14-Oct-19

Putting your eggs in the right basket

Investors naturally seek the best of both worlds: a high, predictable return on their money, combined with minimal downside risk. We all know this is difficult to achieve and rare to find. Which is the best option to choose in a challenging investment environment?

In a decade of volatile equity markets, low-interest rates and higher inflation have created a challenging environment for income-seeking investors. If safety is the paramount consideration, UK investors will struggle to preserve, let alone grow, the value of their capital.

According to MoneySavingExpert, the best instant access cash ISA rate available today is 1.46%. At a time when inflation is running at 1.7% per annum, this means that savers are losing money in the current inflationary climate as their funds are depreciating in real terms.

The simple truth is that if investors really want to see their money grow, they have to accept an element of risk. The level of risk depends on an individual’s personal risk appetite and/or their financial capacity to absorb any possible losses.

Direct lending as an asset class

One market that has evolved over the last decade, with a growing number of attractive investment opportunities, is the direct lending sector. Since 2008, there has been an increase in capital inflows as a direct result of the low-interest rate environment and the retrenchment of banks from providing credit to SMEs.  

There are now a pool of funders operating in place of banks that represent the growing and active alternative finance market carrying out direct lending. Direct lending enables investors to gain exposure to or directly invest in loans made to smaller – midsized (SME) companies.

The direct lending market is, therefore, a relatively new asset class for retail investors, but one that has experienced significant growth in recent years. A study published by Intelligent Partnership commented that there is “a compelling reason for the inclusion of debt-based investments in a balanced portfolio” and, as such many IFAs are taking them into consideration.

Characteristics of direct lending

The main characteristics of this type of investment is that it offers an attractive fixed rate of income (typically 6% per annum or more) with a specific, fixed maturity date (when investors receive their capital back), and the better investments are typically contractually secured against the underlying tangible assets.

According to Triple Point’s Jack Rose, “Investors are looking for an attractive yield without entering into an inappropriate relationship with risk. The financial advisers that we work with, tell us that they prefer products with a high level of underlying diversification in each investment. If you can marry that up with an experienced provider, then I think it becomes a very interesting proposition.”

Many products in this space focus on providing funding for a specific sector or project, such as property development or renewable energy plants. However, there are some options which do provide a way to introduce diversification in order to balance their underlying portfolios, and therefore reduce concentration risk.

Triple Point Income Service

Triple Point’s Income Service aims to generate a predictable, attractive fixed rate of return whilst providing funding to thousands of UK businesses. Invested funds are exposed to a diverse Direct Lending portfolio, including Secured Lending, Leasing and Working Capital Loans.

Investors in our Income Service benefit from Triple Point’s 15 years’ experience of direct lending and managing private, institutional and public capital. As a leader in the private debt market, Triple Point currently manages over £485m of assets in lending and leasing strategies and has provided funding to over 100,000 businesses.

Triple Point is a leader in the private debt market and to date manages over £485m of assets in direct lending strategies – and has provided funding to over 100,000 UK customers.

Risk Warning:The Triple Point Income Service places capital at risk and returns are not guaranteed. FSCS protection does not apply to investments held in the Triple Point Income Service. Remember that investments are for a fixed term during which your capital is tied up, and that past performance is not a reliable indicator of future performance.

 

 

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