Investors Central take a different approach to marketplace and peer to peer lending than the other platforms we’ve considered. Rather than deploy investors funds directly or through a trust, Investors Central offers preference shares in Investors Central. The capital is then deployed to loans in the second hand car market by the child company Finance One.
The company offers a very thorough view of its assets and health via its prospectus. The prospectus for 2015/16 has now expired and a new prospectus is expected to be launched shortly. The information in this briefing has been generated from the 2015/16 prospectus.
The company extends vehicle loans to those who do not or cannot obtain credit with the traditional banks. Due to the preference share structure, the investment is fractionalized over the entire parcel of loans, diversifying risk.
The prospectus is offering substantial rates of return not offered in many other investments, especially for higher levels of investment. It is due to be replaced shortly, so keep that in mind while doing your research.
There are two issues of security that are of relevance to this investment. The first is that the investment medium is preference shares. These are unsecured on any assets and depend on the company’s continued success to generate income.
Effectively, these preference shares function in a similar way to a corporate bond: investors purchase preference shares at a $1 face value and are paid an agreed rate of interest over the term of the instrument’s life. The face value and any accrued interest is then repaid at the maturity date. Many of the same issues of diversification for the individual investor considering corporate bonds also apply to these preference shares. For a brief overview, see the Adani Abbot Point Terminal profile.
In the event of a company wind-up, these shares rank below the secured notes the company has on issue and will be repaid in order of recorded maturity date. It is possible there would not be sufficient funds for repayment of all preference shareholders in the event of a company wind-up.
Unlike a traditional corporate bond, there is no prospect of liquidity. There is no secondary market to trade these preference shares on: you are committed for the term of the investment.
The other concern to be aware of is that the loans being written are by nature under secured. The company specializes in car loans – and hence the loans are secured on a rapidly depreciating asset. This structure also exposes the investment to more stringent macroeconomic risk in the cycle than, say, livestock loans.
Those parts of the credit-seeking population who are seeking credit through bank-alternative lenders are paying a premium because they are not considered to fall within traditional lending guidelines. These people may in general be exposed economically in the event of a macroeconomic downturn and their rate of default may be higher than the general population in these circumstances. Individuals will vary, but as a group of borrowers, they may be more exposed than the general borrowing population served by traditional banks.
Investors Central has not experienced a prolonged economic downturn (read: recession) and it’s yet to be proved whether their business model can stand up to one. None of the peer to peer lenders we have profiled have done so either. However, to be fair: no company started in the last 25 years has. This is a new sector.
In the company’s favour, they offer a very substantial look at the company’s finances via their prospectus. They also have regular investment briefings where you can ask questions face to face. If you’re considering this as an investment, I’d urge you to go along – or to pick up the phone.
Investors Central is offering some very high rates of return, ranging from 9-16% in the 2015/16 prospectus. It is possible these rates may be lower in the 2016/17 prospectus, however. At the minimum investment of $25 000, the highest rate offered is 12% over a 48 month term. For an investment of $500 000 and higher, the maximum rate offered is 16% over a 60 month term.
As we’ve said at the Constant Investor before, the highest rate of return may not be the most suitable for you. If we take the average Australian weekly wage of about $1160 a week and assume people are working 40 hours a week, $25 000 is about 862 average Australian working hours being invested (in today’s money at least). By that measure, it’s worth investing another half hour with your financial advisor and an hour talking to the people at Investors Central to make sure that this is an appropriate product for your circumstances.
Company Name: Investors Central
Product Name: Preference Shares
Advertised Rates: 9-16% depending on term and amount invested
Advertised Term: 12-60 months
Minimum Investment/Conditions: $25 000, retail investors welcome
Best Features: Fractionalising investments over many loans, good disclosure of company financials
Big Questions to Ask: Macroeconomic downturn: how will managing this part of the cycle play out? Will cashflow of the company keep up with its needs? What will the new PDS look like? (Released shortly)
Security: Loans likely under secured
Phone Number: 1300 468 236