Finexia targets booming childcare sector with $55m Childcare Centre Incubation Fund

The Finexia Childcare Centre Incubation Fund – As Featured in Business News Australia

Diversified financial services group Finexia Financial is targeting the burgeoning childcare sector with a fund aimed at supporting the development of new childcare centres nationally.

Finexia, an ASX-listed specialist in asset management with key strengths in private credit and equity markets, last week officially launched the Childcare Centre Incubation Fund which has secured $55 million in preliminary commitments from wholesale investors and seed funding from the founders.

Finexia managing director Neil Sheather says the company is planning to increase funds under management to $70 million by the end of calendar 2023 amid a solid pipeline of deals identified in the childcare sector.

“We are currently evaluating a number of opportunities nationally that align with our mandate,” says Mr Sheather.

The Finexia Childcare Centre Incubation Fund provides investors exposure to private credit, an alternate asset class that in this case offers secured loans to experienced childcare centre operators who are upscaling their business.

“This funding may be required for refurbishments to existing centres or the development of new greenfield projects,” says Mr Sheather.

“The loans are typically for 12 to 24 months, which allows the businesses scope to increase and stabilise their occupancy and then seek traditional bank finance.”

Finexia Childcare Centre Incubation Fund is tapping into a niche market that Mr Sheather says has been largely abandoned by the banking sector.

“While we take a very conservative lending approach, we see significant opportunities in this space as banks continue to tighten their risk parameters.”

The fund primarily invests in the financing of experienced childcare operators by offering secured funding lines to grow and stabilise their operations in the ‘trade-up’ phase. In some cases, the fund may also invest in the real property of childcare centres.

“We undertake extensive due diligence to ensure we are working with the right operators who have the experience to build a successful business,” says Mr Sheather.

“Businesses with experienced operators are thriving as demand in the sector remains strong with childcare positions hard to come by in key locations. The competition for spaces is very high.

“For investors, the Childcare Centre Incubation Fund offers exposure to a high growth sector of the economy which the federal government is virtually underwriting, as evidenced in the most recent budget.”

Increased government support for childcare underpins Finexia’s growth forecasts for the sector.

“We see childcare as an essential service and certainly so does the government,” says Mr Sheather.

“The increased government support for parents is aimed at incentivising greater female participation in the workforce and removing the disincentive for second income earners to work reduced hours.

“These are among the many appealing attributes that make lending to this sector an acceptable risk-adjusted investment for the fund.”

Mr Sheather says support for the fund has been strong, with retail and wholesale investors drawn by the 10.0% annual return paid monthly in the form of a cash distribution.

With a minimum investment of $5,000, Finexia’s launch of the Childcare Centre Incubation Fund to retail investors is primed to target self-managed super funds.

“There aren’t many investments like this available in the market at the moment, especially in a sector that has all the right attributes,” says Mr Sheather.

The Childcare Centre Incubation Fund is one of two managed by Finexia, which listed on the ASX in 2015 and expanded into funds management through the acquisition of investment manager Creative Capital Group in 2020.

Finexia, which is currently raising $4.8 million through a rights issue to pursue growth opportunities, also manages the wholesale domestically focused holiday and resort accommodation fund, Stayco.

Stayco is a resort operator managing eight holiday and resort properties, primarily located in Brisbane, the Gold Coast and Sunshine Coast. The fund is currently leveraging the strength of the domestic tourism market which Mr Sheather says is supported by the rising cost of international travel.

In an update to the ASX in January, Finexia affirmed its guidance of a $4.3 million operating profit in FY23 and a commitment to a sustainable dividend program for Finexia shareholders. The earnings performance, which compares with a $3.8 million pre-tax profit in FY22, has been bolstered by the completion of new acquisitions by Stayco.

The figure is also supported by growth in the Childcare Centre Incubation Fund which is expected to be reflected in the second half of FY23.

To read the article on Business News Australia click here.

Key Takeaways:

• Round 1 – returning 10.00% per annum (net of fees)
• Returns are calculated as a margin over the RBA Cash Rate
• Cash distributions paid monthly to Investors
• Open to Retail and Wholesale Investors
• Investing and partnering with experienced, successful childcare operators
• Investing in an “Essential Service” underpinned by Federal Government spending commitments
• The Responsible Entity and Investment Manager are subsidiaries of an ASX listed company