and the underwriting policies and procedures followed by an experienced management team the underlying portfolio has experienced zero defaults since inception in 2018. This results in the BBSW +7% we are able to earn from this funding achieving an excellent risk adjusted return for our clients. We are also continually researching the market for other specialised and next generation niche non-bank lenders that meet our risk and return criteria. Given the growth in the market, we believe there is ample opportunity. 4 March 2021 – Monthly Update
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