We have been asked a lot recently by current and potential investors about how our funds are weathering the pandemic and whether there is any cause for concern given current economic circumstances. Very simply, our funds continue to perform well, and we have every expectation for them to continue to do so. Our monthly preferred returns have remained consistent and undisrupted. In fact, we continue to raise capital at a rapid pace from investors looking to diversify out of the stock market.
There remains a lot of uncertainty in the economy with a plunging GDP and high unemployment rates. But our founders, Jim Maffuccio and Bob Fraser, after suffering losses in two previous downturns, specifically designed the Aspen Funds’ business models to be robust and able to weather economic storms.
Investors have asked why the fund continues to perform well, and if we expect that to continue.
We don’t have a crystal ball, but we remain cautiously optimistic and have outlined 5 reasons why we expect continued strong performance of our Aspen Income fund:
- Deep equity repositioning. Several years ago, we made a strategic and significant shift in our portfolio composition. We began shifting our portfolio to generally stronger equity positions that would be more capital protective. Our portfolio today reflects these efforts. Our overall portfolio Investment-to-Value (ITV, or cost basis relative to collateral value), is 60%, which means, on average we have 40% equity covering our positions.
- Refinances. Given the continued low interest rate environment, banks today are slammed with requests for refinancing. Our borrowers too are refinancing, and unlike other lenders, when an Aspen loan gets paid off in a refinance, we profit. On average, Aspen pays 69 cents on the dollar for our loans. So, when one of our borrowers pays us off with a refinance at 100 cents on the dollar, we make a profit.
- Solid price to rent ratios. A key underwriting factor we evaluate is the price to rent ratio of each asset. In most cases, Aspen borrowers pay far less to live in their home than if they rented. This creates a stickiness factor for current homeowners too, as it is cheaper to pay their mortgage than rent elsewhere. Additionally, this becomes an alternate source of cash flow in a worst-case scenario and we take the asset back
- Home prices. Our economics research team has continued to uncover indicators of strength in the price of residential real estate. There is abundant evidence of strength underlying the housing market, especially in the entry-level & middle market. And with the Fed again stepping in to purchase mortgages, we will see mortgage rates driven to the floor, which will add further support.
- Bankruptcies. We have seen a slight uptick in bankruptcy filings. But bankruptcies actually help Aspen. As a secured lender, our loan is preferentially treated by bankruptcy courts. Any unsecured loans wiped out by the borrower free up cash flow to pay the secured lenders like Aspen. And instead of relying on the borrower alone for payments, we now have the bankruptcy court enforcing borrower payments to Aspen.
Bottom line, this fund owns 470 great assets, in bread-and-butter homes across the US, homes that today have now become a family’s very sanctuary from the crisis.
If you have any questions on this fund’s performance, or would like any additional information, please feel free to reach out.
Mr. Fraser is the Vice President of Finance for Aspen Funds. Prior to Aspen, Mr. Fraser was a commercial lender at First Business Bank specializing in government backed loan originations for one of the top SBA lenders in the nation. And prior to that he was a commercial credit underwriter, personally responsible for underwriting over $125MM in commercial real estate and business loans.
Before banking, he worked for a boutique asset management firm in energy infrastructure investments, Tortoise Capital Advisors, and helped grow their institutional managed accounts from $3BN AUM to $7BN AUM. Ben completed his MBA from Azusa Pacific University, and his B.S. in Finance from the University of Kansas, graduating magna cum laude.