Welcome to the My Private Network Podcast!
Interested in learning about private market investing concepts and opportunities available to you?
This week's episode features our co-founder and host, Bob Simpson, who gives you, the investor, a chance to hear from industry experts about why you should consider investing in mortgage investment corporations.
Today's Expert Guest
Will Granleese
Director and Portfolio Manager
Antrim Investments
Today's Questions of Interest
4:44 Antrim Investments origins and background.
9:26 What your employee base looks like and just a bit of a description about the operations of your firm?
11:25 What are you seeing as you look at the mortgage lending industry today in Canada?
16:11 How Antrim handled the rise of interest rates.
20:40 How does Antrim make money?
22:06 What are some of the highlights that you see when you look at your track record and what are some of the low lights that you might see?
23:32 What are you most proud of in your performance?
25:34 Who are your borrower profiles?
27:41 How many mortgages are there currently in the portfolio and how's that number changed?
32:09 Average size of the places?
32:24 Average equity in a mortgage?
34:09 What is your process for reviewing and underwriting new mortgages.
36:31 Could you touch on your debt history?
39:02 What's your take on preservation of capital?
40:29 Can you explain your liquidity?
42:11 Talk about the F class and what your returns have looked like since inception.
45:44 I'm interested in your opinion on how would you use in a typical investor portfolio?
47:16 Final thoughts.
Transcript
Bob Simpson: Glad you could join us for our latest episode of My Private Network I'm Bob Simpson, your host. Our guest today is Will Granleese. Will is Director and Portfolio Manager at Antrim investments, and he is a friend of our podcasts. I think he's been on two or three times with us already. And we want to try something a little bit differently, but you know, Will, thanks for joining us today.
How you doing?
Will Granleese: I'm doing good, Bob.
Bob Simpson: Yeah. Sunny Vancouver?
Will Granleese: Sunny Vancouver today. Yeah. The next couple of days we're, we're basking in the, in the sunlight.
Bob Simpson: Yeah. Well, we're sweating it out here in Toronto. So Will, what's been going on in your life? You've been doing anything exciting?
Will Granleese: Well guess where I was on Saturday night.
Bob Simpson: Yeah. Where's that?
Will Granleese: Edmonton.
Bob Simpson: Edmonton. Yeah, I was watching a little game, Stanley Cup Finals. Yeah, there was stuff going on in Edmonton.
Will Granleese: Yeah, there was. It was, it was awesome. It's just to see the, the fans, the emotions. There was like trucks driving around with, with these, oil rigs on the back and flags.
And of course, I had to have my Wayne Gretzky jersey on, number 99, right? And I got my picture taken in front of the Wayne Gretzky where he's holding up the, the cup. Yeah. Underneath the Rogers Arena. So, anyway, it's so loud, and interesting, you're in the crowd, and people are high fiving you, it's, it was, I went to a, I went to a Vancouver Canucks playoff game as well and that was quite good. But everyone in Vancouver is quite conservative and you know, it's you know, "oh good goal". But it's not like high fiving and everything, but anyways, we had a, we had an awesome time. It was, it was a great, great game.
Bob Simpson: Plus a victory.
Will Granleese: Plus a victory.
Bob Simpson: Staying alive. Staying alive. Yeah, I did the, I did something similar that I had my picture taken, not with a jersey, but with Walter Gretzky at the old ACC, Scotiabank Arena or whatever they call it now. He was just standing out in the hallway and people were coming up going, "Hey Walter, how you doing?" And he was having little chats. It was kind of fun.
Will Granleese: Really? Wow. Very cool. Wow.
Bob Simpson: Yeah. That was, that was kind of a highlight.
Will Granleese: Yeah. Yeah.
Bob Simpson: Yeah. Yeah. So one of the things that we do is that we always stress the importance of due diligence when investing money. Problem is that the whole process, and I think Will, you could, you could attest to this.
It's not easy. It's difficult. It's a lot of times. It's just not possible to get someone like yourself on a call so that we can dig deeply and just really find out what's going on. Through My Private Network we can open this up to everybody. We can open up to individual investors. We can open up to financial advisors because we have full access to people like Will Granleese, And we can open the doors to those people on, on a podcast like this.
Now we are, we've been systematically changing the format of privatedebtandequity.ca. We started out building it kind of white labeled where, you know, rather than directing you directly to investments, we talked about concepts. So, you know, Will was on before we did a talk about Mortgage Investment Corporations MIC's and, you know, why is investing in private, in the private markets in, into mortgages and that sort of thing.
Why is it a good idea for your portfolio? But today we want to go deeper. We want to look at the major fund in Will's business, the Antrim Balanced Mortgage Fund that he manages. And we want to do it in a format of a due diligence interview. The kind of thing that we do all the time when we look at adding investments to our portfolios, but we want to open it up so that you can see the process that we go through.
Really hear firsthand from Will about Antrim, how they do business and that sort of thing. So, so that's the format for today. A little bit different. I don't think you're going to walk away from this and say, wow, that was fun. Other than story of, a team that's in the Stanley cup finals, unlike what, we have here in Toronto.
