You may have seen the recent coverage of pooled property credit funds pausing applications and redemptions, with reports indicating some gates may remain closed for two to six months. For HCP investors, the important question is what those headlines mean for your own investment. The short answer is that HCP is structured differently: you invest in a specific loan secured by a specific first mortgage, rather than units in a pooled fund. The mechanics — and the risks — are set out below.
What are the ‘fund gates’ referred to?
Open-ended credit funds pool investor capital and lend it into longer-term assets such as construction loans. Investors may be able to request redemptions, but the underlying loans cannot necessarily be converted to cash at short notice. If redemptions exceed available liquidity, a fund may need to sell loans at a discount or suspend withdrawals — commonly referred to as ‘gating’.
Gating does not necessarily mean the underlying loans are impaired. It reflects a mismatch between investor liquidity expectations and longer-term assets. Concentration in a particular borrower, sector or location can amplify that risk. The structural issue is not new. Dan discussed it in the second edition of the Constructive Finance book in 2021: borrowing short and lending long can create liquidity pressure when markets tighten. We are not suggesting current conditions are comparable to the GFC; the point is simply that a pooled structure does not, by itself, remove liquidity or concentration risk.
Why your HCP position is different
You do not hold units in a pooled fund. With HCP, you hold a share in a standalone, named loan advance, secured by a first-registered mortgage over a specific project property with a specific borrower. That difference is important to your investment risk. Key elements include:
There is no redemption queue.
Your capital is committed to the specific loan and is ordinarily returned when that loan is repaid. Repayment can occurearlier than expected where the project completes and repays early, or later if the project requires an extension.
Your security is registered.
A first mortgage over the project land. Not a share of a pool of projects. Not a beneficial interest in a portfolio.
There is no cross-collateralisation.
Your loan is not impacted by other projects being managed by HCP. If another borrower on our book has a difficult year, your security position over your own project is unaffected.
You know the project details.
Our loans are overwhelmingly located in Brisbane and South East Queensland. Before committing funds, you receive details of the project address, developer, builder, valuation, QS reports, overall project feasibility and sales strategy. That is the whole of your exposure; other HCP loans do not form part of your security or repayment source. The trade-off is worth stating plainly: because you are not in a pool, HCP does not diversify your investment for you. You carry the risk of the specific project, borrower and location. Investors can build diversification themselves by participating across separate HCP loans, and we encourage investors to do so.
100% of required funding is raised upfront
HCP raises the full funding required to complete the project before settlement. This provides investors and borrowers with confidence that committed construction funding and contingency are available to meet approved progress claims as they fall due, rather than relying on future investor inflows or claim-by-claim capital raising.
How we manage the loan once funds are advanced
We use a panel of valuers and quantity surveyors, whom we instruct directly rather than through the borrower. Every progress claim is assessed by our QS before funds are released, and cost to complete is rigorously tested and maintained at each draw, not simply assessed at the start of the project and then assumed.
Active Loan Management and Communication
We maintain regular investor communication throughout the loan and stay close to each project through QS reporting, site inspections and direct engagement with borrowers.
Keeping it local
Because our lending is concentrated predominantly in Brisbane and South East Queensland, our team also has strong practical knowledge of the suburbs, builders, agents and market conditions relevant to each loan.
No growth for growth’s sake
Currently, we have approximately $130 million on the loan book across roughly 20-25 projects, and have settled close to $680 million since 2017. We deliberately maintain the loan book at a level that allows us to remain selective, keep management resources focused and speak to the position of every loan at any time.
