Checking the pulse of IPO Wealth

This week's fund manager interview is with Ewan Laughlin, the CEO of IPO Wealth. Now, this is an unusual beast, it's part of a company based in London, called Mayfair 101, and it's essentially a fixed interest fund that lends money to Mayfair 101, which then lends it on to companies. They have, what they call target returns, ranging from 3.25 per cent, to 6.5 per cent, roughly, for 60 months. The 3.25 per cent is for three months. They're structuring it a bit like term deposits but they're not term deposits because they're not a bank. They've got a $100 million in the fund. They reckon they're growing fairly quickly.

The money is invested in companies, as well as being lent to them from London, global companies. The business was started up by a fellow called James Mawhinney and seems to be lent to people he knows. The fund, IPO Wealth Fund, according to Ewan Laughlin has a 10 per cent liquidity buffer and a 5 per cent reserve buffer, which is servicing any redemptions that they're seeking, that people want.

So, look, it's all going fine at the moment. The problem with these things is, if there is a run on, their investments are not liquid and so they would have to freeze redemptions. That's not to say that's going to happen, and apparently, their customers are all pretty happy. They're getting monthly returns of 5 per cent or so, 6 per cent for long-term term deposits. As an alternative to term deposits, it's pretty good, but it's not a bank and it isn't guaranteed returns.

They're targeted returns, so it's 'buyer beware' and the money is to some extent at risk. 

Here is Ewan Laughlin the CEO of a fund called IPO Wealth. 

IPO Wealth is a part of the Mayfair 101 Group which is based in London.  I take it, it's wholly owned, is that right?

That's right.  It's a related party, yes.

James Mawhinney, the founder and CEO of Mayfair 101 is your boss?  Would that be correct?

That's right, that's right.  He's the founder and a director as well.

The money that is invested with IPO Wealth basically goes to Mayfair 101, is that the idea?

That's correct.  IPO Wealth Fund is obviously the fund that raises funds from wholesale investors and these funds are then forwarded to Mayfair 101, who is the borrower and the investment manager, in terms of investing those funds on behalf of wholesale investors, which it has been doing since 2009.

And does IPO Wealth only exist in Australia or is it a London thing too?  Has IPO Wealth always been the money collection arm of Mayfair 101?

It has been and it's a good question that you raised, thinking beyond Australia, and in terms of using IPO Wealth as a business model.  We've raised $100 million, this is our third year of operation from wholesale investors and most of those funds, in terms of momentum of the business, has been in the last six months for various reasons, Alan, that you and others would be aware of.  The low interest rate, low yield, low growth environment – some of the competitive constraints that have flowed through from the Hayne Royal Commission and others in terms of competitive products.  Obviously, the uncertainty, which has now been clarified with the outcome of the election, with investors looking at property.  For example, with capital gains tax, negative gearing and even franking credits as well, has caused people to pause and place their funds, which is obviously we've been the beneficiaries of that.  Hence the reason why the growth in the fund, particularly in the last six months.

The aim then from a broader strategic perspective is to replicate that model in the UK.  So, at this stage, there isn't a fund as such in the UK, but the aim would be to do that and M12 Global would be the vehicle to undertake that expansion opportunity.

IPO Wealth does only exist in Australia?

Correct.

Right okay.  Before we get onto that then, tell us a bit about Mayfair 101.  I mean what is it exactly and who owns it?

Sure.  Mayfair 101 is a privately held investment group and was established about ten years ago.  It has a portfolio in about 11 countries.  It offers an investment banking style model and it provides financial solutions to companies and growth markets.  Let me take you through the portfolio as an example.

It's in 11 countries and it operates in five currencies, and most of the companies, if I can use the summary version for the purposes of this conversation, are mainly in the fintech or the data space.  For example, business management software, supply chain finance are examples of companies that Mayfair 101 has invested in to date.  Quite a broad diversified portfolio, as I mentioned in ten countries.  Most of the companies are fast-growing, the majority of the companies would be in that 5-year plus, 5-10 year plus, category in terms of longevity.  Hopefully that gives you, in a very short space, an example of some of the companies they are invested in.

Is it mainly a lender or mainly a transaction investment bank?

It's a transaction investment bank.  It provides funds via a convertible style structure but also with an equity component as well.  There's a coupon, in terms of income strength of the group, from its investments.  But also, an equity, opportunity if you like, from the invested company, if it achieves pre-agreed milestones.

How big is its loan book?  Can you tell me?

Its loan book is about $80 million. 

$80 million Australian dollars or pounds?

No, Aussie dollars, so that's a broad number but they're the numbers in terms of the loans that it has to date.

I think you were saying that IPO Wealth has raised a $100 million, is that right? 

In funds under management, yes.

Obviously, not quite all of the money is going to Mayfair 101 if their loan book is only $80 million.

That's right.  What we have is for the security of our investors and not all of the funds are fully invested as well.  We have a cash security, a cash deposit reserve.  Up to about 10 per cent of the funds lent to the borrowers is actually held for liquidity purposes, for obvious reasons.

Then we also accrue a capital protection reserve, where performance fees accrued or generated by the fund are also held in that reserve and that's up to about 5 per cent of the funds, in terms of net asset value.  There is a liquidity component, or reserve component and obviously, it's subject to due diligence and it's got to make sense for Mayfair 101 before it deploys all its capital.  Hence the reason why there is...

Can you give us a rundown of who’s borrowing the money and what are they using it for?

Sure.  I can't give you the names because of confidentiality reasons as these are private companies.  But if you look through our website there are examples of portfolio companies that have benefited from Mayfair 101.  Primarily, they're really to deploy capital to expand their businesses, so clearly, they’re all companies that have a successful business model.  Obviously, it's subject to due diligence, and its expansion plans really in terms of scaling up either their product, for expansion either by geography, or building out new business streams, as well.

