How the alternatives finance sector is moving mainstream
|Interview with James Cranmer|
In an environment of continuing low interest rates in the UK, any asset that can provide a yield has become highly sought after. Traditionally investors have turned to fixed income and equities to provide this, but is there another asset, uncorrelated to these, which investors should be considering?
In December last year Triple Point launched the first tranche of Advancr Secured Bonds, which invest in essential leases and loans for UK small and medium sized enterprises (SMEs). Having quickly sold out of the £4.5m launch offer the group is back for round two, this time with permissions to raise up to £100m, albeit to be released in tranches of £10m, across three new fixed term bonds.
But what is alternative finance and why should it be on investors’ radars?
James Cranmer, Managing Partner of Triple Point, says accessibility has evolved greatly from when the group first opened-up leasing as an asset class to private investors 10 years ago. He says that up until then this asset class was the preserve of bank-owned leasing companies and manufacturers. When Triple Point launched the first of its leasing businesses, the minimum investment was £500,000 and it was focused exclusively on UK public sector leasing projects with NHS hospitals or Local Authorities.
“That was day one for this new asset class” says Cranmer. “For over a decade it has consistently performed at or above target, and has been extremely well received; we have continued to add to the size, experience and scope of the business to address the much publicised funding gap that exists within the UK business sector. Today, alongside public sector leasing, we now also specialise in leases, loans and other asset finance to a large and diverse range of UK-based SMEs.”
The result has been that Triple Point has invested over £1 billion, including £250m of lease and asset finance across thousands of SME customers. At the same time, with the launch of the first tranche of Advancr Secured Bonds last year - which were among the first bonds to be eligible for the new Innovative Finance ISA (IFISA), Triple Point has significantly widened the access and attraction for private investors.
The yields for Advancr Bonds vary for each bond term, with the highest currently offering 6.7% per annum for those who opt to invest via an adviser into a three year maturity bond. Each bond invests in the same range of assets which are secured, fixed interest debt instruments issued by Triple Point’s own SME lending and leasing business; Triple Point Advancr Leasing plc.
Cranmer also encourages investors to “mind the advice-gap” in the sector. “There has been an explosion of new alternative finance offerings in the last couple of years but not all are equal! Many market participants espouse the merits of “dis-intermediation” but we, somewhat counterintuitively, believe in “re-intermediating” the professional advisor community to help people navigate the myriad of options. We have even deliberately attached higher rates of income (50 basis points for each bond) for those who invest using an adviser.”
So what types of companies would you be getting exposure to in these bonds? Cranmer says that unlike a crowd bond, which would seek to raise assets for a single asset such as a solar park, with an Advancr Secured Bond you are immediately getting exposure to thousands of different and varied UK SMEs.
“Investors can take comfort that not only are they investing in a very important part of the economy, but also that this is a heavily diversified portfolio of asset-backed companies,” says Cranmer.
He adds: “Take leasing for example, its attraction is that it is tangible and easily understood in that we are dealing with goods that people come into contact with every day. One programme we run is providing funding for over 45,000 card payment terminals to UK SMEs. With contactless payments overtaking cash payments last year these have become essential assets, and while they are small value individually, they are one of the last things a retailer or business would stop paying for.”
In addition to being available for investment within an IFISA, the bonds are also eligible for inclusion within SIPPs. Launched on 6 April last year, IFISAs allow individuals to invest into debentures such as Advancr bonds and receive all interest tax free.
“The majority of our investors from the first tranche of bonds utilised the IFISA,” says Cranmer. “Again we would recommend that investors talk to their adviser before choosing which wrapper is most suitable to them.”
Cranmer adds that investors into its new managed service will benefit from the group’s experience in selecting and managing investments that meet liquidity requirements and maximise returns.
“Our decade of private capital leasing experience, throughout the ups and downs of market cycles, sets us apart and is not readily replicated elsewhere in the alternative marketplace today.”
“Since first introducing leasing to private investors in 2006 interest rates have dropped from 5% to their current low of 0.25%. As rates have come down investor inflows have gone up in their hunt for yield. This weight of new capital has meant that a lot of new businesses have popped-up in the alternative finance space, with slick marketing and new tech. We believe though, that with the encouragement of sound advice, there will be a flight to quality”.
As Cranmer likes to say, “experience is the new alternative!”