The recently formed company is a special purpose vehicle geared specifically towards retail investments in car financing, which it describes as a “broadly untapped and growing asset class, one that until now has only been the preserve of large institutional investors”.
The new product is called The Harborside Funding LLC loan and is aimed at “professional and sophisticated investors”. It is designed to return capital after four years and its 8% annual interest will be paid to investors quarterly.
Harbourside says non-US investors with be provided with tax neutrality because the product is domiciled in Delaware and is US dollar denominated.
The company added that it is capitalising on the increase in the auto loan securitisation market. This has resulted from an increase in auto sales, and in 2013 the issuance of auto loan securitisations rose to $61bn, up 60% from 2012 figures.
It has also taken a number of steps to mitigate investment risk, such as only financing loans to employed individuals living in rural or remote areas where personal transport is a necessity, and fitting each vehicle with two GPS tracking devices so they can be easily traced and repossessed.
The product also has a small average loan size of $15,000 to reduce the potential impact of non-payments on the total portfolio, and portfolios are selected from a pool of more than $48m of used car loans, which are currently financed with a national US bank.
Secure and dependable
Managing director, Marc Feaster, said: “It may come as a surprise to some, but securitised US car loans are increasingly used by large financial institutions because – provided the investment process is disciplined and robust – the returns are secure, dependable and largely uncorrelated to mainstream asset classes.
“Delinquencies on US car loans are falling all the time; a recent Experian study which monitored more than 700 million vehicles found that payment defaults over the month to April 2014 had fallen to 1.11%, the lowest for almost a decade.”
He added that when Harborside’s investment strategy is factored in, the delinquency percentage would fall to an even lower level.