So let's, let's hit the ground running. Now this is kind of rapid response. Well, let's just try to keep this conversation fairly tight. Cause I have a ton of questions for you. Just give us an overview of Antrim, your company, the history, the founding of the company. You know, where did Antrim come from?
Will Granleese: Okay. So, Antrim has actually been around for 52 years. June of 1972, my father actually started Antrim and initially we were mortgage brokers. So, we would place ads in the local newspaper saying bank turned you down, you know, got a lot of equity in your property, give us a try. And so we, we arranged mortgages from individuals, like let's say someone like yourself maybe has an RSP with some money that wants to diversify into mortgages.
And so we would connect you up with the borrower who would be a mortgage broker and, and yeah, that worked out for a number of years, all the way till the early 1990s. And in the early 1990s, everyone was talking about Mortgage Investment Corporations, Mortgage Investment Corporations. And basically that's, you know, something similar to a mutual fund, in which case you now group a bunch of individuals together, you're all lending on a diversified portfolio of mortgages. And when we talked to our existing investors about it, they reacted very positively. They said, yeah, you know what, I would, I would like to be able to redeem. When I want to redeem. I don't want to ask my, my, my borrower, Hey, you know what? I'm not going to renew this mortgage, but I still gotta wait six months until the term ends.
Right. This way I could deal with you, through Antrim Balance Mortgage Fund and have diversification, right? Previously, let's say, even the average second mortgage maybe was $50,000 or $100,000. Well, you need a huge portfolio to be diversified. Right. I mean, stock portfolios, you typically need about 30 independent stocks, so you're diversified.
Well, same goes with mortgages. So, you know, to have 30 mortgages, it's a ton of money. So this, the Mortgage Investment Corporations that became so popular at this time, really solved a lot of, a lot of problems. You have professional management, you've got diversification, you've got liquidity. And, yeah, so we started that in the early 1990s.
And, we basically were just dealing with, friends and family and other business associates raising funds. And then when I joined Antrim in, well, about 15, 16 years ago, I said, hey, you know, I used to work at TD Bank. I was a financial advisor for a period of time. I also was a loans officer for a period of time, during my MBA.
I was, I was, looking at different investments and I said to my dad, I'm like, you know, the financial markets need to hear about this product, right? There's like, this is incredible, you know, you're going to be paying, let's say, 9 percent rate of return. There's no NAV volatility, net asset value, so that the shares stay the same price, you can buy and sell when you want.
This is, historically speaking, you're offering a rate of return that matches or very similar to, the stock market, but with no volatility. From a financial standpoint, I said, you know, I've got to get out there and start talking to people. So, when I joined Antrim what I did is I started telling our story and started telling the financial professionals, "Hey, Here is an alternative" , right?
It's not just the cash stocks and, and bonds. This is an alternative. It's a very safe alternative, about residential mortgages. And, yeah, so from there, you know, over time, over the past 50 years, we've, we've grown now to become the largest residential private lender in, in Canada. And, yeah, so it's been, it's been a great, great run.
Bob Simpson: Yes. That's great accomplishment. And I'm sure that dad looked at the work that you did, which is things that he probably always thought of. And that's what happens with ownership of businesses when, when it gets old, you kind of get settled into what you do. And sometimes you need a new spark to, to set things off, back on the growth path.
So, but that's an amazing accomplishment to be the largest, in Canada. So, you know, here's, here's a little story. We had an investor one time and he, and we had talked to him about investing in Antrim's in, in your balanced mortgage fund. And he took, he went back to his advisor at one of the major firms sitting there.
The guy at the major firm said, "Why would you invest with somebody like that? That's like two people. There are only two employees that at Antrim, that's a crazy idea. Why would you do that? You should just buy a bond fund." Talk a bit about the structure of your firm and you know, who's there. What your employee base looks like and just a bit of a description about the operations of your firm.
Will Granleese: You know, we're, we're relatively small in the amount of people we have at Antrim, but I see no reason in having people and staff that are just there for the sake of having numbers. Like, you know, some very, very large. Boutique hedge funds in the United States that do very well with small staff. So, we have 15 people at our office and literally all we do is mortgage administration and underwriting.
That's all we do. So we outsource, for example, the investor conversation to people like you, Bob, right? To Wealth Stewards, to, to, to other dealers in Canada. So financial advisors are literally having the, the conversation with their clients and sending the funds to us. So we don't need to worry about that.
All we need to worry about is arranging the mortgages. So we have to make sure that we have a good flow of quality mortgages coming through, which we do. Now to that end, who we have in our office, we have a, we have a lawyer that's in our office looking after our, documentation for our offering memorandum and all the various, Provincial securities regulations and everything like that.
We have a compliance officer that's here full time. We've got full time staff that look after the trades that we see that come into our office, the trades, meaning the, the, the, the purchases of, of, of shares works really well. Some people have said we're kind of a lean, mean machine. And I, I would agree with that.
It it's, but it, we're fit though. Like it, it works really well.
Bob Simpson: Yeah. It's, it's, it's always not about how many, but how well you do the work you do.
Will Granleese: Absolutely.
Bob Simpson: Yeah. So the mortgage lending industry has gone. It's been a lot, you know, you're the, you're the largest now on the residential side, but you know, we've had COVID, we've had a big spike in interest rates.
What are you seeing as you look at the mortgage lending industry today in Canada?
Will Granleese: As far as interest rates go?
Bob Simpson: No, not where interest rates are going, but how is higher interest rates? How is the effect of COVID? You know, you've, there are a lot of people in, who have mortgages that took them out on a floating rate basis and didn't expect rates to spike so high.
And now they're caught with much higher and much more difficult terms to deal with. Yeah. What are you, what are you seeing there?
Will Granleese: So what I'm seeing, like feet on the floor and actually literally seeing, seeing the applications come in is that mortgage brokers are relatively slow right now. There's not that, there's not the amount of applications that we had coming in two years ago when everything was, was, was flying crazy.
And people say to me, okay, well, so if mortgage brokers aren't that busy, how are you guys still able to put your funds out? And what I think is interesting is that we receive approximately 50 percent of our applications through mortgage brokers, but we also receive 50 percent of our applications from the major banks.
I won't mention the banks, but the major banks and credit unions in Canada. So, You know, someone going to a major bank and the bank says, "Oh my goodness, you know, we've got to qualify you at a 5 percent rate plus a 2 percent stress test at 7 percent on this million dollar mortgage you want, you don't show enough income. I literally cannot approve you."
So we're seeing people being constantly declined at the bank level. But they've got very large deposits, right? So the minimum deposit we require is 25%. We've got lots of people coming to the bank that are putting down 50% deposit. So the wonderful thing that's happened is that these people now are declined at the bank, but the bank says, "Hold on, hold on we're going to send you over to our alternative department. They have a lending partners like Antrim investments that will lend you the loan, warehouse the loan for a relatively short period of time until you can come back under, under the big bank umbrella."
And so what we've seen is we've seen a big drop in in mortgage broker applications but at the same point in time a corresponding increase in in bank type applications. So I think that corresponds perfectly with what we're seeing right now, which is you know in Canada, we're somewhere a little bit lower than the 10 year average on, on, on mortgage volume right now. That's where we're at.
The high interest rates was a concern of ours initially when interest rates went up 10 times in 12 months. I didn't know how, how our borrowers would be able to deal with a 9. 95 percent interest rate. And our competitors that raise funds still the old fashioned way, let's say through friends and family and through business associates, they were cranking up the rate, cranking up the rate.
And I looked at it and I said, you know, we're not like them. We have a different investor base. This is for many, many of our investors. This is the first mortgage product that they've ever purchased. We have a fiduciary duty to make sure that we run this pool as safe as possible. And having said that, we've been through a time where interest rates were where they are right now, and that was after the great financial crisis, say 2009.
But, housing prices are a lot higher now than they were in 2009. So, I said, okay, we're gonna, we're going to renew all of our existing mortgages at the same rate they were at. So if you got a mortgage with us, we're going to renew it at the same rate, but all new mortgage money is going to go out at the current rate, let's say 9. 95 or 9. 49n. And we tested it, and we tested it for about 8 or 9 months, and what we found is that a substantial amount of people are able to make the mortgage payments. It's basically exactly what the banks are seeing. I mean, yes, the banks, deferral is going up slightly. But it's still, you know, 0. 2 percent of, of the entire portfolio that is experiencing problems.
So, so yeah, so, so that, that for us has been probably the biggest change during COVID. Literally going from a very, artificially low interest rate environment, to a normal interest rate environment in the process of, of one year. It just takes time, but, yeah, at this point in time, I think we're probably about 90 percent complete with our renewals.
So in the next couple of months, literally everyone in the portfolio would be paying 9.95.
Bob Simpson: Yeah. So you, you know, you talk about being a, a lean machine there, but with all the chocolates and flowers that the, that your borrowers sent you, you probably had trouble keeping your weight down, didn't it?
For you being nice and allowing them to keep their homes.
Will Granleese: Well, you know what? We weren't nice. We weren't nice. We were prudent. Okay? I mean, interest rates literally doubled, right? And, I am not kidding when I say some people's payments went up to $10,000 a month. Now, if we increase our interest rates and all of a sudden our borrowers can't handle that, and we start showing higher and higher delinquency rates, well, then everyone gets concerned and it's just a disaster.
So we had to deal with this in a, in a proactive way. We basically tell our borrowers, the money we're lending you isn't, it's not ours, right? It's, it's, it's Bob's, Bob's clients. It's, it's, it's other people's, other people's funds. And so, you know, we're, we're caught between a rock and a hard place.
And, and most people, most people accept that. They understand this, this world. And, and we're, we're noticing that people are, people are, able to, able to, to make their payments. It's, it's quite incredible.
Bob Simpson: Right. And we'll talk about, delinquencies and things in a minute, but yeah, it's, you're in the business of not creating delinquencies.
Will Granleese: That's right.
Bob Simpson: We're not going to force delinquencies. You'd rather, you'd rather keep the, keep the road fairly smooth, but that's, that's got a little bit of a negative effect, doesn't it? On the investors who, who are in the fund, who might've been able to get higher rates for companies that, you know, weren't quite so prudent.
Will Granleese: Yep. Absolutely. Absolutely. Having said that, like we started off this conversation, we've said we've been in business for 50 years. We've seen some pretty gnarly things happen in the past, right? And we've seen markets, in the past three years fall by 25%. So just imagine which a scenario could have happened in which case interest rates go up 10 times in 12 months and all prices fall by 25%, right?
