Pooled Funds vs Direct Investments
Understanding the key differences between pooled fund investments and direct investments in mortgages, properties, and deals to help you choose the right approach.
Contents
What is a Pooled Fund?
A pooled fund combines capital from multiple investors into a diversified portfolio. The fund manager selects and manages underlying loans, properties, or equity investments on behalf of all investors.
Advantages
- Diversification: Risk spread across multiple investments
- Professional management: Experienced fund managers handle selection and oversight
- Smoother cash flows: Regular distributions from diversified income
- Liquidity options: Many funds offer quarterly redemptions
Disadvantages
- Management fees: Annual fees typically 1-2% plus performance fees
- Less control: No say in specific asset selection
- Diluted returns: Fees reduce net returns to investors
- Style drift: Manager may change strategy over time
What is a Direct Investment?
Direct investments involve putting capital into a specific mortgage, property, or deal. You choose exactly which assets to invest in and may even have your name on property titles as a mortgagee.
Advantages
- Higher potential returns: No management fees diluting returns
- Full control: Choose specific assets and LVR levels
- Direct security: Your name on mortgage documents
- Transparency: Full visibility of underlying assets
Disadvantages
- Concentration risk: All capital in single asset or deal
- Due diligence burden: You must evaluate each opportunity
- Limited liquidity: Locked in until loan matures or property sells
- Administrative burden: More paperwork and monitoring required
Risk, Return, Liquidity & Fees Comparison
| Factor | Pooled Funds | Direct Investments |
|---|---|---|
| Typical Returns | 8-12% p.a. (net of fees) | 9-15% p.a. (gross) |
| Risk Level | Lower (diversified) | Higher (concentrated) |
| Liquidity | Quarterly redemptions (3 months notice) | Locked until maturity (1-3 years) |
| Management Fees | 1-2% p.a. + performance fees | Origination fees only (1-3%) |
| Minimum Investment | $50,000 - $100,000 | $100,000 - $500,000+ |
| Due Diligence | Manager handles | Investor responsibility |
| Distribution Frequency | Monthly or quarterly | Monthly (interest only) |
Which Investment Approach Suits You?
Pooled Funds Are Better If You:
- Want professional management and don't have time for due diligence
- Prefer diversification over concentration risk
- Value liquidity and may need to access funds within 3-12 months
- Are comfortable with moderate returns in exchange for lower risk
- Want regular, predictable income distributions
Direct Investments Are Better If You:
- Want maximum control over asset selection and LVR levels
- Have experience evaluating property and credit risks
- Can commit capital for 1-3 years without needing liquidity
- Seek higher returns and are comfortable with concentration risk
- Want direct legal security over underlying assets
Ready to Explore Your Options?
Browse our directory of pooled funds and direct investment opportunities to find the approach that best suits your investment goals.