Regular readers will be aware of our timely updates on the troubled relationship between mainstream investment and the alternative finance sector. We’re not saying that all the early investments in the altfi sector were foolish, far from it. But it’s true to say that some of the institutional investors did seem to rush in at valuations they have come to regret.
One of the leading investment trusts with exposure to the alternative sector has just reported. AltFi carries detail.
Peer-to-peer lender Zopa raised £140m in December allowing it to stay on track for the launch of its long-awaited banking platform. The cash was needed to fulfil regulatory capital requirements, a key requirement for the lifting of restrictions on its bank licence. The new fundraise prompted a fall in its valuation, however, of 47 per cent resulting in a new money valuation of £188m. Zopa only managed to secure the funding the day before the regulators’ deadline.
The decrease in the valuation of the fund’s Zopa stake reduced the investment trust’s NAV by 0.7 per cent.
Pollen Street Secured Lending’s, formerly P2P Global Investments, Zopa position was written down by 63 per cent from £7.8m to £2.9m. The legacy equity portfolio of Pollen Street Secured Lending, is now valued at £27m (3.7 per cent of NAV).
Historical Performance And IFISA Process Guide
That figure is the result of over £19 million of loans facilitated on the site, as we bring individuals looking for a good return on capital together with carefully vetted small companies seeking funds for growth. Bear in mind that lenders’ capital is at risk. Read warnings on site before committing capital.
All loans on site are eligible to be held in a Money&Co. Innovative Finance Individual Savings Account (IFISA), up to the annual ISA limit of £20,000. Such loans offer lenders tax-free income. Our offering is an Innovative Finance ISA (IFISA) that can hold the peer-to-peer (P2P) business loans that Money&Co. facilitates. For the purposes of this article, the terms ISA and IFISA are interchangeable.
So here’s our guide to the process:
The ISA allowance for 2019/20 is unchanged from last tax year at £20,000, allowing a married couple to put £40,000 into a tax-free environment. Over three years, an investment of this scale in two Money&Co. Innovative Finance ISAs would generate £8,400 of income completely free of tax. We’re assuming a 7 per cent return, net of charges and free of tax here.
Once you have made your initial commitment, you might then consider diversifying – buying a spread of loans. To do this, you can go into the “loans for sale” market. All loans bought in this market also qualify for IFISA tax benefits.
Risk: Security, Access, Yield
Do consider not just the return, but the security and the ease of access to your investment. We write regularly about these three key factors. Here’s one of several earlier articles on security, access and yield.