It will come as no surprise that during this time of uncertainty, GPS is being conservative.
To reduce risk for our retail investors, GPS is lowering LVRs (Loan to Value Ratios) for retail investors to less than 65% (excl. GST).
By decreasing LVRs to retail investors, we are increasing the buffer should there be an adverse movement in the market.
It is important to note that we calculate LVRs excluding GST, as some other funds actually advertise LVRs including GST. The LVR is calculated using a valuation amount inclusive of GST, inflating the value and making the LVR look better than it actually is. Something to watch out for.
In order to achieve a sub 65% LVR for our retail investors, we have increased the amount of subordinated funds in loans.
A subordinated investor is an investor who does not get paid until all GPS retail investors have been repaid in full.
Subordinated investing at GPS is commonly done by entities which are linked to the Woodhead family. It started as a way of GPS putting ‘skin in the game’ and continues to assist with keeping LVR’s for GPS retail investors at comfortable levels.
GPS is also continually increasing the quality of our borrowers. We adapt our lending product to ensure that we remain competitive in the current market and can win the deals we want. As always, “we only lend because we want to lend, not because we have to”.
The increase in competition in the market has meant that we are having to “sharpen the pencil” on rates to borrowers.
Market competition, and ensuring that we lend to quality borrowers, has put further pressure on our fund usage rates and therefore our distribution rates to investors.
The target rate for the GPS Invest Pooled Fund (‘Pooled’) will be 5.50% p.a. from 1 March 2021. Going forward we expect the GPS Invest Select Fund (‘Select’) loans to be offered at 6.00% p.a.
There has been a slowdown in new project starts for early 2021. When, or if, GPS can take new money depends on how much of a slowdown there is. A legacy from COVID is a commitment issue from borrowers. Many are yet to get their head back in the game.
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If you have any questions regarding our strategies to decrease risk for our retail investors, or the change to our target rates, please give me a call on 1800 999 109.
Richard Woodhead | Managing Director