DBS

49 and the fact that Downing holds a debenture over the borrower’s assets on behalf of the bondholder. That security trustee role is very important in increasing the probability that investors may get some or all of their capital and interest back if something goes wrong. “The fact that HMRC has created the new Innovative Finance ISA for P2P loans and Crowd Bonds, is a real signal that debt based securities (issued through an FCA authorised platform) can be appropriate for everyday investors.” — Julia Groves, Downing I think there’s two elements to the investment case. I think one is the underlying investment performance, and then the second element I believe is the product structure. So, if we take the first point, obviously, that varies from provider to provider but I think the underlying steady cash flows are very attractive. What’s attractive about the asset class is that, thanks to technology, there’s a growing prevalence and prominence of non-bank finance, meaning we can now offer investors the ability to invest in unlisted private debt opportunities in a way that they we weren’t able to do before. So, debt based securities investors can now get steady, uncorrelated, very low volatility cash flows into their portfolios. Of course, they suffer a liquidity constraint on that, but obviously, the liquidity premium that people are getting on those investments in some parts of the market provide adequate compensation. Goji’s investment proposition is to offer investors a highly diversified pool of cashflows in a single debt based security, substantially lowering risk. The underlying cash flows in our bonds are currently derived from over 500 different P2P loans across different asset classes, so for example equipment financing and leasing, property development and bridging, short and long term SME, public sector and supply chain financing. The next bond that we originate, or maybe the one after that in fact, will be over 1,000 different individual loans across multiple front line lenders over both one and three year terms. That’s very different to a single project based bond. We are able to give not only diversification at the underlying borrower level, but also diversification across platforms and underlying loan classes. So we think we give a great one- stop shop. I also think that, depending on how they’re structured, debt based securities can fit in with advisers’ traditional investment capabilities, permissions, qualifications, making it slightly easier for them to get their heads around them. When you look at peer to peer lending…it might be a great way to easily get into the retail space, but it has got a different regulatory structure to what advisers are used to with securities. I believe, certainly in the near term, bonds are going to be the route for advisers to get into this space. WE KNOW THAT DEBT BASED SECURITIES CAN NOW BE HELD IN AN INNOVATIVE FINANCE ISA. HAS THIS ALREADY AFFECTED YOUR BUSINESS, AND HOW DO YOU SEE IT AFFECTING FUTURE BUSINESS? It hasn’t and I don’t expect it to have much effect. In my view, the difference in liquidity profile between private company loans (illiquid) and the sort of funds typically held in most ISAs (liquid) could confuse investors, with nasty surprises for any who thought their investment was liquid. As I’ve said, I think the impact will be huge and one of the big things is that we are now attracting what would be considered mainstream investors in the ISA market. And the profile of those investors when we researched them has moved from those, which have traditionally been green investors to those that you would consider mainstream, with a desire, which is a mainstream desire, to align their investments and their values – people wanting to do something useful, socially useful, environmentally positive with their money. That reflects our own research, which says 70% of people would be unhappy if their investments were doing things, which were contrary to their values, such as being harmful to the environment. ISA has been the bridge to that group who previously probably would have not considered an individual investment to a green project but when they see it in the context of their ISA, they start to think about how their ISA could be invested to better reflect their own values in the world they want to create. So, for us each growth of a potential ISA is not just that it provides a tax incentive for our investors and that means they are going to invest more with us, but it opens up a new market of investor, which is three times bigger, to the possibility of doing some good in the world as well as making a financial return. We launched the Property Crowd ISA in March of this year, and this has absolutely had a material positive impact on our business. Since its launch, we have seen approximately half of the investor commitments on our platform coming in as ISA subscriptions. Going forward, it is difficult to forecast what proportion of investor commitments will come from ISA subscriptions but we certainly expect that the Property Crowd ISA will be well received by advisers and intermediaries on behalf of their private clients. BRUCE DAVIS JULIA GROVES JAKE WOMBWELL-POVEY ROHIN MODASIA MATT TAYLOR JAMES CRANMER LISA BEST