September 1st, 2022 – We are excited to announce that the Income Fund is now live and open for investments. We already seeded the fund with a 12% note for a small multi-family fund.

Why an Income Fund?

You may have read some details from our Q2’22 report, but this is a good opportunity to explain why we put this fund together, why we are investing our money into it, and why we think it’s also a good fit for our investors’ portfolios.

But first, the overall economic situation:

We all know that the stock market has been very volatile this year, and we are not even talking about crypto. But the worst is that even bonds have lost a lot of money. You usually want to use bonds to provide stability against a volatile market, but that stability did not happen this year. The Fed increased the interest rates, increasing the bond yields, thus eroding their value (bond yield and value go in opposite directions). Unless you were invested in energy stocks, there was nowhere to hide this year. And it’s not over yet.

To fight inflation, the Fed is committed to raising the interest rates further (between 0.50% and 0.75% expected in September alone). Bonds will probably drop, making their yield increase completely moot for a while. The overall yields of treasuries, CDs, and bonds will continue to be around 2-4%, well under the inflation. A consequence of this fight against inflation is that the overall economy will suffer. It’s by design. Suppress the demand, and prices will drop.

We have been discussing the potential for a recession for months, and the Fed is willing to make it happen to get inflation under control, as indicated in Jerome Powell’s speech in Jackson Hole last week. It can be summarized as “Some of you may suffer, but that’s a sacrifice I am willing to make.” The reaction was anticipated, and the S&P 500 dropped by 10% over the past 2 weeks.

Whether we like it or not, things may get worse, and it could last a while. We can hope for a soft landing, but it may not happen. As such, we wanted to provide an investment solution to our investors and ourselves that will be more resistant to a potential recession while still providing a good return under these economic headwinds. Think of a much higher yield bond backed by Real Estate properties, with a significant buffer against losses.

What to expect from this Income Fund?

The fund is a 506(c) fund of funds investing in senior and mezzanine debt, notes, preferred equity, and some smaller NNN investments for additional income. The minimum investment is $25,000 and is for accredited investors only. The fund targets above 8% net IRR, with quarterly distributions (around ~2% per quarter). The fund has a higher threshold for capital preservation and will provide a built-in buffer for losses (see our 1st deal as an example).

The fund is best for commitments of 2+ years. Withdrawals can be requested a quarter ahead, up to 25% per quarter (out within a year). Due to illiquid assets, some of your income might be held back if you start withdrawing before 2 years, but it provides more flexibility than a lockup.

The fund gives investors a true preferred return of 7% and a profit split above that. Like the growth fund, we strongly believe in under-promising and over-delivering. And we are already starting with a great first asset with this 12% gross IRR.

Additionally, investors joining us in 2022 will have preferential terms that will be enforced for the duration of that investment (i.e., keeping the same terms for the 2022 investments as long as it stays in the fund):

  • 1% entry fee
  • 0.50% AUM fee per year
  • Above the 7% preferred return, the profit split is 90% to investors and 10% to management.

These preferential terms reduce the overall management fees by 50%, which will provide an additional boost to your 2022 investment.

If you are interested, you can find more info and the complete paperwork on our investment portal.

We continue looking for the best deals for both Growth and Income funds, and we will send some updates to our mailing list soon.