DBS

69 SUMMARY AN OVERVIEW The case for investing in debt based securities is compelling; although, while not a regulatory requirement, we strongly recommend the use of a professional financial adviser to navigate this market. With asset backing and proper structuring, there are opportunities for risk mitigation, the potential for genuine diversification and lower levels of volatility than equities. Not to mention the attractive yields that can be achieved in a low interest rate environment. DBS also allow investors direct access to businesses and projects that align with their personal values and interests, whether that is social impact projects, renewable energy installations or property developers, whilst all sorts of companies, including SMEs and PLCs, appreciate the lower costs of issuing directly into the debt based securities market, giving them a viable route to funding. As a result, a range of yields and risk profiles is available, capable of fulfilling a variety of investment objectives. This means that good value DBS can be found that can generate out-performance, some with very limited additional risk. That’s no mean feat in the current market and when it’s coupled with the defined return profile which is very helpful for financial planning purposes, it’s understandable that advisers and investors are taking an increasing interest in these offerings. Of course, as with any investment, there are some downsides to consider. Investors and their advisers must exercise caution to avoid taking on unnecessary levels of risk for insufficient levels of return – especially when they are looking at unsecured DBS, particularly those issued by smaller companies. They should also remember that lower levels of scrutiny are at work in this market than apply to listed securities, although regulatory requirements are in place and platforms, crowdfunded bond, loan note and debenture issuers are required to comply with them. There are certainly interesting developments which lend more weight to the investment case and shouldn’t be ignored as they have the power to drive the continuing growth of debt based securities investments: The involvement of one of the major credit ratings agencies – Moody’s, albeit with just one platform currently – can only be encouraging as an aide to advisers looking to get a better handle on the risks. It also sends a message to other credit ratings agencies that Moody’s sees this as a growing sector, worth engaging in. This could both stir other credit ratings agencies to enter the field and awaken more platforms to the benefits of this type of service. The acceptance of debt based securities into Individual Savings Accounts via the Innovative Finance ISA is a very valuable additional benefit. Some in the alternative investment space have forecast that the introduction of the IFISA will substantially increase investment into the asset classes which qualify to be held within it. The fact that at least one bank operates in this market (having promoted seven crowdfunded bonds in the last three years) 96 provides some robust credibility for the asset class. So, debt based securities justify advisers’ full understanding and for suitable clients, they justify serious consideration.