Triple-point

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Not all investments or business interests will qualify for BR. Typically, BR will be available for shares in unquoted qualifying companies, including minority holdings; shares in qualifying companies listed on the Alternative Investment Market (AIM); and interests in unincorporated qualifying trading businesses, such as partnerships. It's a fact of life, however, that shares in these unlisted or AIM-listed companies can fluctuate more dramatically than those of larger companies listed on the London Stock Exchange's main market, thereby exacerbating any existing concentration risk. Typically, investment managers will vary share acