Marcello Developments offers 5 year investment bonds paying 8% in years 1 and 2, 9% in years 3 and 4 and 10% in year 5. The bonds can be redeemed in full after one year.
Who are Marcello Developments?
The company was incorporated in February 2015 and has been issuing loan notes since June 2015. Marcello Developments is a subsidiary of Marcello Group, which is 50/50 owned by the directors, Keith Wotherspoon and Bryan Gauson.
Both Wotherspoon and Gauson were previously involved in Ixe Group, the controversial agribusiness and commodities group. Wotherspoon was previously a director of Ixe Agro Limited, although that subsidiary has now been dissolved. Bryan Gauson describes himself as an employee of Ixe Agro on his blog.
Marcello Developments had net assets of £5 million according to its last accounts (February 2017), after allowing £3.6 million for the liabilities represented by the 5-year bonds. These accounts were not audited, due to Marcello Developments being exempt under the small companies regime. According to the accounts Marcello raised £900k from its 5-year bonds in 2015, £2.4m in 2016 and £311k in 2017.
How safe is the investment?
These investments are unregulated corporate loans and if Marcello Developments defaults you risk losing up to 100% of your money.
The purpose of the bonds is to allow Marcello Developments to invest in the prime London property market, including bridging and mezzanine finance, buy-to-let residential and commercial property, and off-plan property acquisitions.
If Marcello fails to make enough income from its property investments, or for any other reason Marcello runs out of money to service these bonds, there is a risk that they may default on payments of interest and capital to investors.
Early redemption option
The bonds are described as being fully redeemable after one year. However, the ability of investors to exit after one year will depend on whether Marcello Developments has sufficient liquid funds to repay them.
Marcello Developments’ loans are backed by the assets of Marcello developments, with a legal charge held by a Security Trustee (Jade State Wealth).
Investors should not assume that because their loans are secured on these assets, they are guaranteed to get at least some of their money back through sale of the collateral if the issuer defaults. Investors in asset-backed loans have been known to lose 100% of their money (e.g. Providence Bonds and Secured Energy Bonds) when it turned out that the collateral was insufficient to pay investors after paying the insolvency administrator (who always stands first in the queue).
We are not in any sense implying that the same will happen to investors in Marcello Developments, only illustrating the risk that is inherent in unregulated corporate loan notes even when they are asset-backed.
If investors plan to rely on this security, it is essential that they undertake professional due diligence to ensure that in the event of a default, these securities are valuable and liquid enough to raise sufficient money to compensate all investors, as well as any other creditors that Marcello Developments has borrowed money from.
Should I invest with Marcello Developments?
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 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 10% per annum yields should be considered very high risk. As an individual security with a risk of total and permanent loss, Marcello Development’s bonds are higher risk than a mainstream diversified stockmarket fund.
This particular bond is described as asset-backed. Before relying on the security backing the bond, investors should undertake professional due diligence to ensure that in the event of default, the security could be easily sold and would raise enough money to compensate all the investors, after the adminstrator deducts their fees and any higher-ranking borrowers are paid.
Before investing investors should ask themselves:
- How would I feel if the investment defaulted, the sale of the security failed to raise enough money to compensate all investors, 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 “guaranteed” investment, you should not invest in unregulated products with a risk of 100% capital loss.