Private lending is not a new concept. It is a type of financial intermediation where Investors provide capital to Borrowers in one-on-one mortgage arrangements
What Is Private Lending
Private lending is commonly referred to as “the oldest form of mortgage lending”. It is a type of financial intermediation where the borrower and the investors have a more direct relationship than usually applies with a bank or similar financial institutions. In the usual banking relationship, the investor deposits funds with the bank and the borrower obtains finance from the bank. The investor is paid a conservative rate of return and has no knowledge of the particular loans that the deposit is funding.
Traditionally, private lending has operated in a non-bank environment, where investors provide the capital required for specific loans. In its simplest form, there may be one investor providing the capital for one borrower. The opportunity to become a private lender is open to most people. Typically, they fall under the following categorisation:
- Family offices, representing one or more ultra-high net worth families
- Managed investment schemes and mortgage trusts
- Corporates with surplus cash ﬂow, typically international
- High net worth individuals represented by a mortgage manager
Both private lending and traditional banking are regulated prudentially in Australia, but by different government regulators. Private lending is in certain cases (only when it falls within the Managed Investment Scheme (MIS) regime) regulated by the Australian Securities & Investments Commission (ASIC), while the banks are regulated by the Australian Prudential Regulation Authority (APRA).
Within MIS there are two types of mortgage fund trusts – Pooled and Contributory.
Pooled Mortgage Fund
All investors share in income generated from the mortgages. All investors share the risk associated with all the mortgages in the pool. They can withdraw some or all of their capital at any time subject to liquidity (a notice period is usually required).
Contributory Mortgage Fund
- The investor (or manager) decide which particular mortgage loan to invest in
- The mortgage invested in might generate a different return from other mortgages within the fund
- Investors are exposed to the risk of that mortgage
- Investors can only withdraw your capital when that loan matures (unless a replacement investor is found)
Vado Private offers investors the opportunity to formulate a specifically customised and investment vehicle based on their risk appetite and return expectation. The parameters for any single investor are unique and exclusive to them.. The typical structure is depicted below: