RATING OVERVIEW RECOMMENDATION & CONCLUSION

Evergreen has reviewed the PrivateInvest First Mortgage Income Fund ("the Fund") offering and given it a Commended rating PrivateInvest is a property loan funds manager with a flat operational structure The business has a strong compliance focus, with nonexecutive Directors on its Trustee board and sub committees (Compliance and Investment Review), and capital preservation is embedded in the firm’s culture

The PrivateInvest First Mortgage Income Fund ("the Fund”) offers sophisticated investors monthly income derived from property loans which provides returns uncorrelated to listed instruments The Fund is a traditional ‘pure play’ private debt strategy, which has nil exposure to subordinate debt and no debt leverage (gearing). The Manager focuses exclusively on property finance, by offering short term loans typically between 6 months to 2 years which are secured by registered first mortgages

Evergreen Ratings is cognisant of the current credit environment deteriorating and the challenges ahead for the credit sector. Evergreen believes the Manager is well positioned to perform its functions diligently through the next phase of the business cycle by offering investors appropriate risk-adjusted returns from prudently managing private debt loans.

Rating

Commended

While the Fund has a track record of meeting its return objective, in a benign credit environment, the Manager’s rigour and due diligence on each loan with defined exit strategies and lending to quality Borrowers, should assist the Fund to achieve its future objectives.

Strengths

The Manager applies a high level of governance to the Fund The Trustee has external non-executive Directors on its Trustee Board, its Compliance Committee and Investment Review Committee, and has engaged an independent fund administrator and registry

The Fund’s underwriting facility provides liquidity to Borrowers by acting as a line of credit (as required) reducing fund capital mismatch, and potential dilutionary effect on fund returns being overweight in cash.

Weaknesses

The loan origination book network requires a period of consolidation to bed down the new loan management system and reach its 2023 targets This includes increasing loan enquiry weekly run rate and improving support of loan origination sources across its five channels.

The related party loan, with entities associated with the CEO / Director, which was initially provided when they were a non-executive Director, is a conflict of interest to the Manager, in the operation of the Fund.

Issues To Note

Nils Miller has entities associated with two Related Party loans, both in Orange, NSW (for Borrodell Drive and Ploughmans Lane), which were provided before his employment as a non-executive Director At the time of writing, the Related Party loans are due to be repaid by November 2023. The Trustee has expressed their intention of not loaning to any Director’s in future, however, the IM states the Trustee may make related party loans if due diligence and governance procedures are met

Differentiating Factors

While the Fund is exposed to property finance risks, the Manager prefers property developer bridging finance and civil works loans that offer better risk adjusted returns

A $25 million underwriting facility provides more certainty to Borrowers by operating as a line of credit

The Manager seeks pre-paid income in advance from Borrowers, which provides more reliable fund income returns

The Manager will work with Borrowers if they experience any difficulties and exhaust all options first (e.g. extend loan and or inject capital as required), and will only draw on the Borrowers first mortgage as a last resort, to protect the trust and investors capital.

One loan is cross collateralised, which provides $400,000 of additional security linked to another loan, who is the same Borrower. In both loans, the Fund takes primary security as first mortgage, where one loan has extended first ranking security to the other loan. At the time of writing, the Fund didn’t hold any other cross collateralisation between loans

PrivateInvest went through a restructure in 2020, changed Trustee name / replaced two Directors, and relocated headquarters to Perth, as it sought to ensure ongoing nonexecutive Director input and separation of duties. The Trustee has gone through a period of change as the Fund grew and is starting to achieve operational rhythm in performing its duties

PrivateInvest didn’t write any new loans for the Fund, between July to November 2022, as resources were directed towards securing a large loan of $34 million for another fund in its stable

The management fee of 1 95% p a would appear to be on the upper end, when compared to peers for similar wholesale private debt funds

About The Product

Fund Particulars

Fund name

Dominant strategy

Fund structure

Trustee / Investment Manager

At the time of writing, the Fund was exposed to 13 loans which has concentration risk. This is mitigated by the Manager spending significant energy on loan due diligence, particularly legal contract risks and ensuring valuations and numbers stack up. The Fund offers diversification across loan type, size, sector, maturity and geographical spread

PrivateInvest First Mortgage Income Fund (PIFF)

Invests into loans providing first mortgage finance to participants in commercial, industrial and to a lesser extent residential property in Australia. The loan size range is typically between $3 million to $25 million and are secured by registered first mortgages over Australian real estate

Open-ended, unregistered managed investment scheme

PrivateInvest Capital Securities Limited ACN 611 892 249 AFSL No 491287 / PrivateInvest First Management Pty Limited ACN 625 468 215

KEY ELEMENTS DESCRIPTION

8 August 2018 Australia

Unregistered managed investment scheme (is a “wholesale fund” and not required to be registered under the Corporations Act)

Key Elements Description

Geographic mandate

Open Investment timeframe

Management fee

Trustee fee

Performance fee

High water mark

Benchmark

Distributions

Funds under management Investment source

Australia Open-ended No minimum, withdrawals subject to available funds

1 95% p a (on the loan drawn balance)

0.25% p.a. (on the loan drawn balance)

$55.5M (PIFF), $114.6M (Firm wide) as at February 2023

Wholesale and sophisticated investors only (who satisfy section 761GA and section 9 of the Corporations Act)

Minimum investment

Minimal additional investment

Reinvestments

Unit price

Entry fee

Exit fee

Applications Redemptions

$100,000 (may be reduced at the discretion of the Trustee)

$10,000 (may be reduced at the discretion of the Trustee)

Distributions can be reinvested monthly into the Fund

$1 00 per unit since inception Nil Nil

Allotted during the month Units are generally issued shortly following the Application approval, or within a month of approval.

Redemptions applied during the month It is the aim to process redemptions when the next loan is repaid or when new Investors’ subscriptions are accepted by the Fund

Key Elements Description

Liquidity

While the Fund offers monthly redemptions, Investors should consider the Fund is illiquid, as the Trustee is generally only able to satisfy significant withdrawal requests as individual loans mature and are repaid

Address

Perth Office: Ground Floor, 561 Stirling Highway Cottesloe, Western Australia 6011

Sydney Office: 2 Short Street, Double Bay NSW 2028

Website www.privateinvest.com.au

About The Manager

PrivateInvest Pty Limited (“PI”) (parent entity) is a financial services company specialising in private, commercial, non-bank finance in the Australian real estate sector PrivateInvest focuses its efforts on development opportunities in the commercial property market.

PrivateInvest Pty Limited was initially established in 2010 as an investment management entity for the Mark Roberts family holdings. It originally provided consultancy advisory into the not-for-profit sector with the key objective of increasing social and affordable housing supply in Australia. Both Mark Roberts and Naomi Roberts are founding Directors of the parent entity

In 2018, Mark Roberts observed the growth in the alternative finance sector in Australia away from lending by mainstream banks was likely to continue and grow, and positioned PrivateInvest to be a leading non-bank commercial lender.

PrivateInvest First Management Pty Limited (PIFM) and The PrivateInvest First Mortgage Income Fund (“the Fund” know as PIFF) was established in 2018 to provide investment opportunities to wholesale and sophisticated Investors through its lending to qualified Borrowers in the Australian commercial property sector.

PIFM offer four types of investments for sophisticated investors:

The First Mortgage Income Fund is a “pooled fund” comprised of registered first mortgages

Select Mortgage Trusts offer larger, individual registered first mortgages for investors seeking direct investment, allowing Investors to select the loan, to invest in

Capital Trusts instrument which offers registered second mortgage and preferential equity placements, for investors pursuing returns further up the risk curve

Impact Investments Trusts which provide a platform for investors to make a positive difference in the community.

The major shareholders in PI are:

Roberts Capital (Roberts) = 66 4%

My Helpa Pty Limited (N Miller) = 20.6% Sundowner Enterprises (L Boyatzis) = 10 0%

Sarah de Rozario Family Entity = 3 0%

PI owns 100% of PIFM.

PIFM has a policy to provide ongoing equity ownership to staff for reward of the business reaching its targets and growth goals Nils Miller, Leon Boyatzis and Sarah de Rozario are equity owners which diversifies the shareholders and fosters business succession planning, while the Roberts family remain the majority shareholders

PrivateInvest has no debt, is profitable and covering its costs to do business

PrivateInvest invested $1 million into the Fund, during the current FY23