The term “annualised” means that the return or distribution amount is calculated on an annual basis. Even if the distribution is made monthly or quarterly, the reported figure is expressed as if it were the total distribution for a full year. This metric is used to provide investors with a standardised way to compare the performance of different investments over different time frames. For example, Midlands calculates and announces the pre-tax returns on the Midlands Smarter PIE Fund quarterly (4 times per year). If the return for any particular quarter was 1.6%, this equates to an ‘annualised’ pre-tax return of 6.4% (1.6% x 4). In most of our communications, we refer to the ‘annualised’ return and this will clearly stipulated. 

In an investing context, “capitalised interest” typically refers to the practice of deferring interest payments until a later date. Capitalised interest is commonly associated with long-term projects, particularly in the construction or development industry. Instead of paying the interest as it would normally fall due, the interest is added to the principal amount of the loan and all paid off at the end of the development.

As mandated by our SIPO, Midlands must hold a minimum of 5% of the Fund’s assets in “cash or cash equivalents” in order to meet normal day-to-day investor withdrawal activity. “Cash equivalents” are on call cash deposits and short-term, highly liquid financial instruments that are easily convertible to known amounts of cash such as on-call cash bank accounts and short term (90 days or less) term deposits placed within New Zealand registered banks.

As a Fund, holding more cash lowers the Fund‘s returns, as less money is lent out to borrowers who pay interest back to the Fund at a higher rate than the Fund earns on cash holdings.

“Compound Interest” is effectively interest on interest on interest and it’s your investing best friend. Albert Einstein called it the 8^th wonder of the world.

Compound interest allows for the exponential growth of an investment over time.  It is a concept in finance where interest is not only calculated on the amount of money you invest (called the principal), but also on the accumulated interest from previous periods. In other words, it’s interest on interest. What it means is that the longer you leave your money invested, the faster it begins to accumulate. 

How do Compounding Returns Work?
1. Initial Principal: Compounding returns starts with an initial amount of money you invest, known as the principal. If you invested $10,000 with Midlands, your principal is $10,000. This is the amount on which interest compounding begins.

2. Interest Accrual: Interest is calculated on the initial principal for a specific period (e.g. a month, quarter or a year). This calculated interest is then added to the principal, resulting in a new, larger principal for the next period.

3. Repeat Process: The interest for the next period is then calculated based on this new, larger principal. This process repeats over time, and with each iteration, the interest is calculated on an increasing principal amount.

You have the option of compounding your returns in the Midlands Smarter PIE Fund by reinvesting your returns into the Fund. If you take this option, your quarterly returns are reinvested into additional units in the Fund. Then, in future quarters, you earn returns on your initial investment, and on the extra units you have been issued in previous quarters.

In the context of managed investment funds, a ‘distribution’ refers to the payment of income or profits to the fund’s investors.

Midlands makes quarterly cash distribution payments to its investors. The payment consists of the net interest income the Fund receives from mortgage lending and bank deposits, less fees and other expenses, tax and any reserve fund contributions.

In an investing context, “diversification” refers to the strategy of spreading your investments across different assets or types of investments in order to reduce risk (or ‘not putting all of your eggs in one basket’). The idea is that by not putting all your money into a single investment or asset class, you can potentially minimise the impact of poor-performing investments on your overall portfolio. Diversification is based on the principle that different investments may react differently to various market conditions.  The goal of diversification is to achieve a balance between risk and return. While diversifying a portfolio cannot eliminate risk entirely, it can help manage and mitigate the impact of poor-performing assets on the overall portfolio performance.

“Equity” is often considered a measure of the homeowner’s financial stake in a property. Equity is the value of a property minus any outstanding mortgage or other debts secured against it.

Mathematically, equity can be expressed as:

Equity = Property Value − Outstanding Mortgage or Liabilities

For example, if a property is valued at $500,000, and the homeowner has a mortgage with a remaining balance of $300,000, then the homeowner’s ‘equity’ in the property would be $200,000 ($500,000 – $300,000).

In an investing context, “equity release” typically refers to a financial product or other arrangement that allows homeowners to access some of the equity tied up in their property without the need to sell it. Equity is the value of a property minus any outstanding mortgage or other debts secured against it.

