By David Stevenson on 10th December 2015
We’re got a double header for readers this week, comprising two very different ‘crowd’ based investment ideas. Our suspicion is that the more popular and accessible product will probably prove to be Assetz Capital’s Quick Access Account (QAA). As with a growing number of peer-to-peer loan providers (Ratesetter and Zopa) this features a Provision Fund, and has a headline capped target rate of 3.75% gross per annum. According to Assetz, the target rate for the account can vary each month, being set at the beginning of each month based on the loans within the account, but the target rate for the QAA will never fall below 3.75% gross per annum.
In terms of the provision fund the platform says that this is the highest in the industry and amounts to 3% of total loans outstanding. Investors can directly invest up to £50,000 each on the platform and Assetz says “in normal market conditions transferring funds between Assetz Capital Investment Accounts should be possible within seconds, while withdrawal of funds completely off the platform should happen within two days or less once security checks have been carried out. Unlike some other P2P platforms, there is no fee for immediate access, nor any notice period making this one of the highest paying quick access accounts available on the market.”
Ease of access seems to be the key feature of this account and the platform’s CEO Stuart Law reckons that “quick access to funds is a fundamental challenge in any investment product – whether it’s a bond, an ISA or a peer-to-peer product. The Quick Access Account is sophisticated and not only means that money can be accessed quickly, but because of Assetz Capital’s model, the account offers a target rate of 3.75% gross per annum which should appeal to those looking for good risk-adjusted returns.”
According to Assetz P2P platforms are not permitted to pay interest on deposits “so the QAA invests the cash in a way that permits high liquidity and targets a healthy investment return. An investor can also simply press a button to choose to invest any spare cash they have at any time into the QAA and then release it when they wish to invest it elsewhere on our platform.
So, what’s the product actually investing in? We’re told that the platform invests in “both short and long-term loans and interest is earned and paid monthly”. The Assetz business model is to lend to other businesses – this isn’t a consumer loans play – via secured lending backed by realisable security. Key features of the account are below in the box:
3.75% p.a. target gross return, capped and protected by a Provision Fund. The target rate may vary each month as notified on the first of each month;
All loans funded are highly secured against loss with realisable security taken that helps to ensure that the potential for loss is minimised;
The account is designed to permit the majority of investors to exit the account on the same day as their request in normal market conditions, far faster than access permitted on many other peer-to-peer platforms.
Investments benefit from automatic inclusion in a separate, discretionary Provision Fund intended to help to protect investors from income delays or income and/or capital losses on this investment account.
The Account may contain short term loans of less than one month through to 5-year term loans to businesses but investors can exit the account earlier via the Aftermarket (subject to demand from other investors at that time);
All investments can be tracked, monitored and managed through our comprehensive and market leading portal.
Interest (income) is earned monthly (on the 1st of the month);
We can see why some investors might like this account – its easy access and interest rates of up to (but by no means guaranteed) 3.75% compare favourably with say Ratesetter’s monthly income product which is currently at 3.30%. But investor’s need to be careful when comparing the returns on Assetz product with Ratesetter’s or for that matter broader savings products.
First off Assetz is much smaller than Ratesetter and hasn’t yet proved that it has the loan origination capacity of its bigger rival. Hopefully as the Northern platform grows this will become a moot point but we’d also observe that the underlying borrowers in the case of Assetz are riskier. Small businesses are much more likely to default than consumers (Ratesetter’s core, though not exclusive customer base) although Assetz would point to its bigger provision fund and the secured nature of lending. These are all valid objections to our slight cynicism but our sense is that regardless of protection funds and guarantees you should still be rewarded with a greater return for lending to a riskier bunch of customers.
We’d also observe that there might be a liquidity mismatch concern – you’re essentially lending short term but the nature of the underlying loans is long term, prompting some concern over whether enough liquidity could be released in times of stress.
This product should never be compared with high street savings account. Assetz very sensibly refers to this as an investment product because there is risk even with that provision fund. And unlike savings products there is no statutory compensation scheme such as the FSCS which sits behind savings products. That’s no bad thing because state protection costs money which shows up in the form of much lower equivalent interest rates but it needs restating. This is still a possibly risky income based investment even though it features solid protections from an innovative provider.
Moving away from debt/loan based products we also wanted to touch on the crowdfunding campaign on Angels Den for Business Agent. This new platform is the first FCA regulated aggregator for equity and debt crowdfunding and other alternative finance. Through businessagent.com, you can lend, invest, borrow, raise and exit. The businesses aim is to “connect you to every alternative investment opportunity in the UK, help businesses get funded and aid investors make more money. We are the largest equity crowdfunding site in the UK and have the experience and ambition to create a secondary market for crowdfunding shares which will rival AIM”.
By the time you read this the campaign will probably have been finished – they’re looking to raise £300,000 on a pre money valuation of £700,000 for a sub 30% stake.
There are two features of this campaign that we’d draw attention to. The first is the eminently sensible pre money valuation of £700,000. This is a number that we think isn’t at all unrealistic especially when compared to so many other campaigns where the valuation is in the millions.
The other positive is that even at this valuation point you are being presented with an actual working business model, not a complete start up that has yet to move beyond concept stage. Over the last year we’ve seen a subtle shift in the businesses looking to raise capital, away from complete start-ups to slightly more established outfits. This is excellent news largely because it helps answer one question that keeps cropping up in our enquiries – what’s the product and how can I see that it makes money? Nebulous aspirations are all fine and dandy but they are just that – hopes. As investor’s you need to be able to test drive the product, tweak its contents and understand the proposition. If you can’t do this, what’s the point of looking at a business model or seeing how experienced the management are?