10th October 2020

Putting the investor first

The Manager

Banner Asset Management is an experienced asset and funds manager with a specialisation in debt and equity products in the Australian real estate market.

Since 2010, Banner has invested in a range of real estate and development opportunities, primarily in the larger population centres on the east coast of Australia.

Banner was started in 2010 by Andrew Turner (CEO) and a small group of initial investors and chiefly invested the funds of its principals. It grew organically, to gradually wider circles of associates and their companies, family members and friends.

The range of investors has expanded to institutions, corporates, and other funds. All the original investors remain.

This organic and gradual growth guided and continues to guide the investment principles of ‘putting the investor first’, through responsiveness, preserving capital and earning a return.

Banner initially matched individual investors funds with individual projects though the Banner Wholesale Fixed Interest Income Fund. That master fund remains the flagship fund of the group. It has added pooled funds and opportunity funds to its product offering.

Banner is a registered provider of financial products in the highly regulated Australian financial services and funds management sector.

It complies with strict legislative requirements, including capital reserves (net tangible assets), process and audit requirements. The head office is in Melbourne, with a Sydney office, principals located and active in Japan and Singapore. Its investors are mostly located in Singapore, Hong Kong, Japan, Europe and Australia.

The Banner funds have funded property projects valued at over AUD8 billion. A majority of Banner’s investors are non-residents, and it is well versed in dealing with the needs of off-shore investors.

The Asset Class

The Australian property market has seen a near uninterrupted growth story of 40 years and in this environment property debt, as an alternate asset, has also grown. Where a stable and strongly performing property market is combined with a mismatch in the funding demand/supply equation, opportunities present themselves to both individual and institutional investors.

Banner Asset Management saw the market dislocation in 2009 and has offered wholesale and professional investors access to the property debt. The mismatch of risk and reward has continued over the past decade due to events such as increased bank regulation, capital requirements and government actions.

The underlying asset (predominantly residential property) has low volatility, has shown consistent growth over many decades, and has low to negative correlation with the equities market, making it a sound investment strategy and alternate asset.

Investment Returns

Australia’s development funding market has been dominated by the big four trading banks. The banks have been reducing exposures to the market since the GFC and that trend has continued since due to Basel III, increased APRA (regulatory) oversight of commercial lending and more recently the Royal Commission into the banks.

The reduced exposure of the major banks to property development has created an opportunity for private lenders to lend at good rates on secure development by very experienced developers -a very good risk and return trade-off.

Banner has nine active wholesale investor funds under management. Returns have been impressive with an average annual return to investors of circa 11% annum for its pooled funds and 13-16% per annum for its single asset funds, over the past decade. Equity, like returns, has been over 20% per annum for its opportunity funds. It also offers some direct property exposures.

Preserving capital

‘Preserving capital’ refers to the role of the manager in ensuring that the value of the underlying asset is at least maintained, or improved, during the term of the investment. Preservation of capital value has three stages:

  • (1) asset selection
  • (2) rigorous processes
  • (3) active on-going asset management

Asset selection relies upon an experienced and capable investment committee. It has members with property, funds management, financial, investment, development and legal backgrounds. and representatives The Banner investment committee considers the financial parameters of the proposal, the sponsors' experience and commitment (including cash commitment), the project, location, quality of consultants, asset value and proof of proven demand for the end product. It is a complex process and, as asset selection is crucial, Banner adopts a multi-stage investment committee process for each proposal, to test and re-test all assumptions. No proposal is a 'take it or leave it' proposition – the investment committee will have a number of requirements which must be satisfied before approval will be considered.

Process is crucial. Each potential asset must be subject to all facets of due diligence and only through a clear and rigid process, will this be ensured.

Banner constantly reviews this process through its lending, risk, legal expertise.

On-going management must be active, regular and focused. For all its investments, Banner will obtain detailed monthly reports on the use of funds and progress of the construction. Banner investment portfolio managers will also personally attend all project meetings with builders, architects and developers to personally gauge and assess any issues with construction.

All of the above is a daily activity for the manager, backed up with internal risk review to ensure processes are adhered to.

Investment Criteria

Defined investment criteria is a further part of the Banner risk strategy. Banner’s investments are located in the major population states of New South Wales and Victoria - the depth of the market is important in assessing the risk on a property and its potential for sale. Loan-To-Value (LTV) ratios are maintained at a level that provides some shelter for the fund from property price risk – LTVs averaging under 65% across the portfolio.

Banner does not invest in the large scale high-density city apartment blocks. It favours smaller, bespoke developments in the inner suburbs with proven demand.

Banner also focuses on staged, land subdivisions in prime locations and growth corridors. All such projects have full recourse pre-sales with cash deposits paid and held by an independent stakeholder.

Banner also invests for terms of 12-24 months on fixed rates with multiple exit strategies. This creates a pool of assets that are frequently maturing, decreases the influence of longer-term cycles, and locks in a rate of return.

Whilst Banner invests across all sectors of the property market, it specialises in the residential market with some industrial and mixed-use properties and non-discretionary retails, such long-term leased supermarkets.