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Does Regulation Really Protect Anyone?

By 13th June 2019 No Comments

About nine months ago one of our clients discussed adding another £20,000 to his account. The obvious answer was YES, however the account manager had a long discussion with him about safety, diversification, and having all your eggs on one basket. It was an important chat because we do not want to take just any investment. It is far more important to us that our clients are truly sophisticated investors who understand the risks as well as the rewards.

Fast forward six months and the same client is visiting our office when we discover that he had lost £20,000 in the London and Capital insolvency. The same London and Capital that is fully regulated and controlled by the FCA – so you can relax your investment is safe. Not so much. 

London and Capital lost £237 million – or what the average salary would earn in 9,480 years in mini-bonds, whatever a mini-bond is.

Yesterday Neil Woodford’s fund was shut to withdrawals. There are over £3.7 billion in there or (to keep the analogy going) 148,000 years of average earnings. Now the money isn’t lost, he has a liquidity problem and I am sure that most investors will get most of their money back (eventually) but it does make me wonder…

Our company, Apex Algorithms, is an unregulated collective investment scheme. In very simple terms we take people’s money, we pool it together and we make bets on football matches and a little bit of horse racing. Simple. We have nearly £1.5 million in the pot now and our clients have been enjoying tax-free returns of around 40% per annum for the last five years. But we are not regulated. We could lose everything, but we are very clear about that with all our clients and potential clients. However, in 2019 we have made roughly 0.5% every week.

The silly thing is we would quite like to be regulated if only to give the appearance of being above board. We do everything that would be expected of a company, including KYC and AML checks, we keep our client and company money separate, and we fully inform our clients each week how their investment is growing (full disclosure here, we did lose 0.2% in the first week in March).

So what protection is there in being regulated? You tell me, because I am not sure. It seems to me that you are at just as much risk investing in stocks than in something that isn’t regulated, except that the variables that their funds are dealing with are infinitely more difficult to predict than the outcome of a football match and if all you are doing is looking to make 1% – 2% profit per week then the risks are even smaller.

So, some food for thought, gambling, even if it is done by a computer predictive model that constrains all the risks, is still gambling and for that reason is not for everyone. But, trust me when I tell you that I have never met an unhappy client, especially when they have paid for cruises, weddings, and even weekends away with the boys from what was a fairly small investment. So, regulation? Does it really protect the investor?

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