RAW Mortgage Fund - Frequently Asked Questions

Put simply, it operates like a ‘building society’.

However, it doesn't offer all the same investor protections and is not part of the Guernsey Banking Deposit Compensation Scheme.

Cash from investors is managed carefully and lent via a mortgage to owners of UK residential property. Each mortgage is secured against the borrowers’ property with a first legal charge giving the Fund first call on the property as security for the loan if the borrower were to default. Borrowers pay interest to the Fund.

The borrowers from the Fund would suffer the first losses from any reduction in property values. In fact, property values would need to fall quite substantially before the Fund investors are impacted as the Fund only lends up to 55% of the property value.

The prudent lending approach provides a good degree of downside protection in a property price crash. For example, after the financial crisis of 2008, whilst property in the South East of England fell in value for several months, the largest falls were around 30%. The Fund would only have capital impairments if a loan was in arrears, the price of that particular property fell below the value of the amount lent (maximum 55%) and any rolled up costs.

All of our borrowers have a significant capital stake in the properties themselves (as we lend a maximum of 55% loan to property valuation), we believe that loan losses are unlikely unless there was a very extreme economic event.  This view is supported by our track record of zero bad debt since we launched the Fund and no unusual borrower issues during the Covid19 Pandemic.

We also believe that our borrower base is resilient because they generally have other financial assets and professional careers, the quality of tenants in the buy to let properties is also generally good as rents are typically £1,200 to £1,500 a month.

Investors should benefit immediately from rising Bank of England Base Rate. The vast majority of mortgage loans are directly linked to the Bank of England Base Rate so when interest rates rise the borrowers’ payments increase. These increased interest payments flow back to the Fund and benefit investors.

We are selective as to the type of borrower we lend to and usually the borrower will have other liquid assets to fund the interest payments on the loan. We are also careful about the type of property we lend against and consider the likelihood of rental voids often taking several months advanced interest from borrowers.

On the basis that we have advanced a loan at the maximum of 55% of the property value then we fully expect that there should be more than enough equity in the property to see a sale achieved, all fees paid, and the loan and any outstanding interest debt repaid.

In the unlikely event that the borrower does not have other liquid assets and cannot secure an income stream from the property then, in the very worst-case situation, we would foreclose on the loan, repossess the property and sell it to recover assets and lost interest.

To date, the Fund has a 100% record of positive monthly increases in value, since launch in 2015. The detailed performance can be seen in the Fund's Monthly Performance Report published on this website.

The Fund returns are consistent because they reflect the regular interest payments made by the mortgage borrowers.

The continual diversification of the Fund’s underlying loan investments with a very broad range of borrowers, secured on many different properties helps maintain a diverse book of loans that is aimed to reduce the risk of any single default impacting the Fund’s performance. Our average loan is less than £250,000.

Low loan to valuation ratios, with all loans secured by a first legal charge, help minimise the chances of capital losses to investors.

The performance of the Fund has significantly outperformed returns available from banks and building societies in fixed term or notice accounts.

To date the Fund has had a 0% bad debt rate.

The Fund was launched in 2015 and, since that time, has not experienced any bad debt or losses. We have had a small number of situations where borrowers have not paid their interest on the due date and, in these situations, we chase swiftly and where appropriate charge penalty interest.  If borrowers don't normalise their interest payments swiftly, we take appropriate action to protect investor interests and would ultimately take repossession of a property to orchestrate a sale to recover outstanding debt. We have a 100% recovery rate with cases of enforced action to repossess and recover outstanding debt.

The manager of the Fund, RAW Capital Partners Limited, operates a very robust credit committee process and is selective of both lending property type and quality as well as the merit of the borrowing counterparty.

This Fund is not linked to stock market performance. Returns from the Fund are linked to mortgage interest payments from the borrowers, and so is closely linked to interest rates. The Fund has underlying capital protection driven by first legal charge and a maximum Loan-To-Valuation of 55%.

The Fund is designed to deliver consistent returns to investors, uncorrelated to the stock markets, that improve (increase) as interest rates rise and protect capital. The fact that the returns for investors are linked to interest rate movements also provides a good degree of protection against inflation as interest rates tend to rise when inflation rises.

Property markets though may be adversely affected from a stock market crash, including the rental market. If there were borrower defaults in the Fund at that time, this may in turn result in difficulties selling property that we had repossessed. There may be a knock-on impact in realising cash to meet redemption demands from the Fund. The low Loan-to-Valuation ratio of the underlying loans helps protect against the impact of this.

There is plenty of protection to safeguard your investment. The Fund has an independent Custodian; the Royal Bank of Canada (“RBC”). All cash is held in accounts controlled by RBC as Custodian or lent with a first legal change on residential property. It is RBC’s job to ensure that cash is used in line with the Fund Prospectus (its supplemental particulars). And so, for instance, they make independent checks on solicitors’ client accounts and confirm that a solicitor’s report on the title of a property is received before releasing lending funds.

