Rockfire Capital appreciates the potential benefits of mini-bonds to issuing companies and to investors
Recent announcements from the Bank of England, as well as positive data releases from across various sectors would suggest that recovery in the UK economy is picking up speed. This makes it more likely that Bank of England base rate will start to rise in the medium term (with many commentators suggesting that increases will start to be implemented in the first quarter of 2015). However, it will almost certainly be the case that such increases will be incremental in nature so as to avoid jeopardising the chances of further recovery. This means the time when interest rates are going to recover to their pre-financial crisis levels is still a long way in the future. Small wonder therefore, that investors are increasingly looking to alternative investments. A key characteristic of these investments is that they can be used as a means of countering low returns from the type of traditional investments where the level of return is dependent directly or indirectly on the Bank of England base rate.
Under the leadership of Liam Kavanagh Rockfire offers a range of services in specialist investment and alternative asset management. One such alternative investment area in which Rockfire Capital operates is in relation to mini-bonds. In essence, a mini-bond is an investment vehicle whereby investors lend money to organisations for a fixed period. For anyone thinking of investing in mini-bonds, it is important to remember that such investment vehicles are not suitable for novices in the financial sector. They are not the same, for example, as gilts, corporate bonds or retail bonds. Investors should also be aware that mini-bonds are not covered by the Financial Services Compensation Scheme in the event that the issuing company goes into administration. Rockfire Investment Management suggests that individuals (no matter how financially sophisticated they are) should always consult with an independent financial advisor before considering investing in this area.
Nevertheless, mini-bonds offer considerable potential advantages to all parties concerned. From the point of view of an investor, they offer the opportunity of a fixed rate of return - often considerably higher than what is generally achievable on the high street. For an issuing company, mini-bonds offer a way of raising finance whilst avoiding traditional lenders in what are still adverse lending conditions. They are also a useful way for companies to raise their profiles.