Frequently Asked Questions

About Gryphon Capital Investments Pty Ltd (“Gryphon”)

Gryphon Capital Investments is a specialist manager focussed on investments in the structured finance and less liquid credit markets in Europe and Australia.  Gryphon has a highly seasoned and experienced team with the partners averaging more than 20 years of relevant experience trading, originating and investing in global structured finance credit markets.  The partners have worked in London, New York, Tokyo and Australia, and many of the remaining team have significant international experience.

Gryphon manages individual segregated accounts on behalf of institutional investors and a listed investment trust on behalf of wholesale and retail investors seeking opportunities in fixed income credit markets including RMBS and ABS.

Gryphon has a highly seasoned and experienced team with the partners averaging more than 20 years of relevant experience trading, originating and investing in global structured finance credit markets.  The partners have worked in London, New York, Tokyo and Australia, and many of the remaining team have significant international experience.

Gryphon’s experience and proprietary databases allow them to assess risk and create a portfolio of the best relative-value securities available within the investment mandate. Portfolio construction brings together the best ideas formulated by the Gryphon Investment Committee and then researched by the Gryphon Investment Team to deliver the optimal Portfolio composition for the agreed risk budget. Importantly, we do not invest for maximum yield, but rather aim to generate sufficient yield to hit our target return with the minimum risk.

Investment Opportunities – Gryphon Capital Income Trust

Gryphon Capital Income Trust (ASX:GCI) ("GCI") is an investment trust listed on the Australian Stock Exchange (ASX) that provides unitholders with sustainable monthly cash income by investing in a portfolio of Australian RMBS and ABS.

The Gryphon Capital Income Trust (ASX Code: GCI) is a listed trust designed to provide investors with sustainable, monthly income (Target Return equal to RBA Cash Rate + 3.50% pa) through exposure to the Australian Securitisation market. This asset-class, primarily consisting of Residential Mortgage Backed Securities (RMBS) and Asset Backed Securities (ABS), is a key pillar of the Australian fixed income market.  Capital preservation is the primary objective of the trust.

  • Sustainable monthly cash income;
  • Access to a large fixed income market – the Australian ABS market is > A$110 billion, double the size of the corporate bond market;
  • Exposure to a defensive asset class with a track record of low capital price volatility (no investor has ever lost a $ of principal investing in Australian Prime RMBS);
  • Access to a specialist investment manager with a proven track record of investment outperformance.

The Target Distribution per unit is RBA Cash Rate plus 3.50% per annum. Since completing the Target Portfolio construction in October 2018, GCI has been able to deliver monthly income distributions in excess of the Target Distribution.

GCI structure and key terms

Investors can buy or sell GCI units on the ASX.

Cash distributions are paid monthly to unitholders within 6 business days following the end of each month. Distributions are expected to match income (net of fees and expenses) generated by the Trust.

The current estimated annual running costs are 0.90% (net of claimable GST). This includes the fees payable to the Investment Manager, the Responsible Entity, the Custodian, Auditor, ASX and the Registry. There are no performance fees paid to Gryphon.

GCI’s NTA is calculated and released daily to the ASX.

A Listed Investment Trust distributes all earnings to investors on a pre-tax basis. There are no franking credits for investors in a trust structure. A listed investment company would tax earnings at the company tax rate and franking credits may be distributed to investors via dividends.

The Trust structure allows Gryphon to invest a permanent and stable pool of capital, while also offering investors ASX liquidity. Listed investment trusts are referred to as  “closed-end vehicles” which means that investors cannot withdraw funds directly from the Trust allowing Gryphon to utilise all available funds in investing in qualifying assets without having to keep a reserve of cash to cover for possible redemptions.  Investors can only cash in their investment by selling their shares on the ASX.

Gryphon intends to only use derivatives and other hedging techniques for risk management purposes and not for market speculative purposes in an attempt to increase returns.

Yes, GCI can be accessed via certain platforms. A list of available platforms is available on the GCI monthly Investment Update or alternatively your Financial Advisor will be able to provide more information.

