MARKETS & INVESTING
A common practice among some advisers is to stick with one or two familiar fund managers and supplement client files with third-party due diligence reports on these products . This approach , however , can leave their advice and their firms vulnerable , especially under the Consumer Duty , where comprehensive market research on high-risk investments is increasingly crucial . Entering 2024 , with the market ’ s current size and the confirmed extension of the sunset clause , advisers and paraplanners should deepen their knowledge and understanding of this sector . A fundamental step in this process is to research the fund manager thoroughly . Unlike mainstream markets where fund managers invest in listed securities without ongoing involvement ( such as investing in companies like Apple or Amazon ), tax-advantaged market managers often play a crucial role in nurturing their investee companies . This involvement can be pivotal in differentiating successful from unsuccessful managers . In the unlisted BR sector , the role of the fund manager becomes even more crucial , as they are directly managing the portfolio assets investors buy into . The collapse of a tax-advantaged manager can have significant repercussions . Our research at MICAP begins with evaluating the fund manager . Our manager score incorporates 22 data points , focusing on the manager ' s financial health , the size of their investment team and board , and their assets under management ( AUM ). These points help narrow down to a manageable list of potential managers . However , size isn ' t the only indicator of quality . There are many exceptional smaller fund managers . If your research leans towards recommending a smaller manager , it ' s crucial to communicate the additional risks to the client and consider diversification to mitigate those risks .
Additional factors to consider include :
• The credentials and track record of the individuals making investment decisions and their tenure .
• Recent changes in the investment team .
• The structure and independence of the investment committee .
• The ease of applying and reporting on investments , and any integration with back-office systems for advisers .
After assessing the managers , the next step is to examine the investments themselves . Here are some key considerations for each investment area :
EIS :
• The fund manager ’ s ROI , both realised and unrealised , since inception .
• Track record of profitable exits .
• Fee structure for investors and investee companies .
• Target company stage .
• Fund manager involvement in board seats .
• Timeframes for fund deployment .
VCT :
• Five-year NAV Total Return comparison .
• Portfolio company count .
• Holdings concentration .
• Running costs and caps .
Unlisted Business Relief :
• Annualised returns since inception .
• Maximum drawdown .
• Asset diversification .
• Sector focus .
• Valuation methods for investee companies .
AIM Business Relief :
• Annualised return comparison .
• Investor allocation across companies .
• Targeted company market cap .
• Fee structures , including dealing costs .
While this list is far from exhaustive , addressing these points can help demonstrate thorough due diligence , ensuring good client outcomes and safeguarding your firm . MICAP collects and analyses these and many more data points from the managers on a quarterly basis , scoring each investment offer across nine key areas so you can compare and benchmark investment options for your clients .
THIS MOVE MARKS A SIGNIFICANT AFFIRMATION OF THE TAX-ADVANTAGED INVESTMENT SECTOR
For further insights into tax-advantaged investments or to set up a free trial , visit https :// micap . com / getstarted .
MICAP is a trading style of MI Capital Research Ltd ( FRN : 653594 ), a company registered in England and Wales with registered number 08634361 . MI Capital Research Ltd is an Appointed Representative of Thornbridge Investment Management LLP ( FRN : 713859 ), which is authorised and regulated by the Financial Conduct Authority .
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