P2P investments in Virgin Media and similar companies

P2P investments in Virgin Media and similar companies

Rezzah Ahmed founded WiseAlpha with the ambition to democratize investing in secured corporate bonds so that retail investors can earn a superior return without taking the amount of risk present in p2p SME or consumer lending. WiseAlpha after testing in beta for 1.5 years, allowed individual investors for the first time to use its online platform, […]

P2P investments in Virgin Media and similar companies

Rezzah Ahmed founded WiseAlpha with the ambition to democratize investing in secured corporate bonds so that retail investors can earn a superior return without taking the amount of risk present in p2p SME or consumer lending.

WiseAlpha after testing in beta for 1.5 years, allowed individual investors for the first time to use its online platform, and purchase secured loans in affordable sizes of their preferred company.

The market

Secured corporate bonds are a very exclusive market, where loan size on average is worth more than 1 million GBP.  This makes it a difficult opportunity for even high net worth individuals to invest.

Banks who underwrites such bonds does not even entertain funds with AUM less than $200 million. According to the founder, only 150 big funds like Pimco, Blackrock and such invest in this market. Bonds are made available with a minimum denomination of £100,000 wherein one can execute the transaction through a stock-broker or private bank. For the average investor, invariably none of these are accessible since very few people have £100,000 to invest in a single investment.

The solution

The majority of everyday investors can now, therefore, access these investments on WiseAlpha platform and invest in companies like Virgin Media, a 20 billion GBP cable TV giant.

The average term for the bonds and loans is for 3- 10 years. For now, WiseAlpha has 6 companies on the platform. The average yield is 6.6% and the lowest is for Virgin media at 4.5% and the highest yield is 8.5% for Garfunkelux, a debt collection business.

The senior secured market is structured in a way; where the loan is usually for  30%-50% of the value of the company. The ratings for the bonds are based on LTV, so companies with more debt are at the bottom of the investment grade (B to BB range).

Companies established for a long time and having a large asset base are providing a high rate of return with lower volatility. In general, as well, secured bonds and loans provide better return with lower risk making it an interesting alternative to the products offered by the general P2P market.

Yield

Since large companies are involved in this segment; default rate is less than 1%. There is a difference between company quality and credit risk on security. Companies who usually issue such bonds are high-quality companies. But due to high levels of leverage, these companies do not enjoy an investment grade rating. This allows WiseAlpha to offer them as investments to p2p lenders.

Returns of 5-8% are in the range of p2p investing, but the risk of default is lower than a consumer or an SME.  The company does not focus on investment grade bonds as they just do not offer the returns necessary to elicit the interest of retail p2p investors.

Customers

WiseAlpha offers services not only to individuals but to third party asset managers and private small family firms, to have access to corporate loan investments that until now only the established financial institutions across the globe could access. The online platform ensures there is a scope of creating a wider investment audience for the asset class and replace the substantial costs and complexity of investing in the product.

The transparency espoused by the platform leads to a cost effective transaction which is simpler and faster. It pre-purchases the different loans and bonds and runs the risk of a loss until those are sold. Typically, it keeps some bonds and loans on its balance sheet, so that it has some stock available and can provide variety to its customers.

Company history

WiseAlpha was launched in the beginning of 2015 and is headquartered in London, UK. It was able to raise $1.25 million in seed capital from crowdfunding sites- CrowdCube and Seedrs. Its founder Rezaah Ahmad specializes in financial technology, origination, and M&A advisory. He was Director at Queensbridge Associates, a specialist firm focussed on financial and operational restructurings.

In Feb 2016, a full- fledged online investment platform was introduced which gave individuals a chance to invest along hedge fund titans in secured corporate loans of well know British companies like Virgin Media, United Biscuit, RAC to name a few.

Traction

Since the time of its launch, it has managed to bring in 600 investors on board and has done investments in low single-digit millions. The loans are senior secured bonds which essentially mean in the case of default by the borrowing company, they share the same status as the most secure bonds. Two major investment banks in the UK are backing WiseAlpha right now.

If it is able to achieve the volumes like other big p2p lending companies, it will become an interesting proposition for the banks. Banks can sell the bonds to anyone who can afford to buy and WiseAlpha act as a lender of record between the investor and the borrower.

P2P market in the UK is about $6 billion in volume and corporate secured bonds and loans are worth over $1trillion. This highlights the total addressable market for the young startup.

The future

Wise Alpha’s vision for the next five years is to develop the platform and become the central marketplace globally for this asset class of loans and bonds. It is aggressively planning to bring more companies on board. It is increasing the number of companies on its platform to 8 in the next few weeks and aiming for 20-30 companies in the next few years. In its endeavor to provide high-end service to its customers, it is starting robo tools that will enable its customers to diversify from their initial investment.

Right now, WiseAlpha is also creating a secondary market for liquidity purposes. In the secondary market, the company will either try to find a buyer or even buy the bonds for its own account. The company is trying to disrupt a segment of the industry which has long been the domain of the largest of investment banks and asset managers.

This is an attempt at not only generating superior returns for the investor but also reducing the fat fees being charged by banks and fund managers.

Author: Heena Dhir and George Popescu

George Popescu