Institutional Asset Management: How MICs and REITs Compare
There is often a lot of confusion about the difference between what is a MIC and what is a REIT. This article tries to explain some of the differences. However, both are good options for institutional asset management.
Like REITs, MICs or mortgage investment trusts are a type of syndication that allows a group of people to pool resources to reduce risk and maximize income. However, MICs differ from Real Estate Investment Trusts and are a tool that invests in mortgages secured by real estate, rather than the real estate itself (this is what a REIT does, just like RELPs).
However, once again, like REITs and MICs, mortgage investment trusts are an investment tool with a low barrier to entry, and that also leaves participants without the responsibility of managing the operation on the day. a day.
A MIC investment also allows pooling of investor funds, and this is an important point. By working together, investors can pool smaller individual investments and can achieve much more by working together.
Like their accompanying investment vehicles, mortgage investment trusts are designed to provide stability to unit holders. In the case of PRMs, this is done by investing in a diversified portfolio of mortgage loans. This means that the group as a whole can absorb the effect of possible defaults. Compare this to this situation of an individual investor who invests in a defaulting individual mortgage; there is no protection.
Also, with a MIC, loan rates are set at the beginning of the contract, so changes in bank rates won’t affect things for investors right away, at least not until the renewal dates.
Like the typical Canadian REIT, MIC investors benefit from a strong management team. Managers take care of day-to-day operations, establish and execute the lending strategy, secure beneficial interest rates, and also manage equity and returns to shareholders. And, it goes without saying, the management team, rather than the individual investor, assumes all the risks and responsibilities of the investment. It is a win-win situation.
Another benefit of mortgage investment corporations is that they invest in mortgages, rather than real estate. Although real estate is generally insulated from market fluctuations and is a safe and stable bet, mortgages are considered even safer. It does not matter if the value of the mortgage decreases or not, the borrower must make predetermined monthly payments and, if there is a default, the MIC can still foreclose on the property.