HCS Equity
Debt Fund
HCS Equity is a private lending fund specializing in short-term, highly collateralized loans for borrowers in real estate. The fund addresses liquidity needs for borrowers in areas such as trust, estate, probate, bridge loans, and property rehabilitation. With a strong track record and a focus on low-risk, high-return opportunities.
Investing Simplified - Deal Summary
(See Key Terms tab above for explanations of words in bold & italics)
The HCS Equity Fund is a private lending fund that offers short-term, high-yield loans to borrowers with strong equity positions or highly sufficient collatorall ( Meaning significant net worth or other assets than can be used as collateral for the loan in the event the borrower fails to pay). It’s designed to provide steady returns with lower risk than traditional private equity or stock market equity investments. The fund targets an 8.5% preferred return and focuses on preserving your capital while delivering consistent income.
Debt investments like this are generally considered safer than equity investments (both public equity and private equity) because they hold the first position lien in a capital stack. This means they are repaid first if the borrower fails to pay or "defaults". However, debt funds don’t offer tax benefits, and the potential for higher earnings is limited compared to equity investments.
Investing in public debt bonds on the stock market is similarly safe but typically averages lower returns than private funds like this. The HCS Equity Fund is ideal for investors who want steady income, lower risk, and simplicity, without chasing the higher risk and potential upside of equity investments.
Typical Capital Stack:
Profit Splits: This debt fund offers a preferred return of 8.5% which means the first 8.5% of profits go directly to investors. Excess capital above 8% is split 50/50 with investors. The fund targets 9-10% total returns.
Potential Investment Returns Example: (Assuming the fund achieves 10% total return)
- Initial Investment: $100,000
- Total Return: 10% or $10,000
- Preferred Return: 8.5% or $8,500 (per year)
- Excess Profit: $750
- Your Total Return: 9.25% or $9,250 (per year)
Investing Simplified - Key Terms
Lien - a lien is a legal claim on property to ensure the debt obligation is fulfilled
Private Equity - Holding a common equity position in a private fund or company
Public Equity - Holding a common equity position in a public company i.e on the stock market.
Bonds - a public debt instrument on the stock market Issued by federal, state, or municipal governments or corporate bonds Issued by publicly traded companies.
Private Debt - A private company that pools money from investors to lend to borrowers.
No Exposure to Interest Rate Fluctuations – The fund lends its own capital ( investor capital) without taking on external debt, which removes interest rate risk and provides stability for investors. Some funds lend investor capital alongside other borrowed capital which can negatively impact consistent returns.
Short-Term Loans (4–5 months) – The fund’s shorter loan durations allow quick adjustments to shifting market conditions, reducing long-term exposure and risk.
Strong Collateral – Loans go to borrowers who offer substantial collateral or hold significant equity positions. This structure provides strong protection in case of defaults.
65% Loan-to-Value (LTV) – Conservative lending ensures a buffer against property value declines. It is unlikely that a property will lose 35% of its value, minimizing downside risk.
Proven Track Record – The sponsor has completed over 1,800 transactions since 2010 with zero losses or defaults, maintaining a $171 million servicing portfolio that reflects both scale and operational efficiency.
Cost-Effective and Efficient Model – In-house underwriting and servicing reduce overhead, leaving a larger share of returns available to investors.
Exclusive Market Opportunities – The fund targets niche markets underserved by traditional lenders, allowing for premium interest rates that benefit investors. Founder-led oversight further ensures quality and accountability in deal sourcing.
California-Focused Lending Strategy – All loans are made within California, leveraging the sponsor’s local expertise and relationships. While this enhances market knowledge, it also introduces concentration risk if the regional market softens.
Prepayment Risks – Borrowers may repay loans early, causing the fund to sit on unutilized capital until new loans are issued. Strong borrower demand and the sponsor’s capacity to step in with its own capital help offset this risk.
Key-Person Dependency – The success of the fund largely depends on the founders’ expertise in underwriting and executing deals, which can pose a leadership risk compared to institutional funds with larger teams.
Catuous Lending - The fund is structured to be very conservative In its lending strategy, creating stability but limiting upside.
Geographic Concentration Risk – Focusing exclusively on California leverages local insights but exposes the fund to regional market downturns.
No Tax Benefits – As a debt-based fund, it does not offer depreciation or cost-segregation perks often found in equity investments. In return, it aims to provide stable, predictable income with lower volatility.
HCS Equities is a conservative debt fund that implements extra risk mitigation strategies beyond standard debt investments. It suits investors who prioritize steady dividends, value capital preservation, and are comfortable accepting slightly lower returns (about 2–3% less) to minimize overall risk.