GenWel RF-Boston Fund IV Q4 2022 Investment Commentary
I am pleased to update you on the performance of RF-Boston Fund IV as we close out our first full quarter of operation. During the fourth quarter we were able to achieve an annualized 10.89% rate of return, and have delivered 10.75% annualized since inception on August 11th, 2022 through December 31st 2022.
We are particularly proud of this rate of return during the infancy stages of the fund. RF-Boston and GenWel Capital are committed to building the fund in a strategic manner, focused on tight underwriting standards and the investor experience above all else. We are thrilled you have elected to partner with us.
2022 was a particularly volatile year for investors in most traditional assets. US Equity markets hit their 52-week low in mid-October on the heels of a hotter than anticipated consumer price index (CPI) report, and the corresponding hawkish tone from the Federal Reserve. That highlights what is perhaps the most prevalent challenge investors face right now; deciphering the path the Federal Reserve will take on their quest to reduce inflation. The Federal Reserve has not been shy in stating they are willing to do whatever it takes to get inflation under control – this means slowing growth within the US economy, and potentially provoking a recession. To that end, good news is bad news. More ironically, bad news is good news until we truly get the proverbial inflation monkey off our back. Data that would traditionally be thought of as an indicator of a healthy economy, consumer, or employment market are now a spotlight on the main stage problem: persistent inflation. Unfortunately, as of late February, the Fed has slowed its pace of interest rate increases, but we cannot confidently say that inflation is behind us and there is still a lack of clarity ahead.
Traditionally, a rising rate environment presents headwinds to real estate markets. I would love to tell you this time is different – but it’s simply not true. Real estate investors felt pain in the second half of 2022 as most values pulled back approximately 10% from their peak in April or May. That said, most property values still far exceed pre-pandemic levels, so pain is all relative. This is something we are aware of as we engage with borrowers, regardless of their track record and experience. As of the end of the year our portfolio maintains a conservative loan to value ratio of 60.1%. We continue to tighten lending standards in many ways, most notably by requiring more borrower capital on the date of purchase. As of December 31st, no loans are in default or late on payments. Our fund is built to withstand continued price compression in the housing market while delivering rates of return for investors that exceed the 2022 results.
In the fourth quarter our portfolio grew by 17 loans and $11.37 million to a total of 25 loans and $18.48 million. We recognize it is relatively small but are proud to show consistent growth month over month while maintaining the utmost confidence in our portfolio. As we continue to grow, our focus is on maintaining the integrity of the loans we underwrite. Our borrowers are our partners, and we love to see them succeed. Not only do we emphasize lending to experienced real estate professionals with high FICO scores and substantial equity, we ensure their exit strategy is sound as well. After all, our loans are short-term in nature and permanent financing is typically secured within 12 months.
Our fund is not directly correlated to traditional markets like the S&P 500, and it is insulated from the volatility associated with them. We expect your rate of return to marginally increase quarter over quarter in 2023 as the fund matures. The driving force of that increase is the utilization of our line of credit with Needham Bank, allowing modest leverage and flexibility with our cash balances. We cannot predict what the future holds, but we can continue to make the most informed decisions with the information available. Today, that is indicative of continued success in the fund while we prioritize the protection of your capital.