For example, a home owner may use the ‘equity’ in an existing property that they own in order to purchase another property.

A “financial adviser” is a person entitled to provide advice on behalf of an organisation licensed by the FMA on some or all of: insurance, investing, mortgages and superannuation including KiwiSaver

The Financial Markets Authority (FMA) was established in May 2011. It is a New Zealand government agency responsible for overseeing New Zealand’s financial markets. Its key statutory objective is “to promote and facilitate the development of fair, efficient, and transparent financial markets” Learn more about the FMA here.

There are 3 layers of supervision which are designed to help protect investors:

1. Midlands must hold a licence to operate, granted by the FMA.
2. Midlands must be supervised by an independent supervisor who is itself licensed by the FMA and ensures Midlands is adhering to legal requirements.
3. Midlands’ financial accounts and internal controls are independently audited annually by PWC.

Midlands Smarter PIE Fund is a type of actively managed investment “fund”. The purpose of a fund is to produce returns for the funds Investors. 

An managed fund works by pooling together money from lots of individual investors and allowing a specialist and experienced fund manager to invest those funds in certain assets. In this instance, the Midlands Funds Management is the manager and the Midlands Smarter PIE Fund invests in first mortgage securities (and a small amount of cash deposits for liquidity). 

A managed fund typically gives investors access to investments they wouldn’t usually be able to access individually and greater management expertise.

“Liquidity” refers to how quickly and efficiently an asset can be converted into cash or another asset without causing a substantial change in its market value.

When an asset is described as “liquid” in the context of investments, it means that the asset can be easily bought or sold in the market without significantly affecting its price. Cash is the most ‘liquid’ asset. Illiquid assets on the other hand, cannot be quickly sold or converted into cash without significantly affecting its market price.

Part of managing the Midlands Smarter PIE Fund is to constantly balance our liquidity. Under our SIPO, we must hold a minimum of 5% of funds under management in cash.  However, holding more cash lowers the Fund‘s returns, as less money is lent out to borrowers who pay interest back to the Fund at a higher rate than the Fund earns on cash holdings.

Midlands ONLY does first mortgage loans. A mortgage is a security designed to protect a lender from financial loss. It gives them the right to take possession of a property orsell it should a borrower stop making loan repayments or otherwise fail to honour the terms of a loan agreement. This right normally remains in place until the loan is paid off in full, together with any outstanding interest.

A “first” mortgage takes priority over any other mortgages or liens on the property. That is, in the event of a sale of the property to repay debts, the first mortgage holder normally has the first claim to the proceeds from the sale.

A first mortgage thus puts the lender (also known at the mortgagee) in a more secure position, and minimises the risk of them losing money in the event a loan is not repaid by the borrower (or mortgagor).

It is possible to register more than one mortgage over the same property but the rights of the first mortgage-holder always take precedence. That is, it is possible to have a second or even third ranking mortgage. Logically, lenders holding a loan secured by a second (or third) mortgage are taking on a higher level of risk. In the event of default by the borrower, the holder of a second or third mortgage will only receive proceeds from the sale of the property after the first mortgage holder’s debts are fully repaid.

In the context of manged funds, the “Manager” is the company whose responsibility it is to manage the money invested in the Fund by its investors. In this instance, Midlands Funds Management Limited (MFML) is the ‘Manager’. 

Midlands is a completely standalone management company. It has been granted a licence by the Financial Markets Authority that allows it to manage the Midlands Smarter PIE Fund. Midlands makes lending decisions, adheres to the regulatory framework and does everything else to run the Fund. Midlands does NOT take ownership of your investment or own the assets of the Fund, and your investment does not go into Midlands’ bank account. Midlands receive fees from the Fund for its management services. 

If you want to know more, follow this link.

Many people don’t know that a ‘mortgage’ is different to a ‘loan’. Simply put, a mortgage specifically refers to a legal agreement between a borrower (usually a homebuyer) and a lender (often a bank or mortgage lender) where a borrower uses a property as collateral to secure a loan for purchasing that property. A mortgage provides the lender with the right to take ownership of (and sell) the property, provided it follows set processes if the borrower fails to repay the loan. This right remains in place until the loan is paid off in full, together with any outstanding interest.

