23
BPR DISCRETIONARY
INVESTMENT MANAGEMENT
STRUCTURES
With discretionary investment
management solutions structured
like these, they are not collective
investmens (and therefore, where not
regulated, not Unregulated Collective
Investment Schemes or UCIS) as the
client retains beneficial ownership of
the underlying shares or assets on an
individual basis.
However, there are some BPR products
in the marketplace that are structured
as UCIS and therefore will have tighter
rules around their distribution - they
can only be promoted to sophisticated
and HNW investors.
Whether the structure is collective or
not, all of the investors in the product
will be invested in the same portfolio
of underlying shares or assets - this
is not to be confused with a bespoke
discretionary investment management
service, where an individual portfolio of
shares or assets is selected according to
the client’s needs and objectives. This
service is of course much more tailored,
and may come at a higher cost.
Third Parties
Investment managers will often rely
upon specialist third party services
in some key areas of their operating
model. These might include accountants
and lawyers who will ensure that
investee companies continue to comply
with BPR qualification rules; independent
custodians who look after client
monies, monitoring companies who
independently assess new investment
opportunities; and introducers who help
source new investments.
SUMMARY
There are a number of ways of
accessing BPR. People with their own
small businesses will of course qualify,
provided that the cash and assets they
have within the business comply with
the rules as mentioned in section four
(there is more on how to deal with
excess cash within a business in the
“Advisers” section).
Experienced “business angel” investors
will very likely have constructed a BPR
qualifying portfolio by virtue of the
types of companies they invest in -
whether IHT mitigation was one of their
principal objectives or not.
It is certainly possible for canny
investors or advisors who have the time
and resources to construct their own
portfolio of BPR qualifying assets. Most
likely this would be based on investing
in AIM shares, as these are easier to
identify and research. However, even
if the investor restricts his universe
solely to AIM, creating a DIY portfolio
is challenging. Firstly there is the stock
picking challenge: investors have to be
confident that their investments meet
the criteria for BPR status AND perform
at least well enough to keep up with
inflation (and hopefully do a little better
than that). Secondly, diversification: if a
portfolio strategy is being applied then
having the scale to achieve sufficient
diversification at a reasonable cost is
difficult for a private investor.
Thirdly, ongoing monitoring and
influence: investors need to be
confident that the investee companies
will continue to operate in their
interests and not take steps that would
compromise their BPR status (or indeed
dilute their holding, another risk for any
small-shareholder).
The vast majority of adviser’s clients are
not going to have their own business
and are not going to want to go down
the DIY path - so they will be looking for
investment products that can do the job
for them.
These are operated by managers with
an expertise in small company investing
where a subset of their investment
universe is BPR qualifying - so it is a
natural progression for them to develop
this useful service to meet client
demand. A minority of more expensive
services are entirely bespoke and a
minority are structured as collective
investments (UCIS), but the majority are
operated as a discretionary investment
management service.
“Risk, liquidity and diversification are key in considering the suitability of BPR”
Nick Morgan, Foresight Group
MANAGER
INVESTOR
( via custodian )
investing in:
SPV
HOLDING
CO.
UNLISTED
SHARES
AIM
SHARES
OTHER BPR
QUALIFYING
ASSETS
INVESTOR HAS
BENEFICIAL
OWNERSHIP
OF
DISCRETIONARY INVESTMENT MANAGEMENT STRUCTURE
