Expert In Focus - Philip Ryan
Trilogy managing director and co-founder Philip Ryan generously shares with us his investment experience and insights, starting withhis first investment as a Brisbane schoolboy after a maths exercise demonstrated shares' potential performance.
rilogy Funds managing director and co-founder Philip Ryan made his first investment as a Brisbane schoolboy after a maths exercise demonstrated shares’ potential performance. Impressed, he took the money he’d saved working part-time in a local garage and invested in an insurance company whose shares had nosedived following Cyclone Tracey and Brisbane’s 1974 floods. When the shares ultimately soared post Philip’s purchase, his interest in further investments was well and truly piqued.
""The key is appreciating risk and return and that’s the thing I try to talk to young people about.""
API: In your early days of investing did you come across any challenges or hit a wall?
PR: All the time! Initially, I came up with the cunning idea I could buy things on a contrary basis e.g. purchasing undervalued shares including mining and oil, buying industrial shares such as a paper manufacturing business and then a finance company taken over by Reg Ansett (which when it collapsed took 100% of my investment). Then came the 1980s, and of course, the 1987 crash.
API: What realisations helped you overcome these difficulties?
PR: The key is appreciating risk and return and that’s the thing I try to talk to young people about. Understand who you are and your risk tolerance and what keeps you up at night. Understand the basics of what works and what doesn’t. Many investors are influenced by return, but they’re not prepared for losses. Once you understand yourself, then it goes back to education. I am motivated by reading biographies but started with share market books by Benjamin Graham - the old doyen of share market trading who Warren Buffet always refers to - learning about economics and business, successes and failures, investor psychology, understanding what makes things tick at the end of the day.
API: Describe your AHA moment when you knew investing was still the best path forward for you.
PR: From the word go there have been lots of moments, starting out with that first basic investment. I ultimately started out in shares but the problem is that companies are controlled by boards you know nothing about. You may know something about the company, but not the day-to-day. Efficient market theory states that all the information you need to know about a company is reflected in the share price, with the only exception being inside information i.e. that you can not otherwise exceed what the overall market can achieve. I learnt to explore other investments which led to property - a beneficent investment. There’s not necessary lots of buyers and sellers and it’s not commoditised. You can add value to property, but you can’t do that to a share - and it’s something you’ve got control over, unlike companies with boards.
partner in a Brisbane law firm for over 20 years, Philip worked with a team of specialist property professionals who were seeking to offer more diverse solutions to their clients. All seasoned investors, they’d already become licensed to offer financial lending and also founded various property syndicates when they realised it was time to get bigger or get out. A 2004 merger with the former directors of Challenger gave birth to the company that would ultimately become Trilogy, achieving the scale required in terms of product they could offer. Now a major supplier of monthly income mortgage trusts and investment finance, as well as the owner of various commercial and industrial properties through a number of investment trusts, the Trilogy team has extensive property, share market and overseas money market experience that it brings to the table for Australian investors.
API: What led to the foundation of Trilogy and what was your aim?
PR: We were looking at providing extra services to clients of our law firm. We were all very property oriented, provided a lot of conveyancing and commercial advice and saw this was a natural adjunct. We all owned the buildings where we worked and had interests in commercial and residential property. We used our skills as investors and lawyers to find property for our clients. At Trilogy, we specialise in construction and development, lending at a higher rate than regular investment loans.
API: What investor problems does Trilogy aim to solve?
PR: The key thing that we try and provide investors with is delivery of income with an appropriate level of risk. With our Monthly Income Trust, we’ve been providing a return of over 7.84% p.a for the past 11 years. When the current cash rate is just over 1%, our trust provides a good level of income.
API: How does a Mortgage Trust work?
PR: The Trilogy Monthly Income Trust offers investors exposure to the returns available from investments in loans secured by registered first mortgages through a pooled mortgage trust. This loan pool consists of borrowers undertaking the development, construction or refinancing of Australian property. Our product differs from other providers who offer contributory mortgage trusts, which is more of a peer-to-peer lending structure whereby a few investors lend to one borrower. While they may know everything about that borrower, the difficulty is that you don’t have the benefit of diversification. Our Trilogy Monthly Income Trust is spread over 50 different loans throughout the Eastern Seaboard, different types of properties and projects with geographical diversification too.
API: What type of investors does this investment suit? What is the minimum investment available?
PR: We have quite a wide-ranging field of investors from mum and dads through to larger investors and wholesale clients - all investors with the common aim to get a better return for their money. The Trilogy Monthly Income Trust is a rated and approved product that can be recommended by financial planners and dealers, with a minimum buy-in of $10k. We tend to find that people put in a smaller amount to see what their experience may be with the fund, then increase their exposure when they get comfortable with what it delivers. We do ask investors to get appropriate advice first and also that they diversify their own portfolios.
API: What are the risks and returns of investing in a Mortgage Trust?
PR: In an economy with rising interest rates, you may find your returns aren’t as high, but we try to mitigate that as much as we can. We reduce our exposure by only lending to a maximum of 70% based on an ‘as if complete’ value to give us a buffer. The key is to assessing what we’ll lend against for one particular property type over another. Risk also comes down to the performance of the portfolio, but ours is spread over 50 different loans on properties in Queensland, New South Wales and Victoria. We have weekly meetings that aim to mitigate risk and have a lending committee that assesses each loan using external valuations for guidance. Our return in the Trust for the past 11 years has been 7.84% p.a, including 7.69% p.a over the past month.
Please note, however, past performance is not a reliable indicator of future performance.
How does a Mortgage Trust work?
AcquireInvestors acquire trust ‘units’ and receive a monthly income distribution on a per unit basis (minimum $10k buy-in).
IncomeReturns come from investments in loans secured by registered first mortgages throughout Australia.
TrustTrilogy Monthly Income Trust is a pooled mortgage trust with borrowers undertaking development, construction or refinancing of Australian property.
DiversifiedThese investments are therefore diversified across a range of mortgages, with risk shared across the portfolio by all investors in the trust.
PoolingInvestors’ money is then pooled to lend to the borrower.
LiquidityInvestors can withdraw some or all of their capital at any time subject to liquidity (a notice period is usually required.
Trilogy Funds Management Limited (Trilogy) ABN 59 080 383 679 AFSL 261425 is the responsible entity and issuer of Units for Trilogy Monthly Income Trust (Trust) (ARSN 121 846 722). Trilogy has issued a Product Disclosure Statement for the Trust dated 1 September which is available at www.trilogyfunds.com.au or by contacting us. Applications will only be accepted on the current application form that accompanies the PDS. You should obtain a copy, understand the risks, and seek personal advice from a licensed Financial Adviser before investing. Investment in the Trust is subject to terms and conditions, and risks which are disclosed in the PDS. These risks include the risk of losing income or principal invested. The Trust is not a bank deposit and Trilogy does not guarantee its performance. Trilogy provides only general financial product advice on its own products and does not consider your objectives, financial situation, or needs in providing such advice. Past performance is not a reliable indicator of future performance.