Magenta investors have the opportunity to achieve higher investment returns, with lower risk through much greater diversification, than those available through direct mortgage investment, by investing relatively small amounts of capital, and without the need to expend the personal time and energy required to source and manage direct mortgage investments.
1. Consistently High Investment Returns/Track Record
Since inception (Magenta: 1994; Magenta II: 2003) Magenta investment returns have consistently substantially exceeded those produced by alternative fixed income investments such as bonds and GICs as well as major stock indices. Moreover these attractive, wealth building returns have been achieved without any of the volatility characterizing other investments.
2. Financial Leverage
Magenta MICs employ a bank credit facility. The substantial positive spread between the bank loan rate, and the interest rates applicable to the mortgages held by the Companies, substantially increases the investment returns achieved by the Companies and allows for the achievement of elevated investment returns with a low risk residential mortgage portfolio dominated by 1st mortgages.
The type and quality of the mortgages in our portfolios is also governed by strict requirements encoded in our bank credit agreements. The banks also provide ongoing oversight by reviewing individual mortgages, appraisal reports and agreements of purchase and sale and by requiring detailed monthly and quarterly reporting. This level of due diligence is commensurate with the size of the credits afforded to our companies. By contrast, a MIC utilizing little or no bank debt has virtually unfettered latitude with respect to lending practices and the type and risk profile of morgages held. These MICs are also subject to little or no external oversight.
3. Diversification/Risk Reduction
Magenta shareholders own an interest in a large, diversified, professionally managed, growing pool of primarily residential 1st mortgages. Conversely, direct mortgage investment requires a substantially greater investment, and has a far greater potential for actual capital loss.
4. Professional Management/Management as Owner
Refer to About Us.
Magenta MICs are managed by very capable professionals, with substantial career experience in all facets of mortgage lending, real estate appraisal, banking and mortgage law.
Management of this caliber affords a number of advantages:
- Good Lending Decisions: Over our almost 19 year history loan loss has consistently been minimal. Recorded investment returns are net of all expenses including loan loss.
- Mortgage Sourcing: Magenta’s mortgages are sourced by an exclusive electronic network of mortgage brokers. The Vice-President Operations leads the team responsible for all facets of the mortgage origination function, ensuring a steady flow of attractive mortgage investment opportunities, consistent with our prescribed underwriting criteria. To maximize profitability we need to be fully invested on an ongoing basis. To limit risk we need to generate higher quality mortgages that satisfy our lending criteria. Our track record, industry profile and in-house business development capability allow us to achieve these critical business objectives. The mortgage market has changed dramatically in recent years. Individual, private mortgage investors no longer have access to lower risk mortgages.
- Mortgage Pricing: Because we are active in the mortgage market on a daily basis, we have the expertise and knowledge to ensure that we negotiate the most favourable interest rates, fees, and other terms and conditions possible.
- Portfolio/Cashflow Management: The portfolio is monitored daily to ensure an optimal mix of different mortgage types (residential first mortgages, residential second mortgages, first mortgages on recreational properties, residential building lots, and land). Similarly, cash flow is monitored daily, to ensure that the Companies are always as fully invested as possible.
- Portfolio Administration: All mortgage payments are collected electronically by pre-authorized bank debit. Any arrears, or potential default situations, are dealt with promptly, proactively and effectively. Optimal pre-payment penalties and renewal terms are negotiated. Discharge statements are prepared for mortgages not being renewed and legal discharges are executed and registered.
Employee consolidated investment in the Magenta MICs is $6.8 million. The CEO has also personally guaranteed the Companies’ bank debt. In short, Management and staff are highly motivated to achieve the highest investment returns possible, while at the same time mitigating risk as much as possible, consistent with the imperative of ensuring and protecting the long term viability of the Companies. By contrast some MIC managers have little or no personal investment in the companies they are responsible for.