The Dutch Mortgage Funding Company (DMFCO) is extending its reach to European investors looking to take advantage of the low-risk Netherlands residential mortgage market, estimated to have a total value of €650 billion, according to Real Estate Capital’s sister title, Private Debt Investor.
DMFCO launched its first fund, MUNT Hypotheken, in 2014 and attracted €9 billion in commitments from Dutch pension funds, including PMT, a Dutch mechanical engineering pension fund and Hoogovens, the pension fund manager of Tata Steel.
The latest initiative is an attempt to tap into interest from institutional investors outside of the country. In the latest vehicle, the firm is targeting returns between 200-300 basis points over swaps and is aiming to raise €1.5 billion for the fund next year – a target that Jeroen van Hessen, founder of DMFCO, described as “modest”. The firm’s management fee is 25 bps per year.
Interest in the Dutch residential mortgage market has grown recently as the country’s leading banks step back from many of their lending activities and low interest rates continue to be the norm across the continent. Market share in the residential lending market between ABN Amro, Rabobank and ING is estimated to be around 50 percent, opening up a space for alternative lenders to channel institutional investment into the market.
Asked about competition in the market, van Hessen said there is a “lot of room for new entrances in the market”. Earlier this year, Venn Partners established its Dutch-focused residential mortgage platform following Dynamic Credit, which established a platform enabling institutional investors to direct capital to the market in late 2015.
Unlike other lenders, DMFCO has no plans to begin securitising loans. But van Hessen explained that the platform enables investors to direct their investments to specific types of loans, which could factor in the level of loan-to-values they would prefer to be exposed to. “Investors can fill out their criteria on the mortgages they want to invest in. The pension funds committed to our fund are showing the greatest interest in the 20 year-plus fixed-rate mortgages, which is perhaps a reflection of the risk appetite of the wider market.”
To add to the security of investing in the market, the government provides an implicit guarantee of certain mortgages in cases of default.
The Dutch residential mortgage market is estimated to be valued at €65 billion to €70 billion annually, with DMFCO commanding 7 percent of total market share. The firm has plans to increase its assets under management to €20 billion by 2020.