And now all of a sudden we've got a bunch of people that we're foreclosing on because we're charging them 10 percent and they can't afford a payment. Right. So we were being very prudent with, we do not want to shoot ourselves in the foot. And so it's like hundreds of advisors, I've told them, listen, the worst case scenario for Antrim would be an interest rate spike.
Now in the past that, Oh, everyone in the boardroom laughed. And they thought it was the funniest thing I've ever said. Well, it happened. Right? And they said, Okay, but Will, why is this so bad? Would everyone start missing their payment? I'm like, No. Not everyone would miss their payment. The problem is, now all of a sudden you've got competition.
You've got, like, term deposits are not necessarily competition, but the risk free rate is now 4. 5 percent or 5%, right? Whereas previously it was 0.25% or 0. 5%. So the world shifts and and so those are sort of the difficulties that we dealt with. But yeah, no, I'm very, I'm very happy the way everything's worked out.
I'm happy that Canadians are able to, to afford their mortgages. The federal government, introduced the, the mortgage charter, which not many people really fully understand, but what the mortgage charter is, is that if you're coming up for a renewal on your mortgage, it basically says that you can renew and your payment can be as low as interest only essentially on your mortgage.
So you don't have to pay the mortgage off in 25 years on a renewal. You can have a 50 or 60 year amortization and what that's done is it's made the payments affordable right now. As people increase their wages and as time goes on and then they start amortizing again. But so there's been there's been a number of things that have happened that, were not available in the 1980s.
When interest rates went to 19 and a half percent, right?
Bob Simpson: Canada savings bonds.
Yep. November of 1981. That was first, my first ever investment that I sold as a financial advisor was Canada's savings bonds at 19.5%. And people done, people said, no rates are going to go to 22. I don't want to get locked in for three months.
So it's a, it's a crazy world. Now you've talked about, you know, mortgages that are roughly 10 percent. As a, as a firm that, invests people's money in Antrim, how do you make money? Yeah. So, you know, how, how do you knock nine, you know, 10 percent that the borrowers paying and kind of where does it, where does an investor end up?
Will Granleese: Yeah. So, Antrim investments, the company I work for the fund manager, we're actually licensed as a mortgage brokerage. And we're also licensed as, as, in the financial industry, as a portfolio manager. And so on the mortgage brokerage side, When the applications are coming to Antrim, we actually charge the borrowers a brokerage fee.
Now this sounds very strange, because typically you go to the bank and you get your mortgage, and that's it, the bank doesn't charge you a fee. But it is very, it is very commonplace for any commercial mortgages to be charged a fee. And as well, on the private mortgage side, it is very common that people are charged a fee.
So we charge a fee of approximately 1 percent on all mortgages coming to us. And then on the portfolio management side, we're able to reduce our management expense ratio. And we only charge a 1 percent fee on the, on the funds coming to us on there. So we, which we make funds on the portfolio management side and also on the, on the mortgage broker side.
Bob Simpson: Okay. No, that's interesting. So let's turn our attention to the Antrim balance mortgage fund. You talked about, the business being around for 50 years. How long has the fund been in, in business and what's kind of your really long term track record? What, what, what are some track record? And let's look at differently.
What are some of the highlights that you see when you look at your track record and what are some of the low lights that you might see?
Will Granleese: So we'd be managing funds. I think our first mortgage investment corporation we started was 1991, I believe. And so we started a mortgage investment corporation.
And it grew rapidly. Like I said before, all of our shareholders, this is great. We're going to go into this, but the rules were such that you could sort of only have 50 shareholders plus directors and some other people. And so that one filled up and then we start up another one and that one filled up and then we start up another one and that one filled up.
Eventually, in 2007, I believe, we started up our Antrim Balanced Mortgage Fund, which, was issued by way of offering memorand. Which allowed us to deal basically with the general public, people that weren't associated with Antrim in one way or another, or our family in one way. And so that really opened it up.
And then these three funds sort of amalgamated into Antrim Balanced Mortgage Fund. The, the interesting thing is that, those three funds and Antrim Balanced Mortgage are managed exactly the same way. So for the only fund we have available right now is just our signature natural balance mortgage fund.
It's been around now for 17 years. Highlights, highlights.
Bob Simpson: Well, what are you most proud of? Would you say in your performance?
Will Granleese: You know what I'm most proud of? I'll tell you what I'm most proud of. Most proud of. We have been operating, Mortgage Investment Corporations since 1991, we have not had a single year of negative rate of return. Never happened. Now that for me is quite incredible because people ask "You know, what is what is the real risk of action like?"
Oh, you guys are lending second mortgages. These, these, these people must not be able to qualify at the bank. This must be a very dangerous business. No, it's not, right? Look at the skin in the game that, that our borrowers are giving us. Our, our average borrower is putting down 40 percent down payment. And then people say, well, that sounds pretty safe.
I'm like, yes, it is. Look at our track record. We've never lost, we've never lost funds. And then they say, then they'll say things like, well, why is the bank not doing it? I'm like, well, the bank's not doing it because you have to meet the strict, the strict, uh, debt servicing ratios. And how do you meet a debt servicing ratio?
