We notice that our client base gets older every day, as indeed do we.

And edge closer to retirement age.

Some retirees will have a pension or several pensions (state; employer-based; private) to pay the income. Some will have a lump sum.

If a lump sum, how to eke out the amount so you can make income from it without eroding the principal?

Traditionally, retirement income has been paid out by fixed interest securities. When you could get 6% p.a. in most major currencies you could finance a retirement out of a lump sum. And many high-grade bonds would give you a similar yield.

Retirement income can also be paid out of high-dividend stocks. BP, for example, has a dividend yield of currently 6.8% (and, through pension funds, services about 10% of all UK private and corporate pension payouts).

However, there has been no large stock market correction for nine years now, so the chances of the value of a dividend-bearing stock portfolio getting savaged by 50% are quite high (2000-2002, S&P 500 -50.5% top to bottom; 2007-2009, -57.6%). That kind of risk you may not want to take with retirement money.

And for fixed interest, the governments’ response to the 2007-2009 financial crisis was to lower rates to zero, basically sacrificing savers and the retirees to bail out the banks. In this process first-world nations accumulated much larger national debts (end 2018, UK 86.6%; France 97%; USA 107.1%; Italy 131.1%; Japan 253%).

Interest rates, especially in the USA, have begun to edge up again, but they cannot be historically normalized as the debt servicing, i.e. the payment of due interest, would simply be too large for the debtor nations to pay them. First-world government debt has been boxed into a corner.

It is a crucial observation on financing retirement income that cash won’t do it, unless you erode your capital (i.e., spend your money); bonds won’t do it; and the stock market is too dangerous to do it.

In which context we would like to remind you of the Ebisu Income Fund, which is paying 8-10% p.a. on a highly robust process. No losing months (since the first month: set-up costs, nearly nine years ago). All loans made within the fund fully collateralized, with 30-40% safety margin, in case of a borrower default (one to date). Multiple loans ongoing across different time-frames, so there is always money coming back into the fund. Monthly liquidity, so when you wish to withdraw your profits as income, the process will not take more than a couple of months.

The Banner Asset Management Ebisu Income Fund (IOM) has been established to invest mainly in  Australian mortgage funds, the Banner Ebisu Income Fund, the Banner Wholesale fund, and the Banner Institutional fund. Together referred to as the Master fund.

The Master Fund is a mortgage and construction loan fund based in Australia.  All monthly returns since the first month of operations have been positive.

The fund has security of invested capital as priority. It lends money to developers, with loans usually ranging from $10 million to $50 million. The fund does invest directly in property: the fund lends a percentage of the ‘on completion’ value of approved property projects. Australian law enables the lender to step into a property and sell it (or complete the project) where a loan defaults. The loans are usually for a term of 12 to 24 months.  There are typically 20 to 25 loans in the Fund at any one time, and loans are repaid on a regular basis — creating regular fund liquidity.

The lending activity – at rates of ranging from 9- 18% p.a. – this is possible because the Australian banks are reluctant to meet demand, especially as such loans require the banks to hold greater capital in reserve. The Australian banks show no signs of re-entering the market that they largely vacated after the 2008-2009 financial crisis. Developers still need to borrow and are prepared to pay relatively high rates to do so.  Banks are often slow to assess loans, making them less competitive. As the fund has developed, it has increasingly taken on repeat borrowers — developers of experience who over time have become regular borrowers.

Once made, the loans are carefully managed.  The fund assigns portfolio specialists to monitor the construction process for each loan and only provides the money stage by stage during the construction process.    Most of the properties are significantly pre-sold, to assure repayment on completion from the sales.

Investing

To invest directly into the fund in Australia the minimum is AUD $500,000. There is a 10% withholding tax for non-Australian resident investors; for Australian residents the income is taxable.

At the end of 2016, the Isle of Man-domiciled fund was established by Banner Japan to allow its clients access to the Master Fund, with a minimum investment of AUD 25,000. This fund has been available since January 2017.  The Isle of Man fund is free of taxation, and the returns are accumulated into the fund price.  Many investors will only have a taxable position on sale according to their country of residence (each case subject to the investor’s own taxation advice).

Corporate Information

Banner Capital Management Ltd is an Australian based ASIC-licensed fund manager focused on structuring, funding and managing quality private debt opportunities in Australian real-estate. Banner has a proven track record of delivering investment returns, to both institutional and private investors. Since 2010 the Banner funds have invested across 45 Australian real estate debt deals, have provided capital more than $500mln and managed assets valued at over AUD3.5bln.

Existing fund structures:

• Banner Wholesale Fixed Interest Income Fund – an “asset specific” investment vehicle (not commingled).
• Banner Ebisu Income Fund – a commingled onshore fund. Min $500,000.
• Specialist opportunity funds – opportunity specific funds that may invest more broadly across the capital stack.
• Banner Asset Management Ebisu Income (Isle of Man) Fund – a commingled offshore fund. Min $25,000.

A strong local partner for Banner Japan within the Australian real estate industry, Banner is driven by long-term, trusted relationships and built on certainty, speed, transparency, and integrity.