BR Guide Second Edition

21 20 BR INVESTMENT OPTIONS BR INVESTMENT OPTIONS UNDERLYING ASSETS OF NON-AIM BR Managers who are investing away from AIM can seek out lower risk underlying trades that provide predictable return streams. There is 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 services 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. STRUCTURE AND STRATEGY OF NON-AIM BR 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 a special purpose vehicle (SPV), a holding company, shares in an unquoted company, or a share of a partnership. 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. However, the exact composition of the underlying portfolio may differ from investor to investor, depending upon the timing of their investment: different qualifying opportunities may have been available to an earlier investor than would be available today, for example. Discretionary investment management structure SPV Holding Co. or partnership Unlisted Shares AIM Shares Investor has beneficial ownership of Investing in other BR qualifying assets SOURCE: INTELLIGENT PARTNERSHIP INVESTOR MANAGER In theory, it is possible to self-select BR qualifying investment opportunities. In practice, this activity would require a lot of time and effort on the part of the investor or adviser and some experience of investment analysis and portfolio construction. This means being able to identify BR qualifying companies, pick stocks that keep up with inflation (and hopefully do a little better than that), successfully diversify a portfolio at reasonable cost and monitor the activities of the investee, with the influence to ensure it continues to operate in their interests and not take steps that would compromise their BR status (or indeed dilute their holding). Any individual investor would need to exercise extreme caution if choosing to take on these challenges themselves. In fact, they would be well-advised to seek out professional management. For most people, the quickest, simplest and easiest way to access BR will be to invest in a product that has been specifically designed to help mitigate IHT. * depending on skill & strategy DIY DISCRETIONARY MANAGEMENT PORTFOLIO COST TIME & RESOURCE RISK varies* varies* POTENTIAL GROWTH varies* varies depending on the underlying trades and level of gearing INVESTING IN BR ASSESSMENT VERY LOW LOW HIGH VERY HIGH