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Plane funds: they're all location, location, location

The unrelenting hunt for yield has helped plane funds take off in the closed-end world, though Nimrod Capital's Marc Gordon says the secret to their success is largely driven by location.

Gordon, a partner at Nimrod, which helped found three aircraft investment trusts known as Doric Nimrod Air (DNA) One, DNA Two and DNA Three, told Wealth Manager that while investors might be concerned about macroeconomic risks, the biggest threat to plane funds are their tenants.

'If you think about the transaction like a property transaction, this is essentially what we are doing,' Gordon said.

'A property transaction is location, location, location when it comes to finding the property, and if you are renting the property you want to rent to someone who is always going to pay.  The third point is you want to make sure it's financed well.  Our property is location, location, location, except it's an A380,' he added.

In this video, Gordon also explains that DNA's simplicity is part of the suite's attraction for investors, along with its quarterly income of between 8% and 9%.

When DNA One, Nimrod's first aircraft fund was launched, it was backed by the likes of Baillie Gifford, Rensburg Sheppards and Insight Investment because of its high yield and potential for capital growth at the end of plane's lease.

In the retail world, though, investors can be forgiven for thinking that changes in disposable income and the strength of the economic recovery might one day choke returns. 

But Gordon said that historically post-war air travel has held up well, even in the wake of terrorist attacks and epidemics such as Sars.  On average, and aside from these blips, it has increased by an average of around 4% a year, he added.

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