Sydney, 22 March 2023 – Foresight Analytics & Ratings reaffirms Aura High Yield SME Fund as ‘VERY STRONG’
Foresight Analytics & Ratings has recently completed its’ ratings assessment of the Aura High Yield SME (AHYSME) Fund. The Fund rating has been reaffirmed as VERY STRONG, indicating a very strong conviction that the management team can deliver a risk-adjusted return in line with its investment objectives at this stage of the growth of the online lending in Australia.
A Foresight Product Complexity Indicator (PCI) for the AHYSME Fund has also been designated as COMPLEX, partly reflecting the inherent complexity of multiple underlying warehouse vehicles and the multiplicity of parameters that relate to each warehouse. It also partly reflects the multiplicity of SME lending verticals, with each vertical having different key performance parameters. However, this complexity provides several distinct benefits to investors, including significant portfolio diversification by loans, originators and economic sub-segment.
The AHYSME Fund was launched in August 2017 and is managed by Aura Funds Management Pty. Ltd. The Fund provides funding to select 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 warehouse facilities, which are tranced structures, the Fund ranks either 1st or 2nd, or a combination of both, in what are typical 3-note structures. The 3rd being the first loss buffer (the equity note) contributed by the loan originator.
The Fund aims to provide stable monthly income returns from a diversified portfolio of debt securities including asset-backed SME loans, director guaranteed SME loans, and senior and subordinated loans to non-bank lenders secured against a loan portfolio that provides regular income and capital stability. The Fund aims to generate a return in excess of the performance benchmark of the Reserve Bank of Australia Cash Rate + 5% (currently 8.6% p.a.).
In line with this mix of both senior and higher risk junior positioning in warehouse facilities, the Fund aims to generate a return in excess of the performance benchmark of the Reserve Bank of Australia Cash Rate + 5% (currently 8.6% p.a.). Since its inception, the Fund has recorded an annualised compound return of 9.52% p.a. with no loss-given-defaults (LGDs). The Fund currently provides funding to 7 SME lending originators via separate warehouse financing structures. By way of these lending originators, the Fund provides access to a portfolio of close to 10,500 loans.
Aura Funds Management Pty Limited is part of the Aura Group. The Aura Group has offices in Sydney, Melbourne, Brisbane, Vietnam, and Singapore. The businesses of Aura Group include corporate and capital market advisory, venture capital, funds management, wealth management services, and provision of accounting services to clients. It launched its first unlisted unit trust in August 2017, the AHYSME Fund, a wholesale-only, SME-focused fund that operates using warehouse financing structures. Leveraging the experience of the AHYSMEF, which has an excellent track record, the Manager launched the Aura Core Income Fund (ACIF) in October 2022 aimed at retail investors.
Foresight Analytics’ analyst, Rodney Lay, commented “Warehouse financing, managed by an adept investment manager and which Aura has to date proven to be, offers investors a range of substantial protections and benefits over and above other forms of private credit.”
To access the PDF of this press release, click here.
The full research report is available on the Foresight 360 Digital platform. The platform can be accessed via www.foresight–analytics.com.
About Foresight Analytics’ Investment Due Diligence (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 Product Complexity Indicator (PCI)
A Foresight Product Complexity Indicator (PCI) 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.
Media Contact – Foresight Analytics
Rodney Lay, Analyst
Suite 208, 33 Lexington Drive, Bella Vista, 2153, NSW
Telephone: 0435 610 293/ 02 8883 1369
About Foresight Analytics
Foresight Analytics, an independent Sydney-based firm, provides investment diligence, data analytics, 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 include Diligence Services (Investment, Operational, ESG & Risk Diligence), Data Analytics and Asset Consulting. Foresight’s fund strategy solutions include Data Analytics for asset managers, Fund Strategy Benchmarking Solutions and Strategic Research.
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