One option overlooked by many investors with cash to deploy, particularly those with self-managed super funds, are fixed income assets such as bonds, which preserve the face value of investments and guarantee a fixed rate of return.
According to Capital Prudential managing director Samuel Moore, only about 2 per cent of investments allocated by self-managed super funds in Australia are to fixed income assets, one of the lowest levels seen anywhere in the developed world.
Moore says this underweight allocation may simply be due to the relative immaturity of the sector in Australia.
“There’s strong reasons why (investors) should consider putting a higher weighting to bonds,” said Moore.
“They include capital preservation at the end of the bond term when you get your face value back, so you’re not subject to market fluctuations. And then the fixed interest income stream you receive as well.”
One deterrent for some investors has traditionally been the relatively low yield of Government bonds, however, a range of other instruments are now available that offer bonds with higher yields, including bonds issued by investment funds like Capital Prudential.
“Our bonds work the same way as Government bonds, except that they are high yield, because they’re non-investment grade, whereas Australian Government bonds are investment grade,” said Moore.
Capital Prudential raises funds by issuing bonds to investors for one, two or three year terms, paying a fixed interest rate of 6, 7 or 8 per cent respectively.
It uses the capital raised to purchase, develop and then sell residential and commercial property, primarily in Adelaide, which grows the value of the fund. Capital Prudential is able to guarantee fixed returns because the investments are diversified across a range of properties that are bought and sold in the same market, mitigating the risk of market volatility that other investment vehicles such as property syndicates may be exposed to.
“It takes out the risk of the uncertain return and the risk of the uncertain term of your investment,” said Moore.
“That sits with the fund and the investor has certainty as to what they are going to receive.”
Capital Prudential was launched in Adelaide in 2019 by four directors with deep experience across finance, banking, property development and real estate.
They include Moore, an international lawyer and finance professional with significant experience across all aspects of banking for Adelaide and Bendigo Bank, property developer and construction executive Jarrad Haynes, formerly of ASX-listed Programmed, real estate expert with 30-plus years at KPMG Scott Fleming and ASX 100 banking executive Philip Riquier.
Their products are available to wholesale investors – those with assets of $2.5 million or higher or who have earned $250,000 for each of the past two years.
Capital Prudential is unique in that it is a South Australian born-and-bred fund management business, which Moore says also gives the business a unique advantage.
“The South Australian residential property market has lower volatility than Sydney and Melbourne – the prices don’t jump around as much so it’s a good asset for a fund that’s issuing bonds.
“We’ve started this in Adelaide, we’re all Adelaide-based, and our plan is to ensure that Capital Prudential is a national business but remains Adelaide headquartered.”
Disclaimer: Any information provided in this article is either purely factual in nature or is general advice only and does not take into account your personal objectives, situation or needs. Consider the relevant information memorandum and obtain financial, tax and legal advice before making any decision on a financial product.
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