Blue Gate Capital has launched a fund that invests in the bridging loans market by lending money to bridging finance companies.
The Blue Gate secured high income fund has a target yield of 9 per cent a year, which be paid quarterly. Any income above this target will be rolled up and distributed as growth to investors at the end of the fund’s life of five to seven years.
The fund derives its income from lending money at an annual fixed rate to bridging companies that then lend this money to people who need short-term finance.
Bridging loans are secured against property assets and typically have interest rates of 1.25 to 1.75 per cent a month over a term of three of 12 months. The borrower is charged a loan arrangement fee or exit fee and there will be charges if loans are repaid after the due date.
Bridging companies normally borrow from banks and lend this money on to their clients but banks have reduced lending, which has created opportunities for this fund.
As the fund secures its income from the fixed rate it charges the bridging companies, it will not be affected by fluctuations in the stockmarket and interest rates.
The fund is available to Sipp and SSAS investors through an exempt unit trust, but investors who can meet the £50,000 minimum may also invest directly in the fund as a limited partnership.
Blue Gate will lend money only to established and experienced bridging companies with proven business models and a track record of profits. These companies will be restricted by the fund as to how the money is used and secured to ensure risk is minimised.
The fund will not be geared initially, but it may be geared in the future if it is available in attractive terms.
This fund could be attractive to high-net worth and sophisticated investors who are looking for diversification but there are risks. Bridging companies tend to be relatively small companies and if their clients default, they may not be able to service or repay their loans obtained from the Blue Gate fund.
However, the fund’s focus on good quality bridging companies who lend a maximum 65 per cent LTV, with loans secured through a first or second legal charge on borrower’s properties, is designed to keep risks to a minimum.