Article by Peter Webb of Webb Capital
Peter Webb of Webb Capital asks if retail bond issues could create the perfect partnership between SMEs and private investors?
I pity the ordinary folk who work hard for a living and whose financial future has been put in jeopardy by the greed and madness of recent years. What must they be thinking seeing recent reports of another rogue trader losing his employer's billions? Clearly, Warren Buffet was right when he said that the big banks had little clue of the risks their traders were undertaking when chasing profit.
Capital woes
The capital needed for SMEs to function is getting scarcer, as traditional lenders feel the pinch. The UK Government's cries for more lending to SMEs are hollow compared to the impact of edicts to bolster capital ratios. Never mind, there will be another Government initiative soon – in fact, it has already arrived, namely the Government bond purchase scheme. No doubt the funding crisis will have resolved itself long before the bumbling bureaucrats get to first draft.
Bridging the liquidity gap
There is an answer to the liquidity problem if only the powers that be would open their eyes to the obvious and stop regulating the private individual out of the opportunity.
Tired of poor returns on savings and shaky equity markets the private investor has nowhere to go for yield or profit. Meanwhile, whether it's asset finance, leasing, invoice discounting, factoring or other means of finance, for SMEs there is a huge liquidity gap emerging as traditional lenders are forced to shrink their loan books.
Power to the people
The answer to the capital shortage lies with the people with the cash – and some smart companies and advisers are tapping into the private investor's appetite for something different.
Long of cash, short of investment opportunities and excluded from the mainstream, private investors are voting with their cheque books. Retail bond issues for King of Shaves, Hotel Chocolat and the much larger Places for People are a step in the right direction. However, these small shoots are just a pre-cursor for what might occur in the future.
It won't be too long before the market sees the potential of financing business opportunities through high-yielding bonds owned by the private investor. For this to happen, we would need to see more innovation from the City and a greater effort to embrace the private investor as we endeavour to overcome the challenges ahead.
LSE promotes Order Book for Retail Bonds
The London Stock Exchange has recently completed a series of roadshows promoting the launch of its Order Book for Retail Bonds. This has been initiated in response to strong demand from private client brokers for greater access to retail bonds and a wider range of retail size corporate bonds to be made available. The minimum issue size at the moment is £25m, but this could reduce in future if the initiative is successful.
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