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BREXIT – WHAT’S NEXT FOR INVESTORS?

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BREXIT - WHAT'S NEXT FOR INVESTORS?

A nation voted. With a 72.2% turnout, 17.4 million (51.9%) votes were cast to leave the EU, compared with 16.1 million (48.1%) to remain, according to the Electoral Commission. It was unlikely that a decision of such scale would take place without significant ramifications and as it stands, Brexit has divided the nation. The economy is now in a position of indefinite uncertainty, with calls for Article 50 to be invoked as soon as possible in order to clarify the economic position for both the UK and the countries remaining within the EU. The months and years ahead will be a turbulent and volatile time for private and corporate investors. With the right guidance and expertise of experienced investment professionals, amongst the confusion, there are still opportunities to invest in new opportunities with either short or long term rewards. We find out more about the post Brexit economic landscape, and the response from the Rycal Investment Group.

Building The Post Brexit Future

For anyone with an interest in business and the economy, waking up on Friday 24thJune 2016 was the start of a journey into the unknown. As the markets opened, the FTSE 100 plunged by 8.7pc, with the FTSE 250 falling by 7.2pc, the worst performance since Black Monday. This drop cost £25bn to the value of the index, with almost a quarter lost from the value of some stocks. Bloomberg reported that some of the hardest hit by these losses were Britain’s billionares with an overall loss of $5.5bn (£4bn) on Friday. Leave supporter Peter Hargreaves, the co-founder of Hargreaves Lansdown was amongst these numbers, with his net worth falling 19pc to $2.9bn (£2.1bn).

One of the main concerns for London is the loss of the EU Passport to allow banks and financial institutes to operate across Europe’s capital market. The relocation of branches and companies to outside of the UK could cause huge financial losses for the economy of the Capital. In an ongoing pattern of change, Moody’s downgraded the UK’s credit outlook to negative following the Brexit decision. Colin Ellis of Moody’s was interviewed by BBC Radio 4** where he explained “Following the vote there is clearly likely to be a prolonged period of uncertainty now. That will have a negative impact on the UK’s credit standing and we don’t know how big that impact will be.”

He continued, reaffirming concerns from before the referendum took place, “Uncertainty has real consequences – we expect spending decisions by households and firms to be delayed. That will have an impact on confidence and that will have an impact on growth.”

In a report from the Institute for Public Policy Research (IPPR) (Saturday 25thJune) IPPR’s chief economist Catherine Colebrook stated that the fall of the pound would have a disproportionate impact on the poorest 10pc of households.

She explained in the analysis: “Because poorer families spend a higher proportion of their disposable income, the poorest 10 percent of households will be hit the hardest by these developments.”

“In the weeks and months following this initial financial market reaction, we will be hit by the perfect storm of reduced consumer spending power; a reduction in business investment as businesses put their plans on ice; and the heightened risk of a downturn across Europe.”

As it stands, uncertainty is the overriding concern. No investment is ever without risk, but in a turbulent climate, anyone considering the long term performance of a current portfolio, or expansion within the EU, is less able make informed decisions based on facts, past performances and projections. As yet, no one can predict how long negotiations will take place in order to leave the EU, but there is much groundwork to be done even before discussions can commence, such as appointing trade associations which do not currently exist. To re-establish confidence could take years. For investors, this could be the ideal to time to look outside the European Union……

Simon Calton, CEO of Rycal Investment Group, a UK based company but with US offices discussed; “The US is still the safest place, invest in U.S dollars…. diversify and look for a long term strategy”

For investors from the UK, investments conducted entirely between the USA and UK are an attractive proposition and a viable diversity option. The relationship between the US and UK is unlikely to be negatively impacted by a Brexit. State Spokesman Kirby stated last Friday “We have a close historical relationship with the UK economically and politically and we will consider how the UK, as it negotiates with the EU, fits into our strategy of pursuing broad trade partners”

“The special relationship remains a special relationship,” he said. “We’re confident that, no matter what the implications are of this vote, that the relationship between the United States and UK will remain as strong as ever.”

