We review Acorn Property Bonds’ unregulated bonds paying up to 12% per year

Acorn Property Bonds (a trading name of RST Group Holdings Limited) offers unregulated bonds paying up to 12% per year as follows:

  • 8.5% per year for a 3 year investment with income paid out
  • 10% per year for a 3 year investment with interest paid at the end of the term
  • 10.5% per year for a 5 year investment with income paid out
  • 12% per year for a 5 year investment with interest paid at the end of the term

Note that the above interest rates are simple interest for the rolled-up bonds. On a compound interest basis the 3 year roll-up bond returns 9.1%pa and the 5 year bond returns 9.9%pa.

And yes, this means that the 5-year “capital growth” bond pays you a lower rate of return than the 5-year “quarterly return” bond despite being higher risk. It is a lower rate of return, despite the higher headline rate, because you can reinvest the income you receive from the “quarterly income” bond. This is why compound interest is universally used to compare two investments rather than simple interest.

The “capital growth” bond is higher risk because if we imagine (purely hypothetically) that Acorn defaults after three years, 5 year quarterly return investors will at least have 31.5% of their stake safely in their pocket, while 5 year “capital growth” investors will be contemplating total loss.

Who are Acorn Property Group?

The bonds are issued by RST South West Investments Limited with a “Corporate Guarantee” from RST Group Holdings Limited.

RST South West Investments Limited was incorporated in April 2019. It is yet to file its first accounts (which thanks to Covid are not due until April 2021).

RST Group Holdings Limited was incorporated in April 2017. Its last accounts to September 2018 showed net assets of £24.5 million. (Clearly it wasn’t guaranteeing a £10 million bond issue at the time as its total creditors were only about £790k. Its assets consisted entirely of money loaned to other companies in the group.)

RST Group Holdings Limited’s parent company, RST Residential Investments Limited, is considerably larger (though still a micro-cap company with £13k in net assets according to its September 2018 accounts). Note however that it’s the companies issuing and backing the bonds that we’re interested in here. That does not include RST Residential Investments Limited as far as I can see.

Acorn fails to disclose who ultimately control the business. RST Group Holdings Limited is owned by RST Residential Investments Limited (incorporated 2008), which stated to Companies House in 2016 that there is no registrable entity who controls the business. An annual return that year stated that RST Residential Investments Limited was owned by RST Highgate Investment Trust.

There’s no UK company by that name and a search for RST Highgate Investment Trust on opencorporates.com and the global LEI database turned up nothing.

While the directors of Acorn Property Group may be known, on whose behalf they run the company is not. All that is disclosed publicly is that it’s something called RST Highgate Investment Trust. As to what that is, whose benefit it’s run for and where it’s even located, I’ve drawn a blank.

How safe is the investment?

In an advertorial posted on Business Cornwall, Acorn claims that they offer “another way” compared to the “gamble” of buy-to-let and the “homework” required for regulated property funds.

Buy-to-let can be a gamble while fewer tax breaks, strict health and safety and environmental rules, maintenance and rogue tenants can make managing a buy-to-let complicated – not to mention time consuming. As for real estate investment trusts (REITs), well, you’ll need to do your homework to find the right fund for you.

Of course – there is another way.

In reality, as with any loan to an unregulated individual company, Acorn Property Bonds are an inherently high risk investment with a risk of up to 100% loss.

Acorn’s implication that unregulated loans with a risk of up to 100% loss are not “a gamble” and do not require “homework” is nonsense. Loans to unlisted, unregulated companies require if anything more homework than regulated REITS.

Secured lending is not risk-free as there is a risk that if the underlying borrower defaults, the security cannot be sold for enough to cover the loan.

Investors in asset-backed loans have been known to lose 100% of their money 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).

This is not in any sense to imply that the same will happen to investors in Acorn Property Bonds, 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 hire professional due diligence specialists (working for themselves, not Acorn) to confirm that in the event of a default, the assets of Acorn swould be valuable and liquid enough to compensate all investors. Investors should not simply rely on what Acorn tells them about their assets.

Acorn itself says in its own brochure “SPVs (Special Purpose Vehicles) are legal entities set up for a specific purpose to isolate risk. They are designed to prevent adverse risk being transferred to or from the owners of the SPV.”

What Acorn are referring to here is that setting up new companies to issue the bonds, which then lend to special purpose vehicles, means that if those SPVs fail, and the company issuing the bond fails in turn, investors will not have any claim on the assets of Acorn’s owners outside those entities. It is not the investors being isolated from risk by setting up SPVs but Acorn’s owners.

No matter how much time Acorn spend in their literature banging on about the successful history of the wider development business, it’s of limited relevance to investors if that wider business has no liability to repay their loans. This is the kind of issue investors need to be very aware of in their due diligence.

Should I invest in Acorn?

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 individual loan note to an unlisted startup company, 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 paying up to 12% per year is inherently extremely high risk. As an individual, illiquid security with a risk of total and permanent loss, lending money to Acorn is much higher risk than a mainstream diversified stockmarket fund (including REITS).

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?

If you are looking for a “secure” investment, you should not invest in unregulated loans with an inherent risk of 100% loss.

