Alfred Kemfe

We review Divitias Wealth’s loan notes paying 12% per year

Divitias Wealth plc offers “Private Offering Protected Fixed Income Bonds” with a 24 month term which pay interest of 1% per month, with coupons paid quarterly.

Investors’ money is to be used to invest in “delta neutral” arbitrage trading – identifying a mismatch between prices for the same asset on different exchanges, buying assets at the cheaper price and immediately selling them at the higher one.

Who are Divitias Wealth?

No details of who is behind Divitias are provided by its website. Companies House reveals that Divitias is owned by Daniel Willis.

Prior to founding Divitias, Willis is described on his LinkedIn page as CEO of Goldsmith Barron. Goldsmith Barron appears to have been an obscure insurance broker (an appointed rep of Brightside Insurance Services) which was struck off the Companies House register in 2017 after failing to file accounts. Willis’ published CV ends there.

How safe is the investment?

A brochure for Divitias states that “low risk and high returns are key features most investors look for” and claims the bond offers “security and protection for investors” and “capital guarantee”.

In reality, as with any loan to an individual company, Divitias is an inherently high risk investment with a risk of up to 100% loss.

Divitias claims that its “delta neutral” arbitrage strategy “enables us to offer a high yield, at low risk, over a relatively short investment term”.

However, to return investors’ interest and capital, Divitias has to identify enough arbitrage opportunities to successfully pay interest of up to 12% per year after its costs and any commission paid to introducers.

Arbitrage opportunities are by nature difficult to come by and there is an inherently high risk that it will not succeed.

Investors hold security over Divitias’ assets via a Security Trustee.

Secured lending is not risk-free as there is a risk that if the underlying borrower defaults, the security cannot be sold for enough to cover the loan.

Investors in asset-backed loans have been known to lose 100% of their money when it turned out that there were not enough assets left to pay investors after paying the insolvency administrator (who always stands first in the queue).

This is not in any sense to imply that the same will happen to investors in Divitias, only illustrating the risk that is inherent in any loan note even when it is a secured loan.

If investors plan to rely on this security, it is essential that they hire professional due diligence specialists (working for themselves, not Divitias) to confirm that in the event of a default, the assets of Divitias would be valuable and liquid enough to compensate all investors. Investors should not simply rely on what Divitias tells them about their assets.

Divitias states that “a Financial Bond Indemnity insurance policy has been purchase to provide indemnity against the exacting professional risks associated with the bond offering”.

Indemnity insurance is not a guarantee against default. “Professional risks” does not include the risk that Divitias is unable to identify enough arbitrage opportunities to pay all its investors 12% per year after all commissions and costs.

Fundamentally, no insurer acts as a guarantor to an unregulated investment paying investors 12% per year. If the scheme used some of its pre-interest earnings to buy insurance against default, the cost would bring the return it could offer investors down to the risk-free rate.

Should I invest in Divitias?

This blog does not give financial advice. The following are statements of publicly available facts or widely accepted investment principles, not a personalised recommendation. Investors should consult a regulated independent financial adviser if they are in any doubt.

As with any individual loan note to an unlisted startup company, this investment is only suitable for sophisticated and/or high net worth investors who have a substantial existing portfolio and are prepared to risk 100% loss of their money.

Any investment paying 12% per year is inherently extremely high risk. As an individual, illiquid security with a risk of total and permanent loss, lending money to Divitias is much higher risk than a mainstream diversified stockmarket fund.

Before investing investors should ask themselves:

  • How would I feel if the investment defaulted and I lost 100% of my money?
  • Do I have a sufficiently large portfolio that the loss of 100% of my investment would not damage me financially?
  • Have I conducted due diligence to ensure the asset-backed security can be relied on?

If you are looking for a “low risk” or “protected” investment, you should not invest in unregulated loans with an inherent risk of 100% loss.

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