DBS

50 Because the ISA brand means something to people, I think it’s a very important signal to the market that debt based crowdfunding is here to stay. It’s the most established brand for the most mainstream savers and investors, and the fact that HMRC have 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. It obviously makes the returns tax-free and that should mean that we can potentially both improve the net return for investors and reduce the cost for the borrowers. This makes us more competitive, and the most immediate impact of the IFISA we anticipate will be the increase in borrowers coming now to crowdfund debt. There is such a huge amount of money already in ISAs, and now we can offer an alternative not just this tax year but for ISA portfolios built up over previous years. Given current interest rates on savings which struggle even to keep up with inflation, I would argue that cash ISAs are really a waste of a tax wrapper. That is not to say that investors should move all their money from savings to investment, but that they should consider moving their wrapper to protect higher interest rates from tax. For those people with cash ISAs moving to the Innovative Finance ISA, our job is to make sure they understand that they are taking on more risk and that’s why the returns are higher. This is a great example of where advisers can play a critical role in helping their clients aiming to maximise their net returns. Since our IFISA opened just two weeks before the end of the tax year, there hasn’t been much impact for us, as yet. But, I think it will help us attract more investors and attract a larger share of their portfolio. So, whereas our average investment is about £11,000, when people are holding £100,000 in their ISA, if they choose to transfer their ISA wrapper over, that will help us scale rapidly. And of course, investors don’t have to immediately invest it all in a single bond, quite the opposite – they can pick and choose a number of bonds over the course of the year. It has absolutely had a positive impact on the investment case for debt based securities. First and foremost, investors must be comfortable with the underlying investment case before considering the tax wrapper alone. We think intermediaries will play an increasingly important role here. Once investors are comfortable with the experience of the manager, the risk reward dynamic, plus the liquidity on offer, then the tax advantage afforded by the IFISA is a great tailwind. Triple Point has been operating in tax efficient markets for over 12 years and understands the benefits such programmes can give if properly delivered. As one of the first IFISA providers, we have already seen huge interest and uptake especially through our advised channels. I think the majority of Goji’s inflows will come through the Innovative Finance ISA. I think it’s going to add an element of credibility to the asset class and I think it’s going enable a lot of discussion with financial advisers. The reason I say that is because these are the things they really need to know about. You can’t honestly say you’re doing a good job as a financial adviser if you don’t know about a £20,000 per annum tax allowance. It’s a great way to start that conversation. It goes without saying that it’s obviously going to have a big impact on investors’ returns. And it’ll put products like debt based securities on a level playing field with the other alternatives allowing them to compete with being things like VCT and EIS. IN TERMS OF THE UNDERLYING ASSETS YOU ARE CURRENTLY INVESTING IN, WHAT ARE THE MOST INTERESTING AND EXCITING AREAS AT THE MOMENT? You can get 6-10% return on most credit assets. So, where’s the real risk adjusted premium for investors? Our priority is to make sure that we’re giving investors a high level of diversification, and that’s not really trying to diversify away from the credit risk of any specific assets. What we’re trying to help investors get their heads around, is the fact that this is an inherently nascent market, so counterparty or provider risk is not insignificant, certainly compared to other asset classes and investment products. This is inherently built into Goji’s investment model. What Goji enables investors to do is to diversify investment/credit risk of any individual credit assets, but also manage the risk presented by any single product provider. We challenge providers on things such as operational, regulatory and financial issues, as well as pricing – trying to get investors a better deal, because some providers take very large credit spreads. And really, if it’s the investor who’s putting their capital at risk, they should be getting remunerated for that. Ours is a transparent bond where the return is all of the underlying cash flows minus Goji’s fees for managing the bonds. There needs to be that balance between paying a premium for access, and some people who just frankly flout that and give a poor return for what’s actually some quite risky lending, because they portray to investors that they are the only route to this type of investment. SME loans are interesting, but having done due diligence on some very large loans for banks where the “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.” — Jake Wombwell-Povey, Goji