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Strategies for Capital Preservation in a Mortgage Fund

In the domain of mortgage fund management, capital preservation is pivotal. This blog delves into the strategies enabling fund managers to center their efforts on safeguarding investor capital.

The Core of Capital Preservation

Capital preservation is my guiding principle as a mortgage fund manager at Fidelis. The aim is to protect the principal amount while generating stable, competitive returns. This requires a blend of strategic planning, market insight, and risk management.

Diversification is a fundamental risk reduction strategy for fund managers, who spread investments across various real estate loans in different geographic areas, property types, and borrower demographics. This diversification mitigates any single asset’s impact on the portfolio and bolsters its overall resilience to market fluctuations, leading to a more​ balanced and robust portfolio.

Effective capital preservation starts with thorough due diligence, encompassing a deep dive into the borrower’s financial health, accurate property valuation, and broader market trends. This careful evaluation ensures investments match the fund’s risk tolerance and capital preservation goals. Additionally, a conservative approach to loan-to-value (LTV) ratios, lending less against a property’s value, provides a safety net against market volatility and secures the principal investment.

The ongoing, adaptive management of the investment portfolio is crucial. Establishing loan loss reserves creates a financial safeguard, enabling the fund to meet obligations during repayment challenges. Fidelis maintains a loan/loss reserve of over 2% of total loan commitments, a huge benefit to investors, which many other competiting mortgage funds don’t even have.

Capital Preservation in Action

Fidelis Private Fund is an excellent example of a mortgage fund where these principles of capital preservation are implemented to balance risk mitigation with potential income generation, ensuring the safety and growth of investor capital.

Conclusion

Capital preservation is at the heart of mortgage fund management. At Fidelis Private Fund, we effectively safeguard investors ‘ capital through strategic diversification, rigorous due diligence, conservative LTV ratios, the creation of a substantial loan/loss reserve, and ongoing portfolio management. These strategies are fundamental in providing investors stability and peace of mind, laying the groundwork for sustained financial health.


Fidelis Private Fund annualized yield paid to Limited Partners for quarter 4 of 2023 was 9.32%. Click here for a summary of Fidelis’s annualized yield since inception.

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