It's because you go in with your notice of assessment or your pay stub and it's got to be, you know, 32 or 42 percent of your payment. And actually after the financial crisis, the mortgage market in Canada really tightened up and so I, I think, I think that's another sort of highlight of my time with Antrim. It would be after the financial crisis when things really tightened up and the banks couldn't make exceptions on say high net worth clients. And so all those people had to sort of come into our industry. That was, that would be sort of another, would be definitely another sort of, defining moment.
Bob Simpson: Yeah. So your, your client profiles quite different than that of the bank then.
Right. That's what you're saying that. You know, the bank, the banker says, well, we can't write this deal, but you know, I've got a guy, right. And they, they refer them over to you. You look at it and you're looking at different, you really look at a different profile, but to give us a profile of your, the kind of people who are borrowers at Antrim.
Will Granleese: Yeah. So our average borrower, first off is most of them are successfully self employed. Right? Now, I know 50 percent of self employed businesses go under in the first couple of years. I recognize that. But there's also a portion of self employed that are very successful. So, we learn that self employed individuals, people typically between the ages of about 45 and 65 years old, right.
So we don't lend to young people because young people don't have the amount of equity that we require. A lot of people that have typically owned a house for 10 years or longer. So someone that has benefited from the increase in prices and built up all of this equity in their portfolio. And 9.5 times out of 10, people that do not meet the bank's income guideline test.
So they have bankable credit. The credit is totally fine, they pay their bills, that's all good. But they cannot prove to the bank that they make enough money based on their self employment or whatever they're having to do. That they can actually make, make the bank's mortgage payment.
That's our average borrower.
Bob Simpson: Yep. So let somebody start a business, let them get through the first few years. A lot of, you know, even though 50 percent of people fail in the first year, a lot of companies have started from somebody working in his garage and, and building it out. But yeah, there are people that have equity in properties.
And if you have the equity, you've got the ability that if there's a problem, you can take it over and, and probably as long as property values haven't dropped by 40%, you're okay.
Will Granleese: Yeah.
Bob Simpson: Yeah. Yeah, no, it's a. That's interesting. Talk about current, you know, how big is the fund right now? What are the assets under management really want to dig into the portfolio?
How many mortgages are there currently in the portfolio? How's that number changed? You know, one of the things that we watch in the private side is that we see companies that have large numbers of redemptions and you know, and that's where they get locked up and that sort of thing. So talk about, talk about sort of the metrics of your portfolio.
Will Granleese: Yeah. So over the past 12 months, we've sort of fluctuated in size between say 900 million and 950 million. Now we can go a little bit more than that because of our line of credit. But again, we like to keep cash available to keep the liquidity going. I would argue what's happened over the past 12 months is that we've received more payouts than, than we normally would, and by meaning more payouts, meaning people deciding not to renew.
And why have they decided not to renew? Because the interest rate is dramatically higher than what they were paying. And so they went and they talked to the mortgage broker that brought the file to us, and the mortgage broker said, Okay, you know what? Now you're bankable or now maybe we can take your file and go to a trust company or something else like that.
So, so I would argue that, yeah, there's been a lot more liquidity in the past year because of mortgages actually paying off. And that's why we haven't really advanced the portfolio is because we've just been dealing with paying out all of these mortgages that are re advancing to new people the mortgages that have, that have been paying off.
Bob Simpson: Yeah. And there's probably people out there thinking that, you know, Hey, this Will Granleese guy. He's going to be so excited when he hits a billion dollars and and let's just keep them under, we'll keep them under a billion.
Will Granleese: Yeah. Yeah. That doesn't really mean too much to us. I think we're about 2, 200 mortgages, something like that.
So, and, and, you know, the, the industry kind of goes in waves. Right? And so, I would argue right now, the mortgage market is relatively quiet. Right? Mortgage brokers are quite quiet. The banks are busy. Right? So it's quiet. But, as soon as we start seeing the Bank of Canada interest rates go down further and further and further, then, what we'll see is the, the activity in the market start to generate and we'll start to, we'll start to go above, let's say, the 10 year average that I would argue we're below right now.
And then we'll see another jump up. But, Yeah, we're happy to, happy to wait for that.
Bob Simpson: Yeah, no, it's, it's, it's one of those things you, do the right things and let the scoreboard at the end of the game, tell you, tell you how you did. And the Oilers look like they're trying to make a comeback. And, yeah, they only, they only need a couple more to get there. Right.
Will Granleese: It's a good game last night.
Bob Simpson: Yeah. Yeah. Good game. So average size of mortgages in the portfolio, 2, 200, that's a, now, you know, and Will, I think this is a point that I want to touch on. When firms approach us and they say, you know, "Hey, Wealth Stewards, you work with some, you know, great high net worth, investors, we'd like you to consider using our fund."
And one of the first questions I ask is, yeah. And how many mortgages do you have in your fund? And they say 50 and I go, "really 50?" You know, the one, the one company Antrim that we work with have 2, 200, what's the advantage of size over, you know, of a 2, 200 mortgage fund versus a 50 mortgage fund.
Will Granleese: You know, what we see on a daily basis is we see, large commercial mortgage funds, okay.