PayMate, in India is a good example of that.  This is a quite a successful portfolio company, it's been in operation since 2012.  It then morphed into business to business payments, the process is more than 500 million per annum.  In 2018 it signed a partnership with Green Visa, it then acquired a technology company as well, Zaitech Technologies.  It's expanding in the SME space.  It's looking at supply chain finance in terms of digitising end to end transactions.

They're the type of funds that it uses to basically expand its operations geographically and by product. 

That one is in India is it?

That's right, it is.

How does the Mayfair 101 team, James Mawhinney and that, how do they find these things?

This is a company that's been operating for some time.  Part of it is also because of James' experience in technology as well.  In terms of his background and in terms of opportunities that have flowed through his connections, his network.  I think it goes beyond just capital as well.  It's really for Mayfair 101 to talk further about these investment strategies but in terms of introducing an ecosystem of directors, of business partners, that's the other added value that Mayfair 101 brings to the table, rather than just capital.

Ewan, the reason obviously that I think that it's relevant is that the term deposit offers that you're providing on IPO Wealth provide target returns not guaranteed.

That's correct.

Obviously, the money, to some extent, is at risk.  That's right.  It's not a bank deposit right?  It's an investment.

That’s spot on, Alan.

The destination of the money is clearly relevant.

Spot on.  We're not a bank and that's also a differentiator for us as well, in terms of providing alternative strategies to traditional cash deposit products.  It is a target return and that's well set out in the information memorandum.  But just to balance the response.  A couple of responses from me on that regard.

In terms of the fund renewal rate, it's about 90 per cent, 90 per cent of our investors continue to reinvest with us.  Why is that?  Because they're actually comfortable with the distributions that have been paid in full since inception.  That number is about $3 million for the last financial year and it's obviously a higher number given the growth in the fund to date.

All requests, withdrawal requests, have been facilitated in full, and if you look at our feedback in terms of the customer service proposition, each of our investors have a dedicated client relationship manager open 24/7 in terms of assisting with any queries.  Just in terms of the split as well, 50 per cent of our investments come from individuals, 30 per cent from self-managed super funds and the balance from companies and trusts.  I think hopefully that provides a bit of a balance in terms of the response to the question.

Yeah, I'm not trying to imply that it's excessively risky or anything.  I mean, obviously the thing about propositions like yours is that you've got a buffer of, I think you said 15 per cent of liquidity and a sort of capital reserve buffer.

That's right.

Which provides you with the ability to service any withdrawals that you might get that are normal withdrawals.  I mean you're saying you got a renewal of 90 per cent but obviously, in the event of a run, you'd quickly run out of money and you'd have to freeze redemptions, wouldn't you?  I mean that's the way these things work?

The fund doesn't borrow, so there's no leverage in terms of other types of vehicles, I just wanted to clarify that as well for your listeners.

Okay.

I think in terms of risk-return continuum it's also, I would like to think, it's part of a portfolio for our own investors and when you look at the reviews independently from our investors, we have about 47 reviews in the timeline that we've been operating.  All of those investors have chosen from their own free will to respond, are very comfortable with the returns, very comfortable with the investments to date.  We expect those returns and those investments to continue to grow as they have to date.

Just to clarify, the target returns you're quoting range from, according to your website now, 3.25 per cent for three months up to 6.45 per cent for sixty months.

That's right. 

Are you hitting those targets?

Yes, we are.  We've met all those target returns.  We've paid them in full since inception, and that's reflected in the return rate of 90 per cent of our clients because clearly they're very comfortable in receiving those returns.

The other aspect as well, from a competitor offering, Alan, is that we pay our distributions monthly, you can choose to obviously receive them at end of term.  But, in terms of relying on income on a monthly basis from a lifestyle prospective, it's a very compelling argument, proposition.

When you compare shares, for example with half yearly dividends or annual for example, or some of the challenges with investing in property in terms of whether it's mowing the lawn, finding a tenant or whatever else it might be, I think it provides a compelling proposition for people that are looking for income based products.

Yes of course.  It’s monthly distribution, and that's coming basically from a monthly cashflow from the companies that are borrowing the money right?

That's right. 

You mentioned before, that some of the money is being invested as equity and some as debt.  Can you give us a sense of how that is organised?  Is there much of it going into equity in these companies?

Mayfair 101 is closer to that response.  I think that's more for the Investment Manager to provide more detail.  I'm more on the IPO Wealth Business aspect, so that's something perhaps we can address separately.

Why is it called IPO Wealth?  It gives the impression that it's about IPOs.

The founder of the business, obviously James, germinated that name, and, yes, there are unlisted companies that eventually will move into an IPO status or a trade sale.

For example, there is one portfolio company, that is currently working through that process.  It's still confidential but, hopefully if we have another discussion later in the year, I can update your listeners in terms of how that's progressing, and the status of that transaction.  So that is the aim eventually to have an exit in some of these portfolio companies, which could lead to an IPO.

Oh, I see.  Right so it is actually investing in IPOs?

Not in IPOs directly in terms of listed companies, they’re unlisted companies, but the aim would be over time for these companies to grow and perhaps look at listings as an option, or look at a trade sale, or continue in their current state as well as an unlisted company, as a private company, continuing to operate successfully.

Would investors in IPO Wealth get the benefit of that upside or just simply get the target return?

At this stage it’s the target return, they get the benefit of all the target return after all fees and charges and any other expenses that the fund has.  The investors always come first and then it's the fund second.

Yep, I get it.  Excellent.  Thank you very much Ewan.  Good to talk to you.

Thank you, Alan.  Pleasure, thank you.

That was Ewan Laughlin, the CEO of IPO Wealth.