INVESTMENTS that offer guaranteed capital and profit returns are not that unusual: Tracker bonds are the most popular manifestation of this idea and have attracted millions of pounds of ordinary investors' money over the last few years.
Much less common, however, are investment opportunities which not only purport to guarantee your capital but also offer a return that significantly exceeds the best comparable deposit on the market. But just how firm are such guarantees, and who are they aimed at?
Last week, a company called Irish International Deer Ltd. took the unusual step of advertising a five year, 10 per cent profit and capital guarantee as the return on what they described as a Guaranteed Income Bond. The advertisement, which appeared in this newspaper, did not name the company or give any details of the underlying investment, causing considerable interest in the investment/deposit community - where seven per cent is considered an excellent return at the moment.
Irish International Deer Ltd. has since met with the Central Bank which enquired about the details of the 10 per cent "income" offer in the advert. Anyone offering deposit interest or income must have a banking licence and fall under the regulation of the Central Bank. This company is understood to have assured the Central Bank that the 10 per cent "income" is, in fact, interest paid annually by the company to the corporate bond investors and is not conventional deposit income.
The project involves the raising of £7.5 million for the expansion of the deer herd owned by Galtee Deer Care of Mitchelstown, Co. Cork, a company set up 10 years ago by farmer Mr Pat Mulcahy. Galtee Deer Care now consists of a production group of over 600 deer farmers and a standing herd of 15,000 deer valued at over £32 million. It claims to have invested £17 million in deer infrastructure to date and sells its meat product - venison - to mainly European customers under the brand Irishgold Venison. It employs 55 people.
Potential investors who called the advertised telephone number last week were sent a brochure and application form for the 'Guaranteed Income Bond'. The brochure includes a message from Mr Ray MacSharry, a director of the company, who describes export opportunities for Irish venison as "substantial". There is also a potted history of Galtee Deer Care and an explanation of the investment requirements and returns. It does not include any financial or personnel details about Galtee Deer Care or Irish International Deer Ltd. the company set up to raise the new finance The Trustees of a Trust Fund set up to safeguard the investor's capital are not identified, nor is there any information about the company's existing markets.
The minimum investment in this project is £10,000 for a period of five years. According to the brochure at the end of each year, the investor will receive a 10 per cent annual payment - the income - (this dividend is subject to tax at the full marginal rate) from Irish International Deer Ltd. via Galtee Deer Care. The capital is also returned to the investor from Irish International Deer after five years and provisions are made if you need to encash the bond early though it carries a small penalty.
The brochure explains how Galtee Deer Care will have paid 20 per cent interest on the investment capital "into a Trust Fund to ensure that your capital is fully secured at the end of the five year investment period. The whole [capital repayment] process is monitored by Allied Irish Bank to oversee that all payments are made when due and to give you additional peace of mind." The investor's bond is not a transferable security and cannot be sold or assigned to anyone else (including a bank, say, as collateral against a loan) for the five year duration.
The guarantees are central to the marketing of this investment offer and the brochure insists that "in the unlikely event" that Galtee Deer Care fails to meet its interest and Trust Fund payments, "legal agreements are in place such that assets of Galtee Deer Care automatically become the property of Irish International Deer Ltd". This agreement is a 'chattel mortgage', a company spokesman told Family Money, with the deer herd acting as security for all the money owed to investors.
Financial advisers Family Money has spoken to expressed reservations about the use of the deer herd itself as the security for the investors annual interest payment and their capital on the grounds that this security is susceptible to everything from disease to changing market tastes. They recommend that potential investors seek not only a detailed prospectus of the project, but also a copy of the legal agreement between Galtee Deer Care and Irish International Deer Ltd in order to clarify the circumstances and terms by which Irish International Deer could become the proprietors of the Galtee Deer Care herd.
The company spokesman told Family Money that a high rate of return was possible from this project because they were appealing directly to investors and bypassing the middlemen - the bankers and venture capitalists - who traditionally arrange corporate financing. Traditionally only large Institutions enjoy high interest returns on corporate bond issues, and ordinary people "never get a look in", said the spokesman.
The biggest difference between a corporate and public bond issue, however, is when large corporations issue their own bond, they tend to offer heavy security to investors, underwritten either by their own substantial assets or by other financial institutions. The higher the underlying guarantees, the lower the interest rate.
By setting a minimum investment of £10,000 this company is hoping to attract people with lump sums - secured either from retirement or redundancy settlements maturing deposits (which are being hit by lower rates) or other income sources. Investors who rely on a return from their capital or income purposes should note the high risk/reward ratio. Investors should always seek independent financial advice before making a decision.
