IFM plays significant role financing $5bn Pepper mortgage deal

By Industry Funds Management - 11 August 2011

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IFM’s Alternative Fixed Income Fund (AFIF) has invested in the mezzanine tranche of a residential mortgage portfolio acquired by Pepper Home Loans (Pepper). The portfolio of mortgage securities was originated by GE Capital in Australia.

This is a significant deal for the Australian mortgage market both in scale and complexity. The deal involved extensive due diligence, drawing on IFM's internal expertise in mortgage markets and securitisation, in addition to our large network of contacts. IFM’s Debt Investments Group is highly regarded within this sector of the market and this ensured IFM played an important role in structuring the deal and negotiating favourable terms. The investment presents an excellent risk reward dynamic for AFIF.

Pepper is a highly regarded mortgage originator and servicer with a 10 year track record in the Australian market. It has successfully transitioned the servicer role for established mortgage pools from existing mortgage market players, improving the quality and performance of these mortgage pools as a result. We expect Pepper to continue this success with the GE Capital mortgage pool.

The Pepper deal demonstrates AFIF’s alternative and innovative approach to credit highlighting the broader universe that IFM covers in comparison to traditional fixed income managers, and our alignment with true long term investors.

AFIF is one of the longest running Australian pure credit funds with a diversified portfolio of Australian focused credit assets. In the year to 30 June 2011, AFIF Long outperformed the UBS Composite Bond Index by 335 basis points, and AFIF Short outperformed the Bank Bill Index by 427 basis points. AFIF Long and AFIF Short both invest in the same underlying diversified portfolio of credit assets and have the same credit risk profiles, the only difference is their duration. AFIF Long is benchmarked to the UBS Composite Bond Index with a duration around 3.5 years, while AFIF Short is benchmarked to the UBS Bank Bill Index with a duration around 0.12 years.