GCI produces a monthly Investment Update that is released to the ASX each month and can be accessed on the GCI website. Interested parties can also subscribe on the website to receive the Investor Update via email.

Fixed Income Market

Fixed income securities are classified as income assets that provide investors regular interest payments and an eventual return of principal on maturity.  Fixed income securities should form an important part of investors’ diversified portfolios to generate income and preserve capital. Fixed income is less volatile and largely uncorrelated with popular asset classes in traditional investor portfolios such as equities.

A bond is a commitment by a borrower to pay an agreed rate of interest on the amount borrowed over a set period of time, and when that period ends the capital is repaid in full. Bonds sit within a portfolio’s fixed income allocation alongside products such as cash and term deposits and are generally considered to offer stable returns, and to be lower risk than equities – and hence deliver lower returns than equities.

Securitisation is the issuance of bonds to fund a pool of loans. The pool is funded by a range of investors with different return objectives and risk appetites. The safest debt is called the senior position which is AAA rated. It has first claim on the principal and interest which is paid from the loans while the next debt piece typically carries a medium risk profile and has an Investment Grade rating and the last debt piece carries the highest return and a longer duration.

A credit rating is an assessment of the credit quality of the bond and is meant to indicate to an investor the level of risk they will be carrying by investing in a bond. The credit rating is undertaken by a credit rating agency and they take into account the financial strength of the bond issuer, the quality of the collateral and where the bond ranks in priority for return of principal.

Bonds are initially priced when they are first issued into the market, this represents the bonds face value which is the amount of capital that will be repaid to the investor on maturity. Bonds can also be traded in the secondary market and are quoted as a percentage of the bond’s face value. The price will increase or decrease due to a number of factors such as the value of its interest payments relative to market interest rates.  The price of a bond moves inversely to its yield.

A subset of fixed income is RMBS and ABS, which are secured bonds issued by financial institutions for funding purposes and unlike a corporate bond, are secured directly against a pool of underlying assets. Banks and other lending institutions pool assets such as residential mortgages, credit card receivables and car loans and "securitise" them. The bond issuer will make interest and principal payments to bond investors from the interest and principal payments it receives from the borrowers of the underlying loans.

To learn more, please watch the short video here.

RMBS and ABS have four important structural features that mitigate the risk of investors taking a loss, RMBS credit enhancements include:

  1. Borrowers home equity: If the underlying borrower defaults, the loan servicer can repossess the house and sell it to recover the outstanding amount;
  2. Lenders Mortgage Insurance generally covers mortgages with a loan to value ratio (LTV) greater than 80%. In the event of the borrower defaults and the sale proceeds are not sufficient to cover the outstanding loan, the mortgage insurance provider will cover the loss;
  3. Excess Interest is derived from interest payments received from the pool of loans less the interest paid to the bond investors. In the event of a borrower defaulting, investors can use the Excess Interest to recover any losses and
  4. Originator holds first-loss bonds: The most junior tranche is often required to be held by the bank. In the event of a borrower defaulting and if all the other credit enhancements have been utilised the bank will cover the losses from the funds set aside for the “first-loss” bonds.

  • Large institutional market— double the size of the Australian corporate bond market;
  • Capital preservation is paramount when investing for income and RMBS are secured bonds with NO bondholder ever losing principal in the history of Australian RMBS;
  • Multiple layers of bondholder protection – home equity, mortgage insurance, bank profits;
  • “Skin in the game” — originating bank takes losses before bond holders and
  • RMBS typically offer a higher return for a given “rating” or maturity than other parts of fixed income.

RMBS benefits from the several robust credit protections to insulate RMBS investors against falling housing values, this includes the borrowers home equity, lender mortgage Insurance, excess spread and bond subordination from lower ranking bonds in the RMBS structure. In addition, borrowers’ arrears are generally closely correlated to interest rates and unemployment and according to the IMF, unemployment is the most important driver of increases in borrower default.

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