Campaign Details

Description

ArtPay is the world’s only private lending solution in the art industry offering interest free finance to art buyers coupled with superior returns for investors with asset backed lending.

ArtPay was founded to close the gap between the Artists, Artisans, Artwork buyers and investors through the provision of interest free finance. For investors there is the opportunity to diversify their investment portfolio by offering secure and fixed returns on their investment secured by first and second mortgages over real property.

The ongoing dilemma for investors includes:

  • In general, currently low yields from defensive assets
  • Long duration fixed interest investments sensitive to the prospect of increasing interest rates
  • Increasing inflation that is not transitory

This may lead to a temptation for advisers and investors to move up the risk curve.

As a possible solution to this, the ArtPay Mortgage Fund seeks to participate in the opportunities associated with first and second registered mortgages to enhance returns on the defensive component of portfolios.

The ArtPay Mortgage Fund primarily seeks to deliver an interest rate return on investors capital by lending money to buyers of Art and in return receives security in the form of first or second registered mortgages on title to real estate owned by the Artwork buyer and also security over the artwork (Personal Property Securities Register PPSR). The Buyer of the Art repays the capital and interest monthly over a 12-month period.

The money provided will be utilized by ArtPay to be lent to the purchaser of artwork through accredited organisations. Money can only be lent to Purchasers company, self-managed superannuation fund or Trust.

  • The Sub-Fund seeks to mitigate risks by securing investors investment with 1st or 2nd registered mortgages on title to real estate owned by the Artwork Buyer
  • Personal Property Securities Register (PPSR) registration over the artwork, business assets and receivables
  • Insurance over the artwork
  • Maximum Loan to Value Ratio (LVR) of 70%. The borrower’s debt cannot exceed 70% of the current value of their real estate assets. The Sub-Manager at its discretion may impose lower maximum LVRs where it believes that a lower rate is required to further mitigate the investment risk.
  • Minimum targeted interest rate is 9% p.a. before fees
  • Investment funds will only be utilised to provide loans to purchasers of artwork through the ArtPay loan process.
  • Maximum loan term for each individual mortgage is expected to be 12 months. The loan will be repaid by equal monthly instalments of the principal amount.
  • All prospective mortgages are subject to approval by a due diligence and credit process conducted by ArtPay on behalf of the Sub-Fund.

So how does this work?

ArtPay negotiates with art galleries to rebate some of their usual commission. The buyer of the artwork gets 12 months interest free terms to repay the original sale price (100%) in 12 equal repayments. ArtPay takes security over the artwork as well as a first or second mortgage security over residential property with an LVR of no greater than 70%.

Term

The initial term of this Sub-Fund is 10 years. Unless this Initial Term is extended by an ordinary Unitholder resolution, the Sub-Fund will terminate at the end of the Initial Term. The Trustee also has the power to terminate the Sub-Fund at any time by providing 30 days’ notice.

Risks

Refer to the Risk section of the PDS dated the 23rd August 2021 for an explanation of the risks involved in an investment in the DomaCom Fund and the general risks associated with property markets.

  • To ensure Investors are aware of the risks we have re-stated several of the risks below that are relevant to an investment in this Sub-Fund and number of other risks specific to this type of investment including COVID19 – currently the world is in the midst of a global pandemic of uncertain length, which has had a continuing impact on global financial markets, economic activity, and property markets. In response to the pandemic, governments throughout Australia and globally have implemented various health and policy responses which have had varying degrees of impact on regular commercial and financial activity. Investors should be aware while several vaccines are being rolled out across the world including Australia, there continues to be great uncertainty in the world. Financial markets will continue to be volatile in this uncertain environment. Pleasingly in many parts of the world, including Australia and Australia’s major trading partners the level of vaccination rates have been increasing allowing borders to open and an increase in the level of economic activity.
  • No guarantee – Returns are not guaranteed and Investors may lose some or all of their capital and interest invested in this ArtPay Mortgage Fund. To mitigate this risk we ensure that any buyer has enough assets to cover any debt.
  • Liquidity risk – An Investor cannot withdraw funds from the Sub-Fund until the Sub-Fund is terminated, and/or the Underlying Mortgage has matured and there is a repayment of capital. Redemptions are available quarterly. Notice must be received in writing one month prior to the end of the Quarter.
  • Market risk – is the risk that negative movements in interest rates and/or the property market may impact on the capacity to fully recover the amount owing on a 1st or 2nd mortgage loan if a default occurs. Although the maximum Loan to valuation ratio is 70%, so the property market would need to fall some 30% for a loss of capital to occur.
  • Default Risk – Borrowers may default for a wide range of circumstances. Death, matrimonial disputes, bankruptcy, changes in the general state of the Australian or world economies, changes in the borrower’s business and changes in property values can all contribute to default being made. To mitigate this risk ArtPay undertake a significant due diligence process in vetting the Buyers, there is also a significant equity buffer should a buyer default to protect investors investment.
  • Credit risk – Credit risk is the risk that a borrower or a guarantor to a registered first or second mortgage loan may not meet their obligations in full and/or on time. To mitigate this risk ArtPay undertake a significant due diligence process in vetting the Buyers.
  • Fraud risk – Certain buyers may try to deceive ArtPay. To mitigate this risk ArtPay undertakes rigorous checks to verify all buyers, including checking all financial documents provided by the business and carries fraud assessment risks for each transaction.
  • Reliance on Key personnel of ArtPay – investors rely on ArtPay for key day to day operations and investment decisions. The loss of key personnel of ArtPay could have an adverse impact on the performance of ArtPay. To mitigate this risk key personnel of ArtPay are experienced longstanding owners of the business.
  • Risk that Art buyers credit worthiness varies over time-ArtPay aims to lend to businesses which are resilient against recession and economic downturn.
  • Regulatory risk- is the risk that the value of some investments may be adversely affected by changes in government policies, regulations, and taxation laws.

Whilst neither the Trustee nor DomaCom can predict the likelihood of the occurrence of or the specific outcome of any of these risks, there is a possibility that the performance of the Underlying Loan may be negatively impacted.

Fees

Management Fee

 

0.22% per annum of the value of the cash held in the Cash Account

and

0.44% per annum of the Gross Asset value of the investment in the Sub-Fund

Fees payable to the Manager are calculated on a daily balance and payable in arrears from the assets of the Cash and Sub-Fund monthly.
Sub-Fund Investment Manager Fee The fee will be a performance fee based on 20% outperformance of the BBSW+300bps for the quarter.

Each quarter the performance fee (calculated net of DomaCom fees) will be calculated by the sub-Fund and paid to the sub-Manager.

Fees payable to the Investment Manager are calculated on a daily balance and payable in arrears from the assets held in the Sub-Fund on a monthly basis.

How to invest

If you would like to participate in this offer of Units in this Sub-Fund; upon prompting, you will be requested to acknowledge online that you have received this SPDS and that you agree to be bound by and proceed with an investment in this Sub-Fund.
Once an Investor has completed an Application Form and subsequently confirmed their desire to be bound by and proceed with an investment in this Sub-Fund, the Investor cannot withdraw their application.