Latest HMRC statistics on uninvested ISA cash – opportunities for asset managers with worthy infrastructure projects and ISA majorswith existing ISA distribution capabilities

 

Recent launch of  new IFISA multiple bond issuance platforms with Goji PAAS

–       Amberside ALP PLC

–       Prime Bond Renewables PLC

 

 

Bond Issuance Platforms, structural considerations to avoid AIF Status

We recommend that bond issuance platforms should be set up on the basis that the issuer of IFISA bonds is a holding company that makes loans of the bond capital raised to a wholly owned subsidiary which then employs that capital in order to trade as a moneylender. Our reasons for this recommendation are as follows.

 

An AIF is a collective investment undertaking which raises capital from investors with a view to investing it in accordance with a defined investment policy for the benefit of investors. The FCA’s response to its own question 2.9 in PERG 16.2 – is that a business is excluded from AIF status if it is exclusively or largely funded by debt or other types of leverage rather than equity capital. A cross references is then made to their other questions regarding securitisation vehicles (2.37) and issuers of debt securities (2.44).

 

The FCA’s response to its own question 2.44 in PERG 16.2. suggests that arrangements for the issue of debt securities by an ordinary commercial or financial company will not generally be an AIF or turn the issuer into one. This conclusion is predicated on two considerations.

 

First, the fact that in general  the issuer of debt securities does not invest the capital it raises for the benefit of the subscribers of the debt securities. Second,  that to be an AIF, investors must expect to get the return on investment under a defined investment policy and if the return is simply set at a certain rate of interest and fixed premium and the undertaking  is liable to make those payments, whether or not they were generated by management of the assets in line with the investment policy, this condition would not be met.

 

The FCA then postulate that other cases may not be so straightforward. For example if an SPV finances the purchase of financial assets by an issue of debt securities. Here, it is said there could be an argument that there ought to be no difference between  investors who hold their interest in the SPV through debt securities rather than through shares. That said, pending further guidance from ESMA, the FCA then assumes, for the moment, that an SPV issuing debt securities in the way described in their answer will not be an AIF provided the debt securities are not convertible.

 

There is a view amongst some that where the return that is offered is a variable rate of return based on the realisation value of the assets acquired with the proceeds of the debt securities issue, then the issuer of the debt securities will be an AIF. I agree with this view. The return is based on the performance of the assets acquired. Therefore the nature of those assets will determine the performance and accordingly their selection is likely to be made in accordance with a policy as to which assets to invest in, hence characterisation as an AIF is appropriate.

 

Likewise, an issue of debt securities where payments in respect of them are linked to the acquisition of specific projects and the investors will have no other recourse to the assets of the issuer beyond the cashflows attributable to those projects which they finance, is likely to mean, in my view, that the issuer is an AIF.

 

Therefore, both as a precautionary measure, should ESMA change their guidance in the future, and to ensure maximum flexibility as to the type of assets which a bond funded money lender may acquire, safe in the knowledge that it has a good argument that it is not (nor is likely to be) an AIF if it does, we recommend that bond issuance platforms should be set up on the basis that the issuer of IFISA bonds is a holding company which then makes loans of the bond capital raised to a wholly owned subsidiary which then employs that capital in order to trade as a moneylender.

 

This is based on the exemption that a holding company is not an AIF (Article 3(a) AIFMD) if it holds its subsidiaries for the long term and not for the purposes of divestment (Article 4.1(o) AIFMD).

 

 

Latest HMRC statistics on uninvested ISA cash – opportunities for asset managers and ISA majors

The latest ISA stats from HMRC show that the cash component of Adult ISAs is currently £270,233 million and that there is cash on deposit of £11,419 million within the stocks & shares component making a potential market for IFISA bonds of around £280 billion of existing cash balances.  See section 9.6 at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/702847/Full_Statistics_Release_April_2018.pdf.

 

Perhaps the IFISA bond market could attract some of these existing cash balances for worthy infrastructure projects.Joint ventures between asset managers with worthy infrastructure projects and ISA majors, with existing ISA distribution capabilities, could be worth thinking about.

 

Recent launch of  new IFISA multiple bond issuance platforms

We were pleased to have advised recently on the launch of the following IFISA multiple bond issues platforms using the Goji  white label “Platform As A Service’ offering, a fully regulated investment platform providing the technology and back office ISA administration; see https://www.goji.investments

 

Amberside ALP PLC:the formation of the company and the structuring of its multiple bond issuance platform including the offer of the first three series of IFISA bonds to raise capital for a wholly owned subsidiary of the company which has been established to carry on the trade of a money lender making loans available to companies that are expected to generate relatively predictable long-term cash flows; seehttps://www.ambersidealp.com

 

Prime Bond Renewables PLC:the formation of the company and the structuring of its multiple bond issuance platform including the offer of the first two series of IFISA bonds to raise capital for a wholly owned subsidiary of the company which has been established to carry on the trade of a money lender making loans available to developers and operators of high quality renewable energy projects; see http://www.p2pfinancenews.co.uk/2018/02/07/goji-prestige-bond/

 

Contact:

Roger Blears | Senior Partner | RW Blears LLP

29 Lincoln’s Inn Fields, London WC2A 3EG

T (direct) +44 (0)203 773 5211

M +44 (0)7896 151 376