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“A source of good value deal flow is vital to continue to run these products”
the leverage derivatives provide to
speculate) and is a conventional use
of CFDs that is common amongst
institutional investors.
The hedged portfolios cannot be
guaranteed to work, the quality of the
counterparty(s) to the trades must be
considered and the insurance exclusions
must be studied carefully (as with any
policy), but these caveats aside this
additional layer of investor protection
is worth considering - once again, this
is because capital preservation is one
of the primary objectives of investing in
this asset class. However, it does come
at a significant cost: in the examples
we saw it was around 5.75% for the
two year policy, 2.5% p.a. for the loss of
value policy and 5% (plus a performance
fee) for the hedged portfolio.
Note that no insurance policy will insure
against the relief not being applied.
RISKS SYNOPSIS
GENERAL
As high-risk investments, BPR
products may only be suitable for
wealthier investors as part of a
diversified investment portfolio
The investment manager may not be
able to invest as quickly as hoped, and
may not be able to identify a suitable
number of potentially BPR-qualifying
investment opportunities. This may
reduce the return on investment or
increase the time taken for the
investment to qualify for BPR
Past performance is not a reliable
indicator of future results
Unquoted shares are issued by small
companies, which are typically earlier
stage, younger companies. There is a
risk that these companies may not
perform as hoped and in some
circumstances they may fail completely.
Small companies have a higher failure
rate than large established companies
Investments in these small
companies will generally not be publicly
traded or freely marketable and may
therefore be difficult to sell. There will
be a big difference between the buying
price and the selling price of these
investments. The price may change
quickly and it may go down as well as up
Companies issuing unquoted shares,
may use or be able to use gearing
(borrowing money to finance their
activities) or derivatives. This strategy
may result in: movements in the price of
the shares being more volatile than if
the company did not use gearing or
derivatives; the shares being subject to
sudden and large falls in value
Companies issuing unquoted shares
are exposed to a range of risk factors
that may impact their financial
performance more so than large
established companies. These factors
include but are not limited to
commercial risk, counterparty credit
risk, project risk and interest rate risk.
SPREAD OF RISK
A particular BPR product may choose
to invest in only one or a small number
of companies and all investments may
all be in one sector. Limited diversification
could increase the risks for the investor
Investment in an individual unquoted
share represents investment in a single
company. Although BPR funds and
portfolios invest in more than one
company, smaller funds may/will invest
in fewer companies resulting in higher
risk. Similarly, investing in a single BPR
product may be more risky than
spreading your investment between
more than one BPR Product
Notwithstanding the number of
different unquoted shares over which
an investment is spread, the underlying
characteristics of the companies issuing
unquoted shares will vary, meaning that
some Inheritance Tax Products are
riskier than others
TAXATION
Taxation levels, bases and reliefs can
change and depend upon individual
circumstances
Changes in tax or other legislation
may adversely affect the value of BPR
products to the investor
The BPR-qualifying status of
investments made is dependent on the
underlying investments qualifying and
remaining qualifying for BPR purposes
The BPR-qualifying status of
underlying investments is subject to a
minimum holding period
The granting of Inheritance Tax relief
will depend on an individual assessment
by HMRC on the death of the investor,
as part of the probate process, and
therefore cannot be guaranteed
Tax relief will not be available, or may
be withdrawn if the underlying
investment, or an individual investor,
does not comply with the BPR
requirements during the relevant period
Whilst being initially potentially
qualifying for BPR purposes, underlying
investments may subsequently lose this
status
Other taxes or costs may be suffered
by the investor in connection with BPR
products that are not paid via, or
imposed by, the product.
CHARGES & PERFORMANCE FEES
The levels of charges for BPR
products may be greater than for other
investments, such as unit trusts and
open-ended investment companies
(OEICs)
Initial charges and other upfront and
ongoing costs, fees and charges will
reduce the value of your investment.
These may include performance fees
Some costs borne by the BPR
product may be fixed in nature. If the
amount raised by a BPR product is
smaller than expected these fixed costs
will have a greater impact on performance.
