Early Returns & Balancing Investor Expectations

Andrew Thomson - General Manager

Investing with CFMG Capital via the Land & Opportunity Fund allows investors to take advantage of a fixed return structure of 12% per annum with a fixed term. However, cards on the table – the fixed term isn’t 100% fixed due to variances in project timing. Upon reading the PDS, most investors note that our ‘fixed terms’ allow the fund to bring projects forward 12 months and/or extend projects by 12 months.

Andrew Thomson - General Manager

In both cases, a pro-rata return then applies – so when a project completes 12 months early, the investor misses out on a further 12% return for that year, while if a project extends for 12 months, that’s an extra 12% the investor earns in return for CFMG Capital retaining their capital for an extra 12 months.

So while here at CFMG Capital, we like to celebrate a ‘job well done’ when a project is completed ahead of schedule and investors are paid out early – we now recognise there is a fine balance when it comes to investor expectations in these circumstances. A client who has invested in a 3 year project at 12% fixed per annum, is thus expecting an overall return of 36% at the completion of the 3 year term. Over time, we’ve come to realise that some investors are more interested in the overall return on their money, than they are on the per annum rate, so if we return funds after 2 years and the overall return is now 24%, some investors may feel short changed.

The key to overcoming this concern is to be able to regularly have ‘live offers’ in market, so if an investor has their capital and profits returned to them early, there is a new offer ready for them to re-invest in if they wish to. Unfortunately, this isn’t always the case – as due to our rigorous due diligence process and conservative approach to investment, finding suitable projects that meet the standards of the Land & Opportunity Fund is not a simple task.

In December 2017, CFMG Capital, via the Land & Opportunity Fund, purchased a 4.1 hectare parcel of land in Morayfield, north of Brisbane. This project became Creeks Edge Estate, an 80 lot residential land sub-division. Since December 2017, the project has been settled, development commenced and completed, title registration achieved and completed lots commenced settlement in late September. 

As a result, investors in this project via the CFMG Land & Opportunity Fund have recently been getting the positive news via their scheduled investor updates that they are set to receive their fixed 12% per annum returns ahead of the forecast fixed term of 18 months.  The successful identification, purchase, construction, sale and completion of this 80 lot project all within a 12 month window underlines the continued strength of the South East Queensland residential land market as well as the expertise and reliability of the CFMG Capital team. However, for some investors – they may see it as a loss of an additional 6% return as a result of the project completing 6 months early.

Fortunately, in this case – there is a live offer in market for these investors, with Elevate Estate in Ormeau Hills currently open for new investment, with a fixed return of 12% per annum and a term of 2 years (24 months) – thus giving these particular investors the opportunity to continue earning their fixed 12% return after having their money returned early in their most recent investment.

As a result, while it’s important to manage investor expectations in situations like this, it can’t be at the expense of a prudent and conservative approach. The clarity and regularity of our reporting and investor updates will always play a key role in how situations like this are received, to ensure there are no unexpected surprises.