7 thoughts on “We review Acorn Property Bonds’ unregulated bonds paying up to 12% per year

  1. I think you are missing the point with this type of investment.

    There are currently VERY FEW income generating investment opportunities available to investors in the UK… Gilts (forget it), investment grade corporate bonds (maybe 2 or 3% higher than gilts), non IG corp bonds (add another 1 or 2%), REITs (say 5% yield tops), ‘income’ funds (basically funds full of those things I have just mentioned plus some dividend ‘paying’ stocks – good luck with that – minus fees/fees/fees), some income MPS products (good luck generating income going forwards with these strategies) and…… er…… MIND THE GAP… then you have the high yield loan notes (like Acorn) or small illiquid listed bonds coming in at around 7 – 15% annually as income, depending on the securitisation levels.

    If there are safer investments paying this kind of return I think you should let us all know so we don’t waste our time looking at Acorn (guess what… there aren’t any).

    A more useful article might be to compare the Acorn products with similar alternative investment products that have the same risk profile as the Acorn products. Then your readers can see if Acorn is good on a relative value basis. Nobody who is risk averse has any business buying Acorn (or similar) products.

    Finally, nobody buying these kinds of products will be advised to buy just one or 2 – like any risky investment, the risk is mitigated by diversification. So if you want very good income in the UK you would buy a diversified portfolio of products like the Acorn notes to minimise the risk of losing 100% of your investment should one default entirely (which is rare anyway as the assets are usually worth a significant % of the bond values even after any valuation alchemy). Check out the security trustee first to see if they will do a good job getting some of your money back in these circumstances.

    Might be good to mention that as a research premise at the beginning of the article? It is always good to see things in context.. if there are better yielding bonds with lower risk profiles than the products you analyse here then do tell us…. it isn’t advice, just proper research data. Don’t be scared…

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  2. If Acorn bonds were being marketed as a higher risk investment for people chasing higher returns than those available from the investments you list, then your post might have something to do with anything.

    As Acorn’s marketing implies that Acorn bonds are lower risk than physical buy-to-let and diversified REITS, when the reality is the opposite, I honestly don’t know what point you’re trying to make.

    Returns of around 8%pa have been achievable from mainstream investments without a risk of total and permanent loss in the past, so the idea that there is a massive gap between mainstream equity investments and unregulated bonds paying 7-15% does not match reality. There is of course no guarantee that a mainstream diversified equity investment will deliver 8%pa over any time period in the future, but the same applies to Acorn, due to the risk of default.

    A more useful article might be to compare the Acorn products with similar alternative investment products that have the same risk profile as the Acorn products.

    Comparing loans to unregulated, unlisted companies is well beyond the scope of a blog post, and requires professional due diligence from specialists in corporate finance after an exhaustive analysis of their management accounts and cashflow models, etc.

    Check out the security trustee first to see if they will do a good job getting some of your money back in these circumstances.

    All the security trustee is likely to do if the borrower defaults is call in the liquidators / administrators, which any creditor of an unregulated company can do for themselves anyway.

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  3. “Returns of around 8%pa have been achievable from mainstream investments without a risk of total and permanent loss in the past, so the idea that there is a massive gap between mainstream equity investments and unregulated bonds paying 7-15% does not match reality.”

    This is comparing apples and pears… mainstream equity investments might and do return 8% but they are not income investments with predictable cashflows (which is why people buy bonds). They are capital growth investments with discretionary dividends – which will be affected going forwards – so you cannot get a predictable income stream. My point is all about income – bonds are called FIXED INCOME for a reason. Also, if these equity investments you speak of are based in property, many are highly leveraged anyway which again means they cannot be compared to a simple 1:1 collateralised bond (i.e. non leveraged).

    Also owning the debt puts you ahead of equity holders in a bankruptcy situation asset grab so the debt is less risky than the corresponding equity.

    My final point about the security trustee is the wording of the trust deed in the first place – if its a strong & good securitisation document (a good trustee) then the bondholder has less to worry about. If it is full of holes or the security has more twists and turns than a mountain path in Bhutan, then there is more risk that the security cannot be grabbed efficiently. Not all trustees are equal (or ineffective) like you imply.

    Anyway, these investment products all have a place in a balanced portfolio looking to boost income in the years ahead, but that isn’t sitting next to and competing with a property fund or historically yieldy equity.

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  4. Reet, there is so many holes in your arguments I hardly know where to begin. So I’ll just pick one:

    “Not all trustees are equal (or ineffective) like you imply.”

    Go on then. I challenge you to name a few Security Trustees that have successfully recovered investors money from failed unregulated mini-bond/loan note schemes similar to Acorn.

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  5. Very good point Fraid Knot, I too am interested in Reet’s reply to your below comment.
    Having read through some other posts/comments on here recently, and as a victim of an unregulated investment that had a “Security Trustee” I will not be holding my breath. I also don’t expect to see Equity for Growth in their reply!
    ‘Go on then. I challenge you to name a few Security Trustees that have successfully recovered investors money from failed unregulated mini-bond/loan note schemes similar to Acorn.’
    Suffice to say, I will not be considering Acorn as part of my portfolio, just another unregulated product destined to fail!

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  6. They investment literature says that they have been going for 25 years.

    It says they have paid back £240m to investors. Yet no one has heard of them.

    Sums it up.

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