Where the average mortgage might be 30 or 40 million. Now, those funds have been quite popular, let's say over the past 10 years, it was lots of growth. But I kept telling everyone, I said, listen, great product. But just beware of the liquidity. Beware of your, of, of, of, of liquidity on those large loans because when the market tightens, that's it, right?
They're not going to pay off. And sure enough, we've seen that. So you can Google, you know, commercial mortgage pools and many of them are doing totally fine. But they're not as liquid today as they were, let's say, two years ago. Whereas our fund, there's been absolutely no change. So what I would argue is not necessarily size being important, but the number of files you have.
So, you know, someone on the commercial side at our size might have 200 mortgages. Well, you know, 200 mortgages is, you're not going to be nearly as liquid as someone has got 2200 mortgages with a mortgage paying out literally every day of the week.
Every day of the year we have a mortgage payment. So it, yeah, it works. It works quite well.
Bob Simpson: Yeah. So the average size that your place is?
Will Granleese: Yeah. Interesting. The average size has actually kept very stable the last couple of years and it's about 410, 000 to about 420, 000 is typically above the average size.
Bob Simpson: Yep. And the average equity in those mortgages?
Will Granleese: I, I believe, is somewhere between 58 or 59%. So that is, so what that means is, of the house value, our mortgage represents 58 or 59%. IE the borrower would have 41 or 42%, right equity in, in the property.
Now, if you look at the distribution of those mortgages.
What's the average term of the mortgages that you put out there and, and how are they distributed within your portfolio?
Right. So the average term, every mortgage that we do has a one year term. We don't do any two years or anything else. We just do a one year term. And what that one year term allows us to do is change the interest rate in a year when, when the mortgage comes up for renewal.
All of our mortgages as well are fully open terms, meaning you can pay us off whenever you want. And there's no prepayment charge. So we make it very simple for people to, to deal with us. Now, if you look at the year, it is remarkable how similar the months are of the year with regards to mortgages coming up for renewal and mortgages paying out.
It's quite flat through all the months. I, I would just say that we have a little bit of a hump in the spring and a little bit of a hump in the fall as far as, Higher volume. So we're going into the summer period right now, in which case our volumes would drop just a little bit and we would see a little bit less payouts versus the fall and the spring.
But it's, it's, it's very, very similar.
Bob Simpson: Yep. So pretty similar to a G.I.C Investor who ladders there maturities. So just spread the risk of that sort of thing.
Will Granleese: Absolutely.
Bob Simpson: Your process for reviewing and underwriting new mortgages.
Will Granleese: Yeah. So, so we have, we have four underwriters at the office and typically what happens is the application will come in on a, electronic system, over the biologics electronic system.
That will have a full application. It will have a credit Bureau. If it's a purchase, it'll have the purchase information. And it'll also have a summary write up by the mortgage broker or the banker, whoever sent it to us. And so we'll quickly see, okay, is it clear and obvious to us why this person was not bankable?
Right? Or, is it, is it obvious to us how us giving this person the money, they're going to be in a better position because we never want to put people in a worse position, right? So our funds are simply going to either purchase a property, they're in a better position, Or we're going to refinance, you know, credit cards, 20 percent interest on a credit card, right?
So giving them an interest rate that literally is half that amount saves them thousands of dollars a month So so we always want to make sure that that's clear and then we want to also look for an exit strategy Is there is there a clear way? Most of our mortgages only stay around for about two and a half years Is there a clear way over the next three years?
That they're going to pay this off and go back to a bank prime rate, or are they going to sell their property, or what's going to happen, that's typically what's going to happen. Now, so, the application will be picked up by one of our underwriters who will go ahead and look at it. Before they send a commitment to the mortgage broker, meaning an approval, it has to be signed off by another underwriter in our office.
And, we are still in place. So we, we were not working from home. So we're taught constantly talking back and forth about all the applications coming in. I think that's really important because we get a feel for the interest rates too, right? Are more mortgage brokers saying, Oh, you know what? I was offered a lower rate or a higher rate on this mortgage by someone else.
And so it really gives us a feeling of what's happening out there for rates so we can be competitive when we're offering mortgages.
Bob Simpson: Yeah. A bad debt history. You talked about, there hasn't been a negative year. There has been a negative year, but we, you know, we haven't seen a lot of negative months in the last five years.
And that's largely because you don't have bad debt history, but what is your history?
Will Granleese: Very, very interesting question. Okay. So what I would say is that if you were talking to me, let's say 20 years ago, and we weren't dealing with financial professionals, we weren't, we weren't dealing with, we weren't dealing with people who I don't know, right?
I can walk by an Antrim investor on the street and I have no idea that they own Antrim. Right. Whereas before I would see them and say, okay, I, you know, I know you. What we've done is we've become more conservative. So 20 years ago, we were lending in small centers, right? Small center, BC, Alberta, Ontario.
And why we were doing that is because our shareholders were saying, you know what? We want to earn 10 or 11 or 12 or 13%. The only way to do that. Is to more aggressively lend on more riskier files. It's the literally the only way to do that. So what we've done as our investor group has aged, right? You age, you become more risk averse.
