Since the Government made the decision in 2006 to allow investors the ability to control where their pension funds are to be invested, we have seen a much larger emergence into the SIPPS market. Many within the industry believe that the growing awareness of alternative investments and the benefits they can bring to the investor can often be the deciding factor for clients attracted to the idea of SIPPS, particularly when alternatives are weighed against weak performances of more traditional investments and ever increasing pension management charges.
Alternative investments are seeing rapid growth even though they represent a relatively new platform in the industry, with a fivefold increase in SIPP accepted products in the last five year period, from 50 in 2007 to nearly 300 available today. It is fair to say that quality, suitability and value within this expanding range of products and schemes can vary greatly. This leads to some advisers shying away from alternative investments or simply not investigating them fully; however this is short sighted and can be detrimental for the client. More than ever there is the need to be increasingly more flexible, designing portfolios for clients that will take them “from cradle to grave” and if alternatives are deemed to be anything that is not equities, bonds or cash then this is an incredibly broad universe that means different things to different people.
As with any product, reassurance in alternative investments will come from thorough investigation and research; strong, quality products will be supported and validated. Documented information which will be open and transparent and should be backed up by other independent surveys and institutional reports. Products that do not withstand this level of scrutiny should be treated warily.
Other factors that are worth investigating are the legal structure and ownership of an asset; a directly held investment that gives the client ownership of a tangible commodity will always have value and attraction.
Security can also be derived from Alternatives that are handled through a Trustee or Bond system. Funds from the investor are paid into a trustee account and are transferred to the product provider once all due diligence has been carried out in accordance with the Investment Prospectus. The Trustee will directly receive all revenues that the asset generates, with investor returns extracted before the balance is forwarded on to the provider. In some instances the Trustee will have a first charge over the asset to enable the liquidation of a project in the event of an unresolved default and the investors can be reimbursed from the proceeds.
The FSA has ruled that SIPP providers are now required to fully investigate the provenance of alternative investments as this market continues to expand. Through thorough investigation, it is clear that there are good opportunities to diversify and in the FSA guidelines for Advisers, there is the suggestion that alternative investments should form part of a diversified investment portfolio.
The increase in awareness and popularity of SIPPS is leading to more liquid investors and the demand for quality alternative products is growing as clients are looking for different pension investments. With volatile equity markets showing no signs of moderating and fixed income markets in danger of being flooded with money, investors are increasingly looking towards alternatives in the hopes of finding an uncorrelated asset class.
At ICI we recognise this growing market and provide our clients with safe, secure and fixed return investments.
Our aim is to help our clients achieve their investment objectives by offering independent alternative solutions by acting as an alternative investment consultancy.
Managing Director, ICI