Property Inspector: Alternative Investments – Reliable or Rip-Off?
TheMoveChannel.com´s Property Inspector, taking a closer look at global real estate each month.
In August´s podcast, The Property Inspector follows a lead from the FSA that takes him away from real estate into the mysterious world of alternative investments.
This week, the FSA announced new proposals to regulate the alternative market because of "the high levels of unsuitable advice it has uncovered and the potential for customer detriment", The Telegraph reports.
If the proposals go through, the promotion of Unauthorised Collective Investment Schemes, or UCIS, will be banned to retail investors, while sales will be limited only to investors who earn over £100,000 per year and have over £250,000 to invest or have extensive experience and understand the risks.
Are the FSA correct to crack down? Carbon credit schemes are one of the higher profile products, with over 100 companies reported to the watchdog in the last 12 months – up from 6 in June last year. Are alternatives a rip-off or a reliable investment strategy?
The Inspector´s case begins with Alternative Marketplace, a portal that advertises alternative products ranging from farmland and green energy to bamboo and carbon credits. Interest in alternative investments increased this summer, they said, with traffic to the site up by 72 per cent between July and August.
They then introduced the Property Inspector to Caesar Alternatives, an investment consultancy specialising in rare earth metals.
The Inspector questioned Andrew Cook, Managing Partner in the firm, to get some answers.
What are rare earth metals?
“Rare earth metals are the elements used primarily in high-end technology, such as mobile phones and solar panels. China has now cornered the market, which now allows them to raise prices, which may cause values to spike.”
What kind of returns can investors get?
“It’s very difficult to say. It’s at the medium-to-high end of the risk spectrum. Values have increased in the last few years and could go up.“
Alternative investments have a reputation of being risky and unreliable. Do you find that’s an obstacle you have to overcome?
“The people that we pitch our product towards are looking for something speculative. For a potentially higher return, they accept that there is naturally a higher level of risk involved. The metals are stored in London, so it’s not a paper asset or something out in South America – it’s something that’s physical that they can inspect themselves. That’s crucial.”
Words like “scam” and “con” fly around a lot. Have you encountered activity, or companies, in the market that made you think “Hmmm… that’s a bit dodgy”?
“I’ve encountered firms in the regulated marketplace that I would consider quite dodgy! Just because it’s regulated, it doesn’t mean the investment will give a good return – it just means that the money won’t be siphoned off into someone’s offshore account and the directors aren’t going to run off with your cash! If the money is invested in something that’s worthless, you’re going to get burned.”
Is that a case of a bad product or a bad broker?
“The problem is that the way it’s structured, clients are pitched on products that give good returns to the broker. That doesn’t necessarily mean it’s a bad investment, but clients need to be aware of it.”
What tips would you give to avoid scams?
“You need to think logically and do your own research. Buying into property funds in 2007, when property was at its peak, probably wasn’t the best idea, but people did it. And then some of the funds became illiquid and people’s money was locked away for years. It’s a case of looking at what you’re investing. Your money should never go directly to a firm unless they’re regulated. It’s always best to deal with things based in the UK and Europe so you can check on what you’re buying. Don’t just believe the sales pitch. Be sensible.”
Listen to the full investigation.
Would you consider investing in bamboo or is it all one big bamboozle?
Get in touch with the Property Inspector via Facebook or Twitter @TheMoveChannel and share your thoughts on alternative investment.
Notes to Editors
Founded in 1999, TheMoveChannel.com is the leading independent website for international property, with than 400,000 listings in over 100 countries around the world, marketed on behalf of agents, developers and private owners. The website address is http://www.TheMoveChannel.com and the office address is 45 Lafone Street, Shad Thames, London, SE1 2LX.
Contact Dan Johnson on 0207 952 7650 for further information. Property Inspector image courtesy of Snowshot.