Update 27-Dec-18: Due to the numerous queries posted by MJS Capital investors on this blog, an Investor Action Group has been set up on Facebook to help them co-ordinate and share information. Unlike comments on this blog, posts on the group will only be visible to those allowed to join. Head to https://www.facebook.com/groups/mjscapital/ to join the group.
Update 10-Oct-18: On 5 October 2018, MJS Capital plc renamed to Colarb Capital plc. This article was published on 19 January 2018 when Colarb / MJS was known by its old name.
— end updates —
MJS Capital offers unregulated corporate loan notes paying 5.85% interest for a one year term, 6.85% for two years, 7.85% for three years, 8.85% for four years and 9.85% for five years. Interest is paid out quarterly, or can be rolled up (which slightly increases the annual return).
The bonds can be redeemed early, subject to a penalty and provided that MJS Capital “determines in its discretion that it has sufficient liquidity to satisfy the request in whole or in part.” The penalty is 5% plus the difference between any interest paid out and the interest the investor would have received had they chosen that term originally. For example, someone who invested in an 8.85% four year bond and redeemed it two years early would have to pay [8.85 – 5.85 + 7.85 – 6.85] = 4%, plus 5%.
Open to new investment.
The investment is not openly promoted on MJS Capital’s website, but is currently being promoted by unregulated introducers. I easily obtained details of the offering without being asked to provide any proof that I qualified as a sophisticated or high-net worth investor.
Who are MJS Capital?
MJS Capital’s website gives no details as to who is behind the company. The Information Memorandum and Companies House show that the directors of the company are Shaun Prince, Lord Timothy Razzall (Chairman) and Martin Westney. (Ajaz Shah is also listed as a Director in MJS’ Information Memorandum, but not on Companies House – he was appointed as a director on 15 May 2017 and removed as a director the same day.)
MJS is effectively 100% owned by Shaun Prince who holds 12,500 of the company’s 12,501 shares. The single other share is owned by a Stephen Prince, presumably related.
How secure is the investment?
These investments are unregulated corporate loans and if MJS Capital defaults you risk losing up to 100% of your money.
Investors’ money is used to invest in arbitrage trading in financial instruments.
Arbitrage is a perfectly valid way of making money, but the returns available are limited as any opportunity to take advantage of different prices on different markets will quickly be seized upon by other investors until the opportunity disappears.
If MJS Capital fails to make sufficient arbitrage profits to pay its bond holders up to 14% per annum, MJS Capital will default and investors risk losing up to 100% of their money.
The literature says that profits generated from the Company’s investments will be held in a designated Security Fund, which will be administered by a Security Trustee. However, the profits generated from the Company’s investments are being used to pay investors their interest and capital, so this offers no protection against the possibility that MJS Capital fails to make sufficient returns from arbitrage to maintain interest and capital payments to investors.
The literature says that Bonds are backed by a charge over the Security Fund, the Company’s cash balances, its trading contracts which utilise the proceeds of issue of the Bonds, and book debts arising from deploying the proceeds of issue of the Bonds.
The Security Fund we have already covered. If MJS Capital defaults, it will be because the Security Fund has already run out of money, i.e. profits generated from the company’s investments were insufficient to meet its obligations.
The company’s cash balance was £194 acccording to the latest accounts filed with Companies House (March 2016). (194 pounds, not thousands or millions).
Regarding the final two, given that MJS Capital’s business is to buy investments on one exchange and almost immediately sell them on another to generate profits from arbitrage, it is not clear what there will be to sell in the event that MJS Capital has insufficient resources to pay investors.
The company has an insurance policy of £10 million against the event that MJS Capital executes a trade not in accordance with its client instructions, and £20 million against operational risks such as fraud and computer viruses. Neither of these insurance contracts have anything to do with the possibility that MJS Capital fails to generate sufficient returns from arbitrage to meet its promises to investors.
Should I invest with MJS Capital?
As with any unregulated corporate bond, 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 offering up to 14% per annum yields should be considered very high risk (i.e. higher risk than a diversified portfolio of stockmarket funds).
These investments are certainly not “a very low risk strategy for our investors” as MJS Capital owner Shaun Prince has described them.
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?
If you are looking for a “secure investment”, you should not invest in unregulated products with a risk of 100% capital loss.
Shaun Prince, the owner of MJS Capital, took part in this thread on Moneysavingexpert.com as a verified representative of his company.
During this thread Prince made the frankly astonishing statement “The saying “if it looks too good to be true it almost certainly is” is no doubt a saying created within the regulated market to encourage investors away from investments offering higher than average yields.”
In linguistic terms, Prince is objectively wrong. The phrase “too good to be true” is attested as early as 1580, long before there was such thing as a regulated market.
Less pedantically, investors will have to make up their own mind whether the phrase “too good to be true” is a conspiracy to scare them away from high-risk loan notes.
In any case, this investment is clearly not “too good to be true”. It is a high risk investment with a risk of 100% capital loss, and the high coupon paid by the bonds reflects that.
In that thread, Prince claimed that MJS Capital would be listing on the London Stock Exchange in April 2017. However, as at January 2018 a search for MJS Capital on the LSE returns no results.