The independent Administrator, Vistra Fund Services (Guernsey) Limited, is responsible for accounting to investors for their investment, calculating investment returns and reporting.

The independent roles of RBC as Custodian and Vistra as Administrator, plus the independent board of the Fund and the strong regulations in Guernsey help safeguard your investment.

The Fund limits downside risk by focusing on originating Mortgage-Backed Loans secured by quality collateral and contractual protection alongside a review of each lending proposal, borrower and property security. All loans are secured with a first legal charge.

Risk is spread across a diverse range of counterparties with debt secured against a large number or properties. Average loan to property valuation will be no more than 50% with a cap of 55% for individual properties based on an independent professional valuation of the property at the time the loan is granted.

Higher value properties that tend to have more price volatility will be avoided. A five-step process for recovery of any arrears has been established and will be rigorously enforced.

Diversifying money does not necessarily have a negative impact on returns. In fact, it actually means that risk is lower which in turn can increase returns.

No. The fund chooses properties in which to lend to and aims to have a diversified portfolio of loans. Your investment is pooled in a regulated fund and distributed across all the loans that the fund holds at any one time, diversifying your risk.

When you invest in mortgages, the volatility in value of property does not impact the value of your investment directly. When investing in property, although you can benefit from the increase in value, you will also suffer a loss if you sell the property if the value of it has gone down.

The first legal charge when investing in mortgages is to secure the loans, which essentially means debt is repaid first.

The borrower wears the first part of the downside in any reduction in values.

1. Receive returns regularly through quarterly dividends;

2. Or you can accumulate your returns and then request to redeem them after a minimum of either 1, 3 or 6 calendar months' notice (depending on your chosen share class) before the first business day of January, April, July and October.

Settlement of either is normally around 10 business days later.

When you want to redeem your capital, there is a notice period you must adhere to.

For investors in the Monthly or Quarterly dealing share classes, the notice period is 1 or 3 calendar months respectively prior to redemption dealing dates on the 1st business day of January, April, July and October. So, for example, if an investor in a 3 calendar month notice share class submits a redemption request before the 1st April they will receive their redemption proceeds after the 1st July dealing date.

There are many differences between investing in the RAW Mortgage Fund and securing money in the bank, a few are outlined below:

Investments in the Fund are not covered by the Guernsey Banking Deposit Compensation Scheme.

The Mortgage Fund only lends on high quality residential property. Banks lend to a variety of people including unsecured lending such as overdrafts, car loans and credit cards.

The Fund concentrates on low Loan-to-Value lending secured against residential property with a first legal charge; whereas a bank will also lend a higher percentage of valuation, for example, to first time buyers in addition to unsecured lending. The Mortgage Fund lending is all linked to the Bank of England Base Rate so returns should rise as rates rise. In contrast, banks often offer fixed rate savings or do not increase savings rates in line with base rates.

There are a number of protections in place for investors.

Firstly, the Fund is regulated in Guernsey by the Guernsey Financial Services Commission (“GFSC”). In addition, RAW Capital Partners Limited (the Manager of the Fund) is licensed and regulated by the GFSC. These regulations impose strict standards for the management and operation of the Fund.

Furthermore, all investors' cash is deposited with an independent Custodian, The Royal Bank of Canada (Channel Islands) Limited (“RBC”) who are part of a Global Bank and licensed and regulated by the GFSC. RBC control all the bank accounts for the Fund and undertake checks on the management of the Fund including where cash is sent, for example they make independent checks on solicitors’ client accounts before a loan is advanced.

Finally, an independent administration company, Vistra Fund Services (Guernsey) Limited which is also licensed and regulated by the GFSC, ensure that the Fund is managed in line with the restrictions documented in the Fund’s scheme particulars. Vistra also deal with subscriptions and redemptions from investors and independently account for the financial transactions in the Fund to ensure investors returns are calculated correctly.

In summary all three firms involved in the operation of the Fund are licensed and regulated with an overarching view of these firms undertaken by the regulator, the GFSC.

The Fund is audited by Grant Thornton one of the top firms of chartered accountants, headquartered in the UK.

Investments in the Fund are not covered by the Guernsey Banking Deposit Compensation Scheme.

To enquire to borrow from the Fund, please contact RAW Capital Partners at [email protected] or call on 01481 708250.

As the value of units in the fund increases, so does the value of your investment. Please look at our monthly performance report for most recent performance information.

Returns will be calculated on each Valuation Date; this is done independently by the Fund’s independent administrator, Vistra Fund Services (Guernsey) Limited, which is regulated by the GFSC.

Mortgage-Backed Loans will be valued at their principal plus accrued interest calculated daily. Other assets and liabilities for the Fund will be valued in accordance with the Scheme Particulars as set out in the section entitled ‘Valuation’.

Where Mortgage Backed Loans fall into arrears interest may be capitalised or accrued at a loan level whilst there remains reasonable prospects of recovering the interest, any interest not received or capitalised will not be included in the Net Asset Value of the Fund until such time that it is repaid or the property is sold.