A mortgage thus puts the lender (also known at the mortgagee) in a more secure position, and minimises the risk of them losing money in the event a loan is not repaid by the borrower (or mortgagor).

The Midlnds Smarter PIE Fund is a mortgage trust. Midlands is a Mortgage Trust. “Mortgage Trusts” are an investment vehicle that lends investor money to borrowers to finance the purchase of property. These loans are generally secured by mortgages over property as the primary security. Midlands lends money to borrowers to purchase residential, commercial and rural property and land.

Many mortgage trusts will also invest a percentage of investors’ money in cash and fixed interest investments, which are considered liquid investments, to manage the Trust’s current and future cashflow requirements.

Mortgage trusts aim to generate a regular and competitive income for investors via loan repayments, interest and fees paid by the borrowers, as well as income from cash and other underlying investments held by the trust.

Mortgage trusts are also commonly known as mortgage funds.

“Loan to Value Ratio” (LVR) is an important financial ratio used to assess loans and is calculated by dividing the amount of the loan by the value of the mortgaged property. The higher the LVR, the greater the risk that the amount that could be raised by selling the property if necessary would not be enough to repay the loan.

For example, if you owned a property valued at $1,000,000 and you borrowed $800,000 to purchase it, the LVR on this loan is 80% $800,000)/$1,000,000 = 80%.

Midlands has  conservative LVR limits that are mandated by our SIPO which are designed by help protect investors capital.

Midlands is a specialist “non-bank lender.

Non-bank lenders are lending institutions that  provide loans and financial services but do not hold a banking licence fromthe Reserve Bank of New Zealand (RBNZ).  Banks must follow lending rules prescribed by the RBNZ, including rules about who they can and can’t lend to. Bank lending criteria mean that some credit worthy New Zealanders are turned down. In addition, non-bank lenders are often able to provide a quicker answer on lending proposals, especially if they are slightly outside the norm.

Midlands is not a bank. We’re proud to be a local and independent non-bank lender. This means we have a little more flexibility than the mainstream banks when it comes to providing property loans.

“Net” simply means ‘after’. For example, Midlands returns are normally presented ‘net’ of fees, which means ‘after’ fees, but before tax. That is, this means that fees have already been deducted from your return.

When an investment is described as being “on call,” it typically means that the investment can be redeemed or liquidated at short notice. In other words, the investor has the flexibility to access their funds relatively quickly.

If you invest in the Midlands Smarter PIE Fund, your money is ‘on call’. Withdrawals are normally actioned twice a week (on Monday’s and Thursdays). We normaly action a withdrawal within 5 business days of receiving your completed notice of withdrawal.

However, in some circumstances, returns could be deferred or suspended. If, by reason of financial, political or economic conditions applying in respect of any financial market, the nature of an investment or the occurrence of any other circumstance relating to the Fund, units specified in a Withdrawal Notice cannot be redeemed, then we may suspend withdrawals.

See our Product Disclosure Statement (PDS) for full information.

Please note that if you invest in our Midlands Income Wholesale Fund your funds are not on call. We require 30 or 60 days notice depending on your investment. Please refer to our Withdrawals page for more information.

Typically, a “bridge loan” is a short-term loan that helps bridge a financing gap, often used in real estate transactions. It is meant to provide temporary financing until a more permanent solution, such as long-term financing or the sale of an asset, is secured.

A “PIE” is a Portfolio Investment Entity within the meaning of the Income Tax Act. A PIE Fund is a special type of managed fund that enjoys preferential tax rules where tax paid may be lower than would otherwise normally be the case, particularly for high income earners and trusts.

The Midlands Smarter PIE Fund and the Midlands Income Wholesale Fund are both PIE Funds.

For more information about PIE Funds, follow this link.

“Principal” typically refers to the original amount of money invested or the initial sum of capital. It represents the base amount that an investor puts into an investment vehicle such as stocks, bonds, real estate or an investment fund. The principal is distinct from the return or profit earned on the investment.

