With strong growth in the ranks of the wealthy in recent years, high net worth individuals and groups are increasingly willing to invest portions of their liquid assets themselves.
With strong growth in the ranks of the wealthy in recent years, high net worth individuals and groups are increasingly willing to invest portions of their liquid assets themselves. They are emboldened by the availability of information and data on the internet and elsewhere, and ally it to their own knowledge
and skills to enhance their wealth.
‘Although many also use asset managers, they find that traditional funds may not reflect their views and that alternative asset management can be costly,’ says Andrew Ashworth, managing director of Abacus Financial Services. ‘Equally, unstructured asset pools such as investment clubs often create unforeseen problems and risks.’
Abacus, which has USD3.5bn in fund assets under administration, believes that the Isle of Man’s fund regulation offers an investor-friendly structure to fill the gap. Under the Exempt Funds regime, a group of investors can create a vehicle that pools their assets in a tax-efficient structure as long as it is not offered to third parties. Investments can range from shareholdings in a global equity portfolio to prime property to a buy-to-let portfolio in eastern Europe. This structure is likely to appeal to a family in which several members wish collectively to put several million pounds to work, or to like-minded investors who come together under the guidance of an independent financial advisor. As an Isle of Man entity, the vehicle is not subject to corporation tax and, in the case of a property portfolio, rental income rolls up tax-free.
‘It’s like a teenage version of private equity,’ says Ashworth. ‘It could eventually turn into a full private equity vehicle, taking fees and providing carried interest for the partners.’
Abacus believes that having a formal structure and professional administration around the investments is key. ‘An informal investment club is not ideal,’ he says. ‘Each investor has to be registered with the stockbroker, then someone has to run a spreadsheet and try to produce valuations. Without systems, procedures and cover in place, this places a lot of strain on a treasurer to get the numbers right. ‘A proper fund structure means there are shares and subscription and redemption rules. These are important if the friends or family members disagree or are forced to cash out due to personal circumstances. A
closed company is not designed for that.’ Abacus says it can smooth the process from beginning to end. It designs the vehicle, incorporates the company, issues the shares, manages cash, executes transactions and reconciles cash and assets.
At the end of every period, it sends out an NAV and produces a set of annual accounts. As the portfolio matures and people require the cash for planned or unforeseen events, the firm handles the redemption requests and distributes the proceeds.
‘You are getting professional administration by a licensed operator of a structured legal entity in a good jurisdiction at low cost, which allows the investment group to focus purely on the wealth creation process,’ says Ashworth.
Andrew Ashworth, managing director of Abacus Financial Services
