Alternative Investment in Post Brexit Britain
The perceived recovery from Brexit is happening much quicker than most people anticipated. It is, however, still early to determine whether this rally is sustainable in the long-run. At the moment, though, a post-Brexit Britain remains a highly attractive market for investors. Investors seeking long-term development, focus more on multi-asset portfolios that are well diversified across sectors and asset classes. Investors interested in short-term growth could view trades on equities, foreign exchange, and fixed incomes as opportunities.
Of course, the idea remains that before considering any investment opportunity, it is prudent to understand its risk profile. Below are some of the alternative opportunities that show promise of return on investment in the UK.
Equity crowdfunding operates to some extent as a business angel network; only this is managed predominantly online. Crowdfunding companies offer investors the chance to invest small amounts (sometimes as little as £10) for a stake in a start-up firm.
It is important to understand that there are two main models of equity crowdfunding. In one, the investor deals directly with the company and acquires shares in the business, in their name. In the other model, the crowdfunding company settles the contracts on behalf of investors and holds the stocks for them, as the nominee. Each model has its advantages and disadvantages.
In addition to the risk of investors losing their capital investment in the event the start-up fails, equity crowdfunding can carry a risk of dilution. To avoid dilution, investors can request specific protection clauses in the shareholders’ agreement, when buying the shares.
Peer to peer lending
Some companies put funders together with people or enterprises that want to borrow cash. Although claiming to be open to lending cash, the reality is that the banks have not been lending to small businesses for quite some time. Conversely, with interest rates so low currently, lenders who lend vis a P2P platform, can earn more on their savings than they would have from a cash account.
However, lending to individuals or companies carries the risk that the debtor might not be able to repay the money. Secondly, as this form of investment grows in popularity, interest rates offered to investors have fallen over the past few years.
Structured products can be considered as alternative investments since they are not shares, bonds, or cash. However, they remain less risky than most of the investment opportunities available. Structured products are contracts with financial institutions that require the commercial establishments to pay the investor definite returns at pre-determined times, subject to the volatility of the stock market.
It is imperative to understand the fine line between structured deposits and structured investments.
Business angel investing
Business angel investors invest their capital in smaller firms that are yet to be quoted on the stock market. The idea is, if the start-up fails, the investor loses all his money; if on the other hand, it succeeds, the investor might make some excellent returns on the investment.
Usually, investors do not earn any returns until the start-up is sold or gets listed on a stock market. This could take years to happen. Through government initiated schemes such as Enterprise Investment Scheme and Seed Enterprise Investment Scheme, angel-type investments enjoy outstanding tax exemptions.
The Brexit referendum result may have pumped more life into Britain’s markets. The speed of recovery thus far, has been impressive; proving that Britain remains an ideal market to put your money in for future returns.
Words by Jason Kluver, COO of ShadowFoundr