Areas of growth within the US have been identified by Carlton James borrower Sky Watch Group. For example, demand for hospitality in the US in certain areas exceeds supply. Hotels located in the proximity of development sites, which drive a number of channels of revenue, such as oil fields and highways, can quickly reach capacity leaving those without accommodation to have to travel further afield, costly and time consuming. Carlton James Skywatch Inn Ltd have established an innovative scheme to acquire hotels and hospitality in these high demand areas, with an opportunity for investors that leverages strategic planning by the Carlton James. Investors can opt for early returns or a longer term investment plan, dependent on their own preferences, and, although no investment is without risk, the due diligence processes carried out on each opportunity make these options attractive to those seeking diversification and increased yields from their portfolio.

Naturally, Brexit has attracted significant controversy and media coverage, and as yet, the long term market performance cannot be predicted. It may not be only the UK that choose to take this path with German Chancellor Angela Merkel stating that the EU must respond to citizens of the remaining 27 states who question what benefits they get from membership. It is likely that for the foreseeable future the European market will remain uncertain, however, increasing options to diversify outside of the EU can offer investors exciting new opportunities.

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Revitalising the token market

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Revitalising the token market 1

By Gavin Smith, CEO at Panxora

With interest rates near zero and fears that whipsawing stock markets are set for further plunges, many investors are turning to alternative markets in the search for returns. Money flowing into cryptocurrency hedge funds and trusts like Grayscale is at all-time highs and the large cap coins seem to be entering a bull phase, but that capital is not trickling down into new token projects. Why are blockchain token projects struggling to attract funding?

Seed investor scepticism

Setting aside the reputational issues with mainstream investors, even those educated in blockchain tech are not signing on the dotted line. This is certainly due in part to the hangover from the early token market.

During the heady days of 2016/17, investors could buy tokens during the token sale, and if the project was legitimate – even if the business case wasn’t particularly strong – prices would soar based on market enthusiasm. Early investors purchased at a discount and cashed out almost immediately for a handsome profit – and then repeated the process again. The token sale allowed founders to amass a war chest large enough to finance the entire token project – without having to give up a large chunk of company equity. Everyone got what they needed out of the deal.

Running a token sale is far more expensive today than it was during the boom. Getting the attention of the token buying public in a market where advertorial has replaced editorial is expensive. This coupled with a regulatory framework that requires the advice of accountants, solicitors and information gathering of KYC details for investors all comes with an escalating price tag.

To accommodate the change in cost structure, tokens now need to acquire funding in two rounds. Frequently there is a first round where capital is raised from a few, large investors. This cash is then used to finance setup and marketing the main token sale. The token sale, in turn, provides the capital needed to run the entire business project.

Bridging the gap between token projects’ needs and early stage investors

To successfully get a token through the capital raising process, founders must acknowledge the risk assumed by those very early investors and reward them appropriately. And given that tokens may stagnate or fall in price post token sale means that a deep discount in token price is not necessarily attractive enough to get investors to commit.

Many tokens have turned to offering equity in the business in the effort to raise that first tranche of capital. If you look at the number of successfully concluded token sales, the downward trend has continued since Q2 2018, so offering equity is not sufficiently stimulating the market.

Two sides of the coin

So, what is the answer? It’s a complex question but one thing is certain. Any solution must be rooted in a deep understanding of what both parties need to successfully conclude the deal.

Gavin Smith

Gavin Smith

On the one hand, token founders’ needs are clear: they need enough capital to get the token ready for and through a successful liquidity event that will provide sufficient funds to build the project. The challenge lies in striking the right balance between accruing that capital and making sure not to offer so much project equity that give up either the control or the incentive founders need to drive the project forward.

On the other hand, while the needs of the seed capital investors are more complex, there are two areas of key concern: transparency and profit incentives.

Transparency can mean many things, but almost always includes providing more informative cost and profit projections, as well as answers to a whole range of questions, not least the following:

  • What happens to investor capital if the token sale event fails? Token founders must be transparent from the outset. The token market is highly speculative and early investors run the risk of losing their money should the project fail. Therefore, investors require a well-established fund governance process in place throughout the fundraising so they can make informed decisions on whether the project is worthwhile.
  • How are the assets for the entire project managed? Investors need to know that their money is in good hands and that proper treasury management techniques are being used to manage cryptocurrency volatility risk. Ideally, an independent custodian will be used to hold the funds and limit founders’ ability to draw down the capital – releasing funds to an agreed-upon schedule of milestones.
  • How are the rights of investors protected, for instance in the case of a trade sale? Investors need to know what happens if the company they are investing in is sold. What impact could this have on the value of their stake? Would a separate governance framework need to be established? These are critical questions and investors aren’t likely to settle for any ambiguity in the answers.

