BR Guide FINAL 20 Feb

21 20 TITLE OF SECTION BR INVESTMENT OPTIONS BR Investment Options There are a number of ways to access BR, and we’ll take a look at each of them in this section. The sector boasts some expert managers and they cater for a variety of investment objectives. In general, though, estate planning services can be broadly split between AIM portfolios and those investing in entirely unlisted/unquoted assets. Investors must have ownership of the underlying assets: collective structures would not qualify for BR. There are two typical structures: a discretionary managed portfolio, or an investment in a single company that undertakes the underlying trades. Corporate BR investors are those who have their own business. They make potentially BR qualifying investments with excess funds derived from their company. Along with private investors, they can invest those funds through a variety of structures and underlying assets. Private Client/ Personal Investment Unlisted Some managers focus their products on AIM listed shares and then there are those who invest exclusively in unquoted assets. The greatest portion of funds invested in BR based estate planning services are invested in unlisted assets (i.e. not in AIM portfolios). Perhaps as much as 90% of BR investments are invested in this way. Logically, this makes sense and fits in with the typical primary objective of capital preservation. As it is a traded market, AIM share prices can be volatile and investing on there can be risky. Managers who are investing off AIM can seek out lower risk underlying trades that provide predictable return streams. There’s a large investment universe to consider here: many of the services are only looking to generate returns of 3-4% per annum, so the investments do not have to be overly aggressive, and the investment horizons are long. This is a long way from the short-termism much of the investment industry is a slave to and can be an advantage for the managers, allowing them to be patient investors. Some of the kinds of trades that may be suitable include: renewable energy (underpinned by FiTs), secondary Private Finance Initiative (PFI) projects, infrastructure projects, secured lending, property development finance, agriculture finance, asset backed trading enterprises and forestry. These are all trades that are currently included in the portfolios of managers running estate planning services. It is easier for managers to have influence on unlisted investee companies and ensure investors’ interests are looked after (for example, ensuring there is no surprise secondary listing or sudden expansion into a non-BR qualifying activity). In some cases, the manager may own the underlying investee companies. The downside of the non-AIM products is that they (or at least the underlying trades) may be less transparent. It is harder to measure performance and volatility, and to assess the risks. Valuations of the underlying assets are less frequent and more subjective. Of course, this downside can be overcome with thorough due diligence and careful manager selection. Nevertheless, unquoted services are typically less diversified than AIM listed portfolios, and may specialise in one or two areas, or be project based. DISCRETIONARY INVESTMENT MANAGEMENT (ESTATE PLANNING SERVICES) The easiest way for non-business owners to access BR is through an estate planning service. These are typically run by investment managers who specialise in small companies. This is a discretionary investment management service. Typically, the process is: 1. The client makes an investment with a discretionary investment manager, who has full discretion where to invest the money. 2. The money is looked after by a custodian, until it can be placed (usually within 30 days or less). 3. Once it is placed, depending upon the structure the manager uses, the investor will have beneficial ownership of an SPV, a holding company, shares in an unquoted company or shares on AIM. The structure will give the investor exposure to BR qualifying assets that are involved in activities and sectors such as: renewable energy, energy efficiency, property development, lending, PFI, media and infrastructure, etc. However, there is no restriction on what can be invested in, provided it meets the qualification criteria. Managers are generally looking for low risk opportunities that meet their capital preservation objectives, with the potential for some growth. All of the investors in the service will be invested in the same broad 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 specific needs and objectives. This service is of course much more tailored, and will come at a higher cost. 3.1 Inheritance tax bill rises by 23% in three months. THE INDEPENDENT, JULY 2017 STOCK/COMPANY SELECTION ONGOING MONITORING TOWARDS BR QUALIFYING STATUS ENSURING PORTFOLIO DIVERSIFICATION SOURCING NEW INVESTMENTS AS OLD ONES EXIT Manager’s Responsibilities