Okay, I'm not interested in taking these risks anymore. Financial professionals have absolutely no interest No interest whatsoever. It's like, listen, protect the principal and earn me the best we can. So what we've done over the past, I would, I would argue say 25 years, is we've slowly reduced our portfolio to where now we're lending in major centres.
So we lend, let's say, in the Vancouver area. Okay, well Vancouver, within about a 45 minute drive, Right? We lend in the Greater Toronto area. Right? We lend in, in Ottawa. We lend in Calgary. We lend in Edmonton. But we do not lend in any smaller centre. And I would, I would argue for shareholders, our investment has become much safer because of that.
But at the same point in time, we You know, they're not going to be earning the 12 percent yield. But as a professional, I know what we need to do to generate that 12 percent yield. Absolutely no interest in going there. Absolutely no interest whatsoever in doing that.
Bob Simpson: Yeah. Like that's the worst thing as a financial advisory firm are the calls that we get saying, "Hey, you know what? We've done some things that haven't worked out and investors are going to lose money. You know, we don't like that. Investors don't like it. If you're going to get a 7, 8, 9, 10 percent return, you don't really want to risk your capital. So it is paramount that a firm like yours thinks about preservation of capital first.
Will Granleese: We used to have people come to us and say, "Oh, okay, well, well, let's say Antrim is going to pay eight and a half percent. But I see this other company advertising in the newspaper saying that they're paying 10%. Well, why would I invest with you?" Right now that is a person that needs someone like yourself Bob to certainly explain to them You know how the risk and return dynamics work, right?
That is a person who needs a professional to to make them recognize these are not term deposits. These investments are not guaranteed, right? So there's a reason why they're paying more or or less, right? And yeah, we see it We see it in our office every day.
Bob Simpson: Yep. Yeah people who invest in junk bonds and say oh, this is great. But, you know, I think I've, I've made the statement over the years, many, many, many times that, you know, I've seen more people, lose major chunks of their portfolio because they stretch to try to get an extra one or 2 percent on their fixed income side and it just blew up on them.
So, yeah, you want to protect that. Yeah. Investor experience. minimum investment, frequency of distributions, how liquid, how liquid is the fund. This is one area that having known you for a long time and worked with Antrim. That we know that liquidity is one of the major factors that, that you're way ahead of many of the other firms in the private lending area.
Will Granleese: So, we offer on a best efforts basis. We offer T plus two liquidity, meaning you can have your funds back in, in two days. That definitely is the best in the industry. I'm not sure what the average would be in our market, but probably, probably quarterly or monthly, something like that.
Bob Simpson: Yeah. It's usually get your order in by the end of the month and you'll get your money in 30 to 60 days after that. So quite a, quite a big difference. Quite a big difference.
Will Granleese: It's quite a big difference. And I think the interesting thing is, because of my experience,uh, in the financial realm and, and, you know, when I was doing my research, my MBA and everything. What, what I did is I tried to design antrum balances mortgage fund to be as adaptable to the advisor's work as possible, right?
Like I know what the advisors want. So we tried to develop a product that would, that would suit that and, um. And, yeah, that's the liquidity is a, is a huge component of what we offer
Bob Simpson: Now, just for our listeners, you'll notice we've gone through many of the questions that I wanted to ask on the due diligence questionnaire really, but we haven't talked returns.
You know, most investors, I think they start at returns and then go from there. You know, we try to understand the groups that we work with, like Antrim before we invest, you know, our investors money in them. But we do want to talk about performance and, you know, maybe, you know, F class, I could use the term F class.
That's advisors tack on their own fees on top of the F class numbers. But it's a standard way of looking at things there. Talk about the F class and what your returns have looked like over the last, you know, going back even to inception.
Will Granleese: Yeah, absolutely. So, so I think when it comes to the rate of return, what's important to recognize is what is the risk premium we're paying, right?
So let's say the risk free rate is 1%. Well, if we're paying 5%, we're doing really good. We have a 4 percent risk premium and at Antrim, historically speaking, we, we would normally pay about two times in a normal market like today of what, let's say a bank term deposit was paying. Let's say a bank per term deposit was paying four and a half percent.
Well, we would typically pay 9%. That would be normal. Now, historically speaking, when we started actual balance mortgage fund in, 2007, we were earning a couple, you know, coming through the financial crisis, we were earning around the nine. 10 percent range, but then as you remember, the economy starts going down and we start really, cutting back on interest rates, interest rates fall, fall, fall.
And so then the interest, our, our, our payouts maybe went to sort of the 7 percent range and then during the lowest of the low, you know, in the 6 percent range. And now today, where we are right now, we just increased, our renewals for the 15th a couple days ago. And the weighted average rate in the portfolio is 9.73%.
So we take off 1% of that and that sort of 8.73%. So I would argue, if a person bought today, they would earn technically 8.73% for the next 12 months, but it's actually gonna be more than that. because we're still renewing, for another four months at higher rates. So anyways, we're in the 9 percent range right now.
Several years ago we were sort of in the 6 percent range cause interest rates were so low, but, but I would argue, yeah, our risk premi what we're, what we're paying over and above the risk free rate is, is, is what's, what's important.
Bob Simpson: Right. And it did take you a while to get up there, but now that you've got these mortgages in place, if rates do decline, you should lag the drop in rates and that risk free spread should widen out for investors.
Will Granleese: It will, as a matter of fact, it will widen out. Yeah. And that's because there's actually, there's Switching costs, I'll call it that, switching costs on the private side. Meaning you can't just pay your entry mortgage off and, and go to another private lender and just without paying appraisals or legals or, or any other fees.
So that really gives us a bit of a buffer that our interest rate upon renewal can be a little bit higher than the market rate, which will extend the, the rate of return.
Bob Simpson: Yeah. So, so using, you know, we're the portfolio manager at Wealth Stewards. We work with hundreds of investors. We built portfolios and, the last episode, we talked about investing in bond funds and how bond funds there's 422 billion invested in bond funds in Canada, and they've returned nothing over the last three years, as an example, before advisor fees.
I'm interested in your opinion on how would you use in a typical investor portfolio? How would you use the Antrim fund?
Will Granleese: How I see advisors typically using Antrim?
Bob Simpson: Yeah. Yeah. How would advisors or how would you do it?
Will Granleese: Okay. Well, two, two, two slightly different ways.
So I see advisors taking a position in Antrim somewhere between five to 10%. Of a well allocated, diversified portfolio. And they might have other, alternative investments that they include in that. I would argue some, someone like us might even be up to 25% of the allocation of any individual shareholder.
But again, you've, you've got to do a full know your client and you have to, you diligently look and see all the particular points well beyond, well beyond this webinar. But that's what I would say. So most advisors somewhere between 5-10%. Let's say the average would be probably around 7% of a portfolio.
Bob Simpson: That makes sense. What we try to do at Wealth Stewards is we try to diversify by having a wide range of private investments. But we do tend to stay away from, you know, the typical bond funds that are used by, you know, many of the bank owned advisors there. So yeah, just some thoughts.
So final thoughts here, as we wrap up today, I appreciate that you've spent the time and, you know, the dude, well, the due diligence process is important.
I think for investors to just to hear your thoughts, to, to get to know you, I hope over the, you know, the term of the length of this episode today, that people, I think, know you a bit better. They understand your fund and they can do it. It is important to understand. And I appreciate the thoughts, but you know, just final thoughts from Will Granleese,
Will Granleese: You know, my final thoughts is that we are literally entering another golden age for private lending, just no question about it.
We have a, it's very unfortunate, but we have a, housing crisis in Canada, and it makes, it makes housing very expensive. But what it also does is it puts a very firm floor up against prices falling. So the security of the portfolio is absolutely rock solid. And then on the interest rate side, we're not in a high interest rate environment.
We're in a more normalized interest rate environment, in which case we'll be paying our shareholders, let's say, you know, the 9 percent range. So. I certainly see the next couple of years, of course, nobody has a crystal ball, we can't look past that. But for the next couple of years, people can be experiencing wonderful rates of return and, and, and excellent levels of, of security as we slowly build our way out of this, this, this housing crisis that we have in Canada.
Bob Simpson: Yep. So not 50 percent Antrim, 50 percent NVIDIA.
Will Granleese: You know, it's interesting. I was at, I was at a conference, a couple of months ago and, and someone said to the speaker, you know, what do you think of NVIDIA? Should, you know, should we be investing in it?
And they were arguing, well, yeah, you know, put some of your risk capital in that. And again, it's, it's about being diversified, right? It's, you don't, you put all your eggs in one basket, but it's a very interesting story to be following. And it's interesting to see the way the market is, is, so, reacting so favorably to, artificial intelligence and, and anything to do with artificial intelligence and who's going to be the next person to, to win that game.
So it's an interesting story.
Bob Simpson: It is for sure. Anyway, well, thank you. I appreciate this. Appreciate you. Appreciate the work that you're doing for the clients that we work with. And, It's, it's been, and we expect it to be a good investment in interim balanced mortgage fund going forward. So that's wonderful.
So thanks for, thanks for coming out. And, it's a shorter trip from Vancouver to Edmonton than it is from, from South Florida. So are you going back or no?
Will Granleese: No, that was just a, just a one time thing.
Bob Simpson: Once was enough anyway. Yeah. So thanks for, thanks for doing this. Appreciate it.
Will Granleese: Thank you. Thank you very much.
Bob Simpson: So in closing, before making any investment decisions, it is crucial to consult a professional financial advisor to determine suitability full disclaimers are available on privatedebtandequity.ca. Don't forget to follow us on your preferred podcast platform and visit and subscribe to our YouTube channel, to stay updated.
We also provide web site visitors with a transcript of these episodes. So if you want to, you know, go through in detail, it's, it's, it's all up there. If you're eager to learn more about today's topic, visit privatedebtandequity.ca. Click on investing. We are changing the format of the. The website, it'll be investing, investing for income, and then you'll be able to find details on the Antrim Balanced Mortgage Fund.
I do appreciate everybody joining us here today. I'm Bob Simpson. It is my pleasure as always to guide you through this conversation. This a due diligence interview. I hope you find it interesting. Probably not a lot of fun. But it was, I, you know, I had a lot of information there. Remember that knowledge empowers you to make well informed investment decisions.
So until we meet again, stay focused and disciplined on your financial journey. Catch you soon.