Profit incentives are important when it comes to encouraging early participation in a project. Investors need convincing that the proposition will keep risks to a minimum and focus on providing a strong probability of a return. This means that founders need to be able to defend the case for the increase in the value of their token.

But this isn’t the only incentive that matters. Investors can also be incentivised by preferential offerings such as early access to projects and services that might help their own business.

Let’s not forget that investors don’t support just any project. What really matters is that there is something special and unique about the business being underwritten by the token. Preferably something that could be shared upfront and directly benefit the investor – proof that the investment is really worth it.

And that’s what it all comes down to. Ultimately, while token projects are having a hard time finding funds at the moment, if they can prove their worth and provide full transparency and clear profit incentives to ease investors’ concerns, the money is out there. And deals can be done.

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Achieving steady returns in challenging times for later life planning

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Achieving steady returns in challenging times for later life planning 2

By Matt Dickens, Senior Business Development Director at Ingenious

The macro-economic conditions of the last five years have presented a relentless challenge for money managers seeking to produce consistent returns. It seems an all too distant memory that UK markets were caught in a happy period of low volatility and positive growth since the recovery from the financial crisis started in 2009. Enter 2016 and we have since found ourselves in an era of exceptional uncertainty. An acrimonious Brexit referendum and the following ambiguity, pressure on sterling, repeated challenges to the UK Government, a trade war between two of the world’s super-powers and now a global pandemic. All this as the world is going through a digital revolution.

Under these exceptional conditions, many investment strategies have understandably struggled to sustain the growth that investors had previously enjoyed without taking on elevated levels of risk and experiencing greater volatility and its associated negative impact. However, Ingenious Estate Planning has been operating alternative investment strategies for several years, which have produced a steady return with low volatility over this time as they possess little correlation to the main listed markets.

Real Estate

The affordable end of the UK’s residential real estate market has proven to be extremely robust during the recent uncertainty. The market benefits from some core fundamentals that have assisted it withstanding a lot of the pressures experienced by other sectors. Firstly, a large and sustained supply deficit. In 2018 the UK built 80,000 fewer houses than the actual requirement of 300,0001. This strong, inherent demand poses a clear investment opportunity to investors who can fund construction projects in the safe knowledge that there is an established demand on completion.

Secondly, this supply deficit has been recognised by Governments for several years and there has been a raft of policies enacted, all supportive of building more houses. For instance, the Help to Buy scheme has enabled many, often first-time buyers onto the property ladder. This scheme means there is a well-established and subsidised group of buyers ready to buy whenever developers complete construction. Thirdly, and more recently, the Government has acted quickly to identify the property sector as one that is key to the UK’s recovery from Covid-19. Through relaxing planning laws and offering stamp duty holidays, both the construction and sales market are being given valuable incentives that support an ongoing return for real estate investors.

Secured lending model

Despite these positive forces however, there remain some risks with investing in the property market, so a conservative investment strategy is key to protecting investors. Rather than take a 100% equity, or ownership, position in a house-builder, developer or single property, a portfolio-based, secured lending model, has a number of clear risk-mitigating benefits. For instance, by lending to a portfolio of developers, carefully selected on a project-by-project basis, and by earning a fixed rate of interest, rather than taking equity risk, there is inherently lower volatility in returns given the protection of a senior debt position on each development. Contracts set out clear loan terms meaning that regular interest is paid on the investment and upon final sale the repayment is made in full, all with the benefit of banking-style security protections. By contrast, equity investments and associated valuations can fluctuate over time as the asset price changes and so it is far more vulnerable to market conditions and sentiment, and ultimately any drop in value is suffered by the investor. In the lending model, any loss is initially felt by the borrower.

