Banne r Asse t Managemen t – Putti n g th e i nvestor f i r st
THE ASSET CLASS
PRESERVING CAPITAL
INVESTMENT CRITERIA
The Australian property market has
‘Preserving capital’ refers to the role of the
Defined investment criteria is a further
seen a near uninterrupted growth story
manager in ensuring that the value of the
part of the Banner risk strategy. Banner’s
of 40 years and in this environment
underlying asset is at least maintained,
investments are located in the major
property debt, as an alternate asset, has
or improved, during the term of the
population states of New South Wales
also grown. Where a stable and strongly
investment. Preservation of capital value
and Victoria - the depth of the market
performing property market is combined
has three stages:
is important in assessing the risk on a
with a mismatch in the funding demand/
• 1. asset selection
property and its potential for sale. Loan-To-
supply equation, opportunities present themselves to both individual and institutional investors.
Value (LTV) ratios are maintained at a level • 2. rigorous processes • 3. active on-going asset management
that provides some shelter for the fund from property price risk – LTVs averaging under 65% across the portfolio.
Banner Asset Management saw the
Asset selection relies upon an experienced
market dislocation in 2009 and has offered
and capable investment committee.
Banner does not invest in the large-scale
wholesale and professional investors
It has members with property, funds
high-density city apartment blocks. It
access to the property debt. The mismatch
management, financial, investment,
favours smaller, bespoke developments in
of risk and reward has continued over
development and legal backgrounds. and
the inner suburbs with proven demand.
the past decade due to events such
representatives The Banner investment
as increased bank regulation, capital
committee considers the financial
Banner also focuses on staged, land
requirements, and government actions.
parameters of the proposal, the sponsors’
subdivisions in prime locations and
experience and commitment (including
growth corridors. All such projects have
The underlying asset (predominantly
cash commitment), the project, location,
full recourse pre-sales with cash deposits
residential property) has low volatility,
quality of consultants, asset value and
paid and held by an independent
has shown consistent growth over
proof of proven demand for the end
stakeholder.
many decades, and has low to negative
product. It is a complex process and, as
correlation with the equities market,
asset selection is crucial, Banner adopts
Banner also invests for terms of 12-24
making it a sound investment strategy
a multi-stage investment committee
months on fixed rates with multiple exit
and alternate asset.
process for each proposal, to test and
strategies. This creates a pool of assets
re-test all assumptions. No proposal is
that are frequently maturing, decreases
a ‘take it or leave it’ proposition – the
the influence of longer-term cycles, and
Australia’s development funding market
investment committee will have a number
locks in a rate of return.
has been dominated by the big four
of requirements which must be satisfied
trading banks. The banks have been
before approval will be considered.
INVESTMENT RETURNS
of the property market, it specialises
reducing exposures to the market since the global financial crisis and that trend
Process is crucial. Each potential asset
has continued since due to Basel III,
must be subject to all facets of due
increased APRA (regulatory) oversight of commercial lending and more recently the Royal Commission into the banks. The reduced exposure of the major banks to property development has created an opportunity for private lenders to lend at good rates on secure development by very experienced developers -a very good risk and return trade-off. Banner has nine active wholesale investor funds under management. Returns have been impressive with an average annual return to investors of circa 10% annum for its pooled funds and 10-15% per annum for its single asset funds, over the past decade. Equity, like returns, has been over 20% per annum for its opportunity funds. It also offers some direct property exposures.
Whilst Banner invests across all sectors
diligence and only through a clear and rigid process, will this be ensured.
in the residential market with some industrial and mixed-use properties and non-discretionary retails, such long-term leased supermarkets.
Banner constantly reviews this process using its lending, risk, and legal expertise. On-going management must be active, regular and focused. For all its investments, Banner will obtain detailed monthly reports on the use of funds and progress of the construction. Banner investment portfolio managers will also personally attend all project meetings with builders, architects and developers to personally gauge and assess any issues with construction. All of the above is a daily activity for the manager, backed up by internal risk review to ensure processes are adhered to.
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Quarterly Property Report MARCH 2020