For example if you made an investment of $100,000, and 5 years later, that investment is worth $110,000, the ‘principal’ amount of the  investment is the original $100,000, whereas the ‘return’ or profit is $10,000.

A “Prescribed Investor Rate” (PIR) is the tax rate that a PIE uses to work out the tax on your investment income from that PIE. The PIR is based on your taxable income and ranges from 10.5% to a maximum of 28%.

To ensure that you are taxed at the correct rate, you need to let us know your PIR.

For more information, follow this link.

This indicates that the distribution amount is stated before any taxes are deducted. Investors may be subject to taxes on the income they receive from their investments and the tax implications can vary depending on the type of income (e.g. dividends, interest, capital gains) and the investor’s individual tax situation.

Midlands usually announces itsreturns “pre-tax”, as do many other financial institutions as everyone’s tax situation is different.

A PDS is a document that legally must be given to retail investors before they invest in certain types of financial products, including the Midlands Smarter PIE Fund. It includes mandated information about the products key features, fees, benefits, risks, those involved in offering the product and how complaints can be made.

Before investing in the Midlands Smarter PIE Fund it’s important to read this document. It can be found on our website here.

A PDS is not required for Wholesale Funds, including our ‘Midlands Income Wholesale Fund’

In an investment context, “returns” refer to the return you will receive from your investment, usually represented as an annualised percentage. For example, if you invested $100,000 and your annualised investment returns 5%, this means that you will receive a return of $5,000 per annum ((5/100)*$100,000= $5,000)). Midlands returns are calculated quarterly. Using this same example, an investor would receive a return of ($5,000 / 4) = $1,250 for 1 quarter. These returns are after fees but before tax.

“Risk” means the chance that an investor won’t get the return they expected, or that they might lose some or all of the money invested. All investments have some level of risk. The risks of the Midlands Smarter PIE Fund are outlined in our Product Disclosure Statement (PDS).

Risk Ratings are a handy tool which allows investors to easily compare the risk profile of different managed funds on a like for like basis. That’s because all retail managed funds in New Zealand (including KiwiSaver funds) must produce a Risk Rating and all funds use the same formula, which is set by the Government.

The Risk Rating formula produces a number ranging from 1 (indicating lower risk) to 7 (indicating higher risk). The rating reflects how much the value of the fund’s assets goes up and down (volatility). A higher risk generally means higher potential rate of returns over time, but more ups and downs along the way.

Midlands Smarter PIE Fund has a Risk Rating of 1 out of 7 (the lowest risk rating possible, since there is no such thing as a risk free investment).

Risk is very specific to each individual investors position. As such, we recommend seeking professional financial advice before investing.

When you purchase a house, the bank or mortgage provider will normally take a mortgage over the property as ‘security’ or ‘collateral’. This ‘security’ or ‘collateral’ provides a form of protection for the lender in case the borrower fails to repay the loan as agreed. That is because if the borrower defaults on the loan, the lender normally has the right to seize and sell the security to recover some or all of the outstanding debt.

The SIPO means a “Statment of Investment Policy and Objectives”. It is legeally mandated document that outlines how a fund manager such as Midlands Funds Management will invest the assets of a retail managed fund. It also provides important information about its policies related to investments.

Before investing in the Midlands Smarter PIE Fund it’s important to read this document. It can be found here.

“Volatility” reflects the extent to which the price of an asset or the overall market fluctuates. High volatility indicates that the price of an investment can change dramatically in a short period, while low volatility suggests more stable and predictable price movements.

Investors often use volatility as an indicator of risk. Higher volatility is generally associated with higher risk because it implies a greater potential for large price swings, both upward and downward. Conversely, lower volatility is often seen as less risky because it suggests more predictable and steady price movements.

“Withdrawals” are when a customer chooses to take some or all of their money out of an investment account ormanaged fund. For example, if you have $100,000 invested in the Midlands Smarter PIE Fund and want to take $10,000 out, this is a ‘withdrawal’ of $10,000.

One of the benefits of Investing with Midlands is that your money is ‘on call’, which means you can normally withdrawal some or all of your money any time (with 5 days notice). There are no withdrawal fees.

If you would  like to make a withdrawal please complete this form.