Benefits for estate planning

Ingenious Estate Planning Private Real Estate utilises this secured lending investment strategy. The Business Relief- qualifying service is commonly used by clients planning for later life. As savers and investors reach retirement and decumulation, they present wealth managers with a unique set of investment problems. Without careful planning, the start of this phase for many could signal the end of any capital growth and herald their savings being eroded to pay for life’s needs. Any investment offering both high volatility and potential drawdowns may therefore become unpalatable. And while many would wish to gift savings to their children to mitigate the risks to their beneficiaries of paying a hefty inheritance tax bill upon their death, the thought of losing both control and access to these savings when they may still need them, means many feel uncomfortable in taking that step.

However, this does not need to be a fate accepted by savvy investors and planners who can utilise a proven trading strategy that continues to both carefully and predictably grow their investment while also providing potentially full relief from inheritance tax.

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Getting ahead in 2020: Why building an emergency fund is the way forward

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Getting ahead in 2020: Why building an emergency fund is the way forward 3

By Shahid Munir, co-founder of MintedTM, an investment platform which allows individuals to buy and sell gold bullion.

2020 has forced a lot of changes, especially where personal finances are concerned; attitudes towards investment have shifted and financial security has taken priority. Knowing that high-risk investments won’t guarantee profit, individual investors are considering longer-term alternatives and opportunities to save. So, at a time when stock markets are volatile, where should individuals be investing their money for the best returns?

While no one could have predicted the coronavirus crisis or the widespread economic devastation that has come with it, tension has been growing across global marketplaces for some time. Back in 2018, there were talks of a financial crisis and, even before the pandemic, unsecured debt hit a new peak of £14,540 on average per household. Now, with the UK entering into the deepest recession on record, unemployment climbing, and government support dwindling, the true value of quick-access ‘emergency’ funds has come to the fore.

Whether it’s a failed MOT, a broken boiler, or redundancy, in the event of a financial emergency, individuals are less likely to have the time or inclination to research the options available; many may resort to quick-fixes such as a high-interest payday loans to get themselves out of a difficult situation. According to research from Which?, 30 percent of people earning up to £28,000 a year were unable to save during lockdown. However, as recovery gets under way, it’s clear putting money aside to cover any large, unforeseen expenses can help to preserve existing finances and keep stress to a minimum.

Shahid Munir

Shahid Munir

Despite there being plenty of investment options available, very few lend themselves to building an emergency fund. With government premium bonds currently yielding virtually nothing and interest rates on cash ISAs sitting far below inflation, what was once considered safe is not only under-performing but is costing investors money in the long run. To reduce risk, investors should be diversifying their portfolios and investing in cryptocurrency or physical assets such as gold. For example, gold Exchange Traded Funds (ETFs) are popular with some individuals because they provide an easy way of gaining exposure to any increases in the precious metal’s value, while still allowing easy access to the funds if they are needed

With new types of technology platforms offering easy-to-use mobile savings apps, individuals can look further than traditional ISAs and bonds and begin to start investing in precious metals, something that may not have seemed possible in the past. Being based on an average rate of return and outperforming inflation, gold isn’t just a safe haven risk-off asset, it’s a key step towards establishing a watertight emergency fund.

While many people are looking for innovative ways to maximise saving potential, it doesn’t have to be complicated. Often, taking a step back and considering both personal and financial objectives can work wonders. This may involve analysing personal expenditure, taking stock of any outgoings and gauging their appetite for risk. It is wise to work towards building an emergency fund that covers three to six months’ worth of bills and expenses or to save around 10 percent of an annual salary.

Treating an emergency fund like any other fixed cost on pay day and separating it from day-to-day bank accounts and transactions will make it easier to commit to investing. For example, taking advantage of any platform-specific features, such as setting up a minimum standing order, can take the pressure off investing a lump sum. Often, it’s easier to reach an end goal by saving smaller, regular amounts, and topping them up where possible – autosaving apps are a perfect example of how these costs can add up over time.

Kickstarting an emergency savings fund is one of the first steps investors can take towards financial health, future planning and getting out of any debt cycles. While gut instinct may tempt people to keep money in the bank, investment in physical assets, such as gold, offers individuals the opportunity to benefit from greater returns and peace of mind, providing that all-important safety net for whatever the future may hold.

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