Press Release – Foresight Analytics & Ratings Rates The Aura Core Income Fund from Aura Group as ‘Very Strong.’
Sydney, 29th January 2024
Foresight Analytics & Ratings has recently completed its’ ratings assessment of the Aura Core Income Fund an Aura Group fund. The Fund rating has been reaffirmed as VERY STRONG, indicating very strong level of confidence that the Fund can deliver a risk-adjusted return in line with its investment objectives at this stage of the growth of online lending in Australia. The investment manager’s support for this strategy is experienced and well-resourced.
A Foresight Product Complexity Indicator (PCI) for the Aura Core Income Fund has also been designated as COMPLEX, indicating the manager will seek to outperform their chosen specialist market sector, in this case, the Australian SME loan market. A key risk is the ability of Aura Group to identify and validate superior loan underwriting and servicing standards of non-bank lenders with experience in the SME sector.
The Aura Core Income Fund was launched in September 2022 and is managed by Aura Credit Holdings Pty. Ltd. The Fund provides funding to niche non-bank lenders that specialise in providing finance to small-to-medium businesses (SMEs) in Australia by way of warehouse financing structures. Within these facilities, which are tranched structures, the Fund will typically rank the highest and lowest risks, and it will have a lesser portion of the total portfolio in the second rank, subordinated level of credit. In line with this lower risk position, the Fund aims to offer a target monthly income of 3.5 to 5.5% p.a. above the RBA Cash with a low level of expected capital loss. At the current RBA Cash Rate of 4.35%, this equates to an annualised return of 7.85% to 9.85%.
This rapid investment was achieved by leveraging the investment due diligence the Manager had previously undertaken for the higher-risk Aura High Yield SME Fund. The latter was launched in August 2017 and has recorded an excellent track record to date.
Warehouse financing, managed by an adept investment manager like Aura Group offers investors a range of protections and benefits over and above other forms of private credit. These include the following:
1) At least 2 layers of protection at the loan level
2) Collateral, including the lender’s first loss capital (Equity Note) plus the retention of its net interest margin and origination fees in the first loss buffer
3) The Manager’s ability to mitigate lending segment risk by strict portfolio parameters and credit enhancement (first loss) levels
4) The ability to ‘cherry pick’ niche non-bank lenders in a rapidly growing segment
5) The floating-rate structure, which removes interest rate risk and the short loan durations, which mitigates economic cycle risks
6) The Manager’s ability to make tactical tilts in relation to lending segments/economic exposures (unlike RMBS/ABS)
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About Foresight Analytics’ Operational Due Diligence Rating (ODD Rating)
An Operational Due Diligence Rating assesses the capacity of an operating entity, special-purpose vehicle, or asset (collectively “operating party”) to effectively undertake its defined role of managing the operational risks relating to a pool of financial or physical assets. The ability of an operating party to carry out its role, be it in a superior, adequate, or poor manner, ultimately will have a bearing on the performance of the pool of assets. The overall ODD Ratings assigned by Foresight Analytics is underpinned by 7 risk factors – Ownership, Management talent, Governance, Risk & Compliance, Asset & Data security, Systems & Technology and Financial agility.
The assessment covers operational responsibilities and oversight undertaken for a pool of assets retained by the owner, or alternatively a pool of assets that underlie a debt issue or managed fund. The assessment addresses how much the operating party enhances or potentially detracts from the ability of the asset pool to pay interest and principal on a specific security as and when due, or the fund’s ability to distribute income according to the Product Disclosure Statement (PDS). It should be noted that operational risks generally exist in addition to credit, market, and liquidity risks.
Foresight Analytics Operational Due Diligence Rating (ODD Rating) Scale & Definitions
About Foresight Analytics’ Investment Due Diligence Rating (IDD Rating)
The objective of Foresight Analytics’ Investment Due Diligence Rating (IDD Rating) is to identify the best funds and opportunities for future investment. We assess the fund’s historical risk-adjusted performance – compared to its peers – to form a holistic view of the manager’s ability to deliver future returns. The IDD rating indicates the quality of the investment option within the context of a diversified portfolio and full investment cycle.
Foresight’s analysts use a 5-point scale to determine how the fund will perform against a range of risk factors.
- SUPERIOR indicates the highest level of confidence that the fund can deliver a risk-adjusted return in line with its investment objectives and that it is highly suitable for inclusion on APLs.
- VERY STRONG indicates a very strong conviction that the fund can deliver a risk-adjusted return in line with its investment objectives and that it is suitable for inclusion on most APLs.
- STRONG indicates a strong likelihood that the fund can deliver a risk-adjusted return in line with its investment objectives and that it is suitable for inclusion on most APLs.
- COMPETENT indicates the fund may deliver a risk-adjusted return in line with its relevant benchmark and that it may be suitable for APLs.
- WEAK indicates the fund is unlikely to deliver a risk-adjusted return in line with its investment objective and that it is not suitable for most APLs.
A ‘Hold’ designation is applied to a fund’s rating if a material change impacts the fund manager, and we need to review the rating. A ‘Sell’ designation indicates the Foresight Investment Ratings Committee considers risk factors to be elevated enough that maintaining an investment in the fund as part of their diversified portfolio is questionable.
Foresight Analytics Foresight Complexity Indicator
A Foresight Complexity Indicator (FCI) highlights the complexity of an investment product based on a range of indicators. These typically include its terms and conditions, performance-based fees, liquidity structure, financial leverage, use of derivatives, rare and niche asset class/opportunity set, currency exposure and the level of transparency offered for investors. Foresight believes these factors can disproportionately affect risk–adjusted return outcomes for investors even if a manager is very skilled. Investors can use FCI as a guide to portfolio position sizing within a diversified portfolio context.
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About Foresight Analytics
Foresight Analytics, an independent Sydney based firm, provides investment diligence, data analytics, assurance and advisory solutions to leading investment management companies, superannuation funds and wealth groups across the Asia Pacific. Foresight’s innovative, evidence-based approach blends both human and forensic insights to provide a range of analytical, predictive and market intelligence solutions to investors. Foresight Analytics was founded in 2015 by Jay Kumar, a former executive of Morningstar, Optimix Investment Management, ANZ Wealth & Private Bank and the Reserve Bank of Fiji.
Foresight’s fiduciary solutions includes Research Ratings (Investment, Operational, ESG & Risk), Data Analytics and Advisory. Foresight’s fund strategy solutions include Capability and Process Assurance, bespoke Data Analytics and Strategic Foresight Analysis.