What are these?

Many private companies seek to raise cash by way of bonds. These range from listed corporate bonds through senior secured debt to mezzanine financing and private equity. The risk increases along that path as follows:

In the offshore world, most instruments of this type (which are part of the Alternative Asset class) are either listed bonds (the minority) or unlisted notes (the majority). They also usually are either in the senior secure or asset-backed lending brackets.

3.2   Risk/Reward

Historically, although one would expect senior secured debt or asset-backed instruments to be relatively safe, a lack of transparency and disclosure has been the norm, which means that the true risk-reward nature of these instruments – attractive because of their higher yield – has been difficult or impossible to measure.

Now, the Alternative Asset class is inherently more risky than some other asset classes. It covers many different things, and some of them are in reality lower risk, while others are basically casino plays. That's fine, you make your choice: but your choice HAS to be informed by a proper risk appreciation and full transparency and disclosure from your Investment Advisor.

For Caravel Partners in Zambia and elsewhere, instruments have been very carefully selected, from a list of bonds/ notes sourced by our partner company in Dubai, Kingsbury & Partners (K&P's office in the World Trade Centre on Sheikh Zayed Road is actually the Caravel Partners office in the UAE), which is the first-ever distribution company in the offshore space to have issued risk-reward analyses for its bonds and notes.

Of the forty or so they have analysed, they have retained on their books only a very few, whose risk/reward profile essentially means, in layman's terms, that all parties involved can sleep soundly at night. Kingsbury's Chief Analyst had a long career with KPMG and a London investment bank - his sixteen page analysis, updated every six months for each of Caravel's offshore bonds and notes, can be trusted.

High inflation and weak local currency are the issues. Higher-yield offshore bonds/notes are certainly a viable answer -- espcially as your money is away from you from one to three years only. But only if you know exactly what its risk/reward level is and you have made a truly-informed decision.