MICAP’s analysts can review a wide range of alternative investments beyond those that appear on the MICAP Fund-Finder. Providers or financial advisors needing an independent review can call upon MICAP’s bespoke consultancy service to provide the necessary due diligence.
Alternative investments is a broad term, generally, describing any investment that falls outside the traditional asset classes of equities, bonds, property and cash. The following are good examples of where research across the industry can be thin and yet the level of due diligence and regulation can be greater than for traditional investments such as funds of listed equities.
Whilst MICAP is not expert on the underlying asset classes, it is well placed to provide due diligence on the providers, investment managers and the offerings of all alternative investments. Some of the popular asset classes are described briefly below.
Business Property Renovation Allowance Schemes (BPRA)
Business Premises Renovation Allowance (BPRA) was introduced by the Finance Act 2005 to provide an incentive to bring derelict or unused properties back into use. The tax advantages associated with these schemes are that BPRA gives an initial allowance of 100% for expenditure on converting or renovating unused business premises in assisted areas.
Qualifying expenditure is capital expenditure incurred on converting a qualifying building into qualifying business premises, or renovating a qualifying building that is, or will be, qualifying business premises, or repairs to qualifying business premises. A qualifying building is a commercial building or structure situated in a disadvantaged area and expenditure only qualifies for BPRA if the building has been unused for a year immediately before the conversion or renovation begins, the last use not being as a dwelling.
Collectibles, such as fine art, classic cars, wine, and antiques, coins or stamps, are somewhat esoteric commodities and have attracted such wide attention recently from investors such that indices have been created for them; the Liv-100 Index tracks the price of bottles of fine wine, and the Dow Jones Investment Car Index tracks the prices of collectible automobiles. Buying collectibles directly brings physical problems of storage, insurance and security. Collective investment vehicles, however, pool investors’ funds to buy portfolios of items, which can be held to benefit from potential future rises in prices, or bought and traded for speculative purposes.
Limited partnerships can fund the purchase of a commercial building or development site, such as a hotel, office block, factory or warehouse, with the tax advantageous capital allowances passing back to private investors to help them offset their risk. Commissioning independent due diligence is often worthwhile when considering investment into these often complex structures.
Investment in commodities can take many forms, most commonly from buying the right to own precious metals, without actually taking delivery of them, and having to pay the necessary storage charges. Investment in commodities can also take more complex forms such as co-investment in syndicates to build an ethanol plant by the banks of the river Humber, or investing in a scrap metal recycling plant in Swansea.
Crowdfunding Platforms (CFP)
A relatively new type of investment opportunity, CFPs have quickly grown in popularity, leading to the founding of many CFP focused Internet sites. A CFP aims to bring together small companies needing finance and investors seeking an above average return. Crowdfunding, generally, fall into the following categories :
- Loan-based (i.e. peer-to-peer lending): lending to individuals or businesses for an interest rate above market rates.
- Buying shares or debt securities, or units in a business.
- Donation-based: gifting money to enterprises or organisations people want to support.
The Financial Conduct Authority has introduced regulation of these platforms, stating, amongst other things, that the investor needs more information on the companies into which he will invest. A MICAP review may help ease the extra regulatory burden that CFP looks set to require.
Investing in timber can be a somewhat predictable and relatively low risk investment. It is also tax-efficient, because the tree crop can be sold free of capital gains tax. Tree growth can be forecasted and prices for their future timber can be hedged. Ethical investors may be attracted to its green characteristics.
Ground Rent Investments
Buying a freeholder’s right to ground rent, paid by the building’s lease holders, is often regarded as a low risk, low return investment, comparable to gilts. Institutional investors, such as pension funds, have, for some time, been enjoying the benefits of these investments; recently, certain funds, generally based off shore, have begun offering private clients exposure to this niche market.
Companies that do not qualify for EIS can still have their offers for subscription reviewed by MICAP. Limited offers of new shares rarely gain wide distribution, but may be of interest to local investors, keen to back companies in industries they know, or in regions they support. A MICAP review may not be necessary for compliance — an offer for subscription can be taken up by the public without the need for investment advice — but an independent review may help the investor understand better the advantages and risks of his investment decision.