Magna Group (aka Magna Asset Management) is offering unregulated bonds paying interest over 12 months or 18 months as follows:
- 12 months: Pays interest of 12% over the one-year term, rolled up and paid out at the end of the year. Issued by MIX2 Limited.
- 18 months: Pays interest of 18% over an eighteen month term, rolled up and paid out at the end of the 18 months, which is equivalent to 11.7% annual interest on an Compound Annual Growth Rate basis. Issued by Magna Investments X Ltd, aka MIX1.
Investment in the 12 month MIX2 loans has a minimum investment of £30,000, while investment in the 18 month MIX1 loans has a minimum investment of £10,000.
The lower minimum investment is the only concrete reason I can think of for investing in the longer term loans, given that they pay the same rate of simple interest despite having a longer term (and therefore having higher liquidity and default risk).
While Magna Group’s literature has been approved by an FCA-authorised company (Equity for Growth (Securities) Limited), the investment itself is unregulated, being a loan note issued by a non-FCA-authorised company.
Who are Magna Group?
MIX2 Limited is wholly owned by CEO Chris Madelin, while MIX1 is owned 50/50 by Chris Madelin and Acquisitions Director Oliver Mason.
Magna Asset Management, which appears to be the central corporate entity of the Magna Group (which includes at least 20 UK registered companies), is owned in equal proportions by Madelin, Mason and Development Director Jonathan Beach.
Magna Asset Management was incorporated in February 2015 and its last accounts, made up to 31 December 2017, show net assets of £1,790. This predominantly comprised £6.1 million of debtors (amounts owed to Magna Asset Management by other Magna companies) minus £6.1 million of creditors (predominantly loans from investors, as well as some amounts owed to other Magna companies). These accounts were unaudited due to Magna Asset Management’s small size, and did not include a profit and loss account.
The two bond issuing companies, MIX1 and MIX2, were incorporated in June and July 2018 respectively and are too young to have filed accounts.
How safe is the investment?
These are unregulated investments into a micro-cap property business and if Magna Group is unable to make sufficient returns from its property investments, or for any other reason runs out of money to service its bonds, it may default on payments of interest or capital.
Magna Group’s literature is commendably clear in this regard, making it clear from the cover page onwards that investors’ capital is at risk.
Asset backed loans
Investors have a charge over any property purchased by MIX1 / MIX2 or its subsidiaries and a floating charge over all the assets of MIX1 / MIX2 or its subsidiaries.
Investors should not assume that as the loan notes are to be backed by property, there is no risk of losing money.
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 there were not enough assets left 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 Magna Group, only illustrating the risk that is inherent in any loan note even when it is a secured loan.
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, the assets of MIX1 and MIX2 are valuable and liquid enough to raise sufficient money to compensate all investors.
Investors should note that they are investing in two newly formed companies, Magna Investments X Limited and/or MIX2 Limited, and the assets and property projects of the wider Magna Group are irrelevant as far as the charges over the assets of MIX1 and MIX2 are concerned.
According to a factsheet for the MIX1 investment (the 18 month bond), available to download from the Magna Group website, investors in MIX1 have a “share charge” over the shares in Magna Asset Management Limited held by Chris Madelin and Oliver Mason.
It is not clear whether this is the case for the MIX2 investment (the 12 month bond). There is no mention of a share charge in the MIX2 factsheet, but there is a passing mention of share charges in the MIX2 Information Memorandum under Risk Factors. However no specifics are provided anywhere else in the MIX2 document.
Investors will need to clear this up as part of their due diligence. In addition, bearing in mind that Magna Asset Management Limited has net assets of £1,790 according to its last published accounts, if they are planning to rely on the security offered by the charge over 66% of its share capital, they should undertake professional due diligence to verify that the assets of Magna Asset Management Limited would be valuable and liquid enough to compensate investors.
Should I invest in Magna Group?
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 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% a year should be considered very high risk. As an individual, illiquid security with a risk of total and permanent loss, Magna Group’s bonds are much higher risk than a mainstream diversified stockmarket fund.
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?
- Have I conducted due diligence to ensure the asset-backed security can be relied on?
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, have done sufficient due diligence, and feel that the return on offer (12% over one year or 11.7%pa over 18 months) is sufficient for the risks involved in lending to a new startup company.
If you are looking for a “secure” investment, you should not invest in corporate loans with a risk of 100% loss.