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Brett Craig B. G., Opalesque Geneva: If one wonders about investing in the SME lending market, some funds are showing that it is well worth it.
One of them is the Aura High Yield SME Fund, which has proven its claim to stable returns in this turbulent year, having returned an average of 0.73% each month. Launched in August 2017, it has returned 35% since and 9% over the last 12 months.
The fund, aka AHYSMEF, is a diversified portfolio of debt securities including asset-backed SME (small to medium enterprise) loans, director guaranteed SME loans, and senior loans to alternative finance (AltFi) lenders. It is an Australian fund and it is aimed at wholesale investors.
Portfolio manager Brett Craig, who prior to joining Aura was at Macquarie Group for 11 years, is renowned as the first portfolio manager to originate,
structure, negotiate and execute an Australian Bank Debt
facility for an AltFi lender. He will be speaking in the upcoming webinar DIVERSIFICATION MATTERS - Episode 2, on October 27th at 10 am EST.
The opportunity the fund is taking advantage of is in the lack of loan opportunities that SMEs are facing. Indeed traditional lenders such as banks prefer to focus on larger businesses and larger loans. So SMEs are looking at non-bank lenders. Research shows there has been a 33% decline in SME business loan applications to banks over the past five years.
Aura Funds Management, the Sydney-based manager, recapitulates the
main issues currently facing Australian SMEs in accessing finance:
- Since 2000 SME loans of less than $100,000 (US$71,760) have grown
at a slower rate than loans of greater than $2 million
- More than 40% of the applications made by the smallest
SMEs were rejected where the loans were for less than
$100,000
- 30% of SMEs missed out on a business
opportunity due to a lack of credit; and
- 37% of SMEs listed the primary reason for having their
loan application rejected as being due to the requirement
by the bank for owners to post significant personal
collateral for the business lend.
As of 31st August 2020, Aura had 426 loans in its portfolio, spread over five platforms. The average loan size was $64,000. It is well spread in terms of industries, but with noticeably more in agriculture forestry and fishing, wholesale trade, construction, and manufacturing.
Aura also invests in SME AltFi, an emerging industry that lends to SMEs. The alternative finance market is big in Australia and includes companies such as Banjo and Bigstone.
According to Aura, "the
market opportunity is significant for Fintech enabled AltFi
lenders, however, the main impediment to their growth is
access to funds to lend to SME borrowers. Banks are
reluctant to fund these Fintech businesses due to their lack of
track record or ethical considerations due to perceived higher
rates being charged by these lenders This presents a unique
credit opportunity for the AHYSMEF to service this funding
gap."
Aura Funds Management is a subsidiary of Aura Group, an integrated global financial
services firm specialising in funds and wealth management, corporate
advisory, and principal investments.
SMEs are also benefiting from the current SME Loan Guarantee Scheme issued by the Australian government. According to Mozo, under the first phase of the scheme, the government guaranteed half of all unsecured three-year business loans of up to $250,000 issued by participating lenders including CommBank, ANZ, and 39 other smaller providers. Under phase two, the loan terms have been extended to five years, and loan amounts increased to $1 million. Almost 20,000 small to medium-sized businesses (SMEs) took advantage of phase one. According to CommBank, nearly one-fifth of those businesses belonged to the property and business services sector (17%), while 16% came from retail, 14% from construction, and 14% from accommodation, cafes and restaurants - all industries that experienced high levels of disruption due to COVID-19.
WEBINARS:
Brett Craig will be speaking at the second episode of the Diversification Matters webinar series, where Opalesque presents investment managers who not only were up / protected in Q1-2020, but also YTD and in previous years. To view the webinar, please click here:
- Registration (free): www.opalesque.com/webinar/
- Time: Tuesday, Oct. 27th 2020, at 10 am EST
You can replay Episode 1, as well as other group and sole manager presentations, here: www.opalesque.com/webinar/#pastwebinar
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