The First Step trusts are allowed to invest in capital secure first mortgages, contributory mortgages, other first and second mortgages, debentures and mezzanine debt.
Essentially, they will pool many of the types of investments, such as property bonds and contributory mortgages, that Money Managers used to sell individually.
Marketing director Al Scott says this arrangement will lower the default risk of individual funds and, because of they way they are set up, will provide better returns.
For instance two of Money Managers' investments, the $8 mill Ballantyne property bond and the $2 mill Matacorp contributory mortgage have run into trouble, with the former being put into receivership, and the latter subject to a mortgagee sale.
However, if these were part of the First Step portfolios the impact on an investor's returns would have been minimal as opposed to the current situation.
The other key feature of the trusts is that they are domiciled in Australia for tax reasons.
Scott says by setting up the trusts in Australia and paying out all the income as bonus issues each year the trusts will not having to pay tax, consequently the unitholder gets a higher return.
This approach was first adopted by some of the funds in ANZ Funds Management's Ascent investment programme, and Rothschild has made noises about using a similar structure.
The four trusts; Secure Mortgage, Traditional Finance, Escalator and Premium Performance, each have different risk profiles and expected returns.
He says the expected return on the Secure trust is 7% net annually, 8% for Traditional Finance, 9% for Escalator and 10% for Premium Performance.
Scott says the trusts allow investors to take a "mix and match" approach to their investments.
He says another key difference between First Step and some of the regular mortgage trusts is that they are fully invested. When money comes in from clients it is put into Money Manager's branded Macquarie Gilt Edge Access Account while it is waiting for mortgages to be written.
"There is a variety of fixed interest products available that by themselves do not offer investors diversification," Scott says. "By combining these into four distinct trusts, investors can enhance their returns as well as increase diversification."
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