Fortitude Capital – unregulated bonds offering up to 12% per annum

Fortitude Capital is offering unregulated one year bonds paying interest of 8% per annum.

Selected introducers are offering enhanced terms whereby the interest rate is increased to 12% per annum for investments above £50,000, 11% for investments between £25,000 and £50,000, and 10% for investments between £10,000 and £25,000.

Fortitude Capital intends to use its investors’ money for “algorithmic trading” in the foreign exchange (forex) market.

Who is Fortitude Capital?

Ajaz Shah, Managing Director and owner of Fortitude Capital

The Managing Director of Fortutide is Ajaz Hussein Shah. Shah was previously briefly involved in MJS Capital plc, an issuer of similar unregulated bonds; in MJS Capital’s Information Memorandum dated October 2017, Shah was listed on the board. Companies House shows that Shah was appointed as a director of MJS Capital plc on 15 May 2017 but removed the same day.

According to MJS Capital plc’s last accounts (made up to September 2017 and published June 2018), MJS Capital had at that time £1.78 million invested in forex trading “managed by a UK limited company, under control of a former director of MJS Capital plc who left due to a conflict of interest”. Although the company and the director are not named, it seems highly likely that this UK limited company is Fortitude Capital, and Shah the former director in question.

Fortitude’s other director is non-executive director Heinz-Jorg Jansen.

According to its latest confirmation statements, Fortitude Capital is 100% owned by Ajaz Shah.

Fortitude Capital was incorporated in March 2013, but its accounts show that it was largely dormant until the 2016/17 accounting period. The latest accounts show net assets of £742,000 as at March 2017, compared to a nominal £100 for March 2016. The accounts were unaudited due to the company’s small size.

How safe is the investment?

These investments are unregulated corporate loans and if Fortitude defaults you risk losing up to 100% of your money.

The purpose of the bonds is to allow Fortitude to speculate on forex using algorithmic trading strategies.

If Foresight fails to make sufficient returns from its forex trading, or for any other reason Foresight runs out of money to service these bonds, there is a risk that they may default on payments of interest and capital to investors.

According to one of Fortitude’s introducers, “the algorithm has been designed around the principle of Capital Preservation, so that the majority of trading risk is offset by sophisticated use of arbitrage and hedging techniques”. Nonetheless, no matter what efforts Fortitude makes to reduce risk, there remains a risk that it does not make sufficient returns to pay up to 12% per year to bondholders, on top of its other costs, and return their capital when it falls due.

Fortitude’s information memorandum is clear in this regard, with pages 2-3 including the risk warning:

Investment in the Bonds carries substantial risk. There can be no assurance that the Company’s investment objective will be achieved and investment results of the Company may vary substantially over time. This may affect the Company’s ability to pay interest on the Bonds and to redeem them at maturity, and investors therefore may suffer a partial or complete loss of their investment in the Bonds.

and making clear that the company will only accept investments from professional, high net worth or self-certified sophisticated investors, or high net worth companies.

Should I invest in Fortitude Capital bonds?

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 yields of up to 12% in a year should be considered very high risk. As an individual security with a risk of total and permanent loss, Fortitude’s bonds are higher risk than a mainstream diversified stockmarket fund.

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?

If your priority is “capital preservation”, you should not invest in unregulated investments with a risk of 100% capital loss.

The investment may be suitable for high net worth and sophisticated investors who will already be well aware of all of the above risks, are looking to invest a small part of their assets in corporate lending, and feel that the return on offer (up to 12% over one year) is sufficient for the risks involved in lending to a small unlisted start-up company.

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