AltFi Investment – Yield, Capital Return, Market Correlation

There are more hostilities in the investment trust takeover battle at Pollen Street Capital. See the detail of the bitter struggle, reported by our friends at AltFi, below.

Regular readers will know that we have strong reservations about the way mainstream finance has rushed to invest – or should that be “throw money”? – at the alternative-finance sector.

The major issue that springs to mind is whether it’s better to invest directly in alternative-finance products or the companies that provide them. These are the questions:

  • Dividend yield?
  • Capital return?
  • Correlation between main equity market and share price performance?

The Pollen Street fund has a dividend yield that currently stands at over six per cent.  That compares well with retail-price inflation (at around two per cent). Of course, there’s capital fluctuation risk to take into account (see below). Lenders committing capital directly to Money&Co. have achieved a gross return of over  eight per cent. The capital risk here is default – currently running at an annualised default rate of 0.03 per cent over more than five years of loan facilitation.

Capital risk, already covered for our platform lending above, saw Pollen Street  offer a flat return over one month. The offer to take over Pollen Street saw an upwards share price spike of around seven per cent, but that’s been eradicated by market falls. Pollen Street is standing sown some 20 per cent from its IPO price. Check out the share-price statistics here, courtesy of Hargreaves Lansdown.

That flat Pollen Street performance over the month compares favourably with the FTSE 100 over a month – down 6.46 per cent, before what look set to be heavy falls today.

Meanwhile, back to the battle front…

In a statement released this morning Lindsey McMurray, managing partner of Pollen Street Capital, said: “The restrictions imposed by the board are severely restraining our ability to manage PSSL for the benefit of shareholders.

“It is now time for shareholders to appoint their own representatives to the board to avoid causing significant and permanent damage to PSSL.”

In a letter to its shareholders, Pollen Street Secured Lending (PSSL) has threatened legal action against its own manager.

The new threat of legal action joins the long list of troubling developments in the feud between Pollen Street Capital and PSSL.

Tensions within the listed-direct lending fund world have risen of late following accusations of poor governance by Pollen Street Capital, the manager of the HoneyComb and PSSL trusts, by the board of the latter fund.

The fund has accused the manager of dragging its feet during takeover talks by failing to provide the documentation needed. 

Historical Performance And IFISA Process Guide

  • Money&Co. lenders have achieved an average return of more than 8 per cent gross (before we deduct our one per cent fee). 

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.

  • Money&Co. has been lending for over 5 years and has only had one bad debt so far, representing a bad debt rate of 0.03 per cent per annum.

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:

  • Step 1: Register as a lender. Go to the login page, and go through the process that the law requires us to effect. This means we have to do basic checks on you to comply with money-laundering and other security requirements.
  • Step 2: Put money into your account. This is best done by electronic transfer. We can also process paper cheques drawn in favour of Denmark Square Limited, the parent company of Money&Co.
  • Step 3: Buy loans in the loan market. Once you’ve put cash in your account it will sit there – and it won’t earn interest until you’ve bought a piece of a loan. It’s this final step that requires lenders and IFISA investors to be pro-active. Just choose some loans – all loans on the Money&Co. site can be held in an IFISA – and your money will start earning tax-free interest.

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.


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Disclaimer: Money&Co.™ is the trading name of Denmark Square Limited, Company Number 08561817, registered in England & Wales, authorised and regulated by the Financial Conduct Authority (FCA). The company is identified on the Financial Services Register under Reference Number 727325. The registered office is 58 Glentham Road, Barnes, London, SW13 9JJ where the register of Directors may be inspected. Denmark Square Limited (ISA manager reference number Z1932) manages the Money&Co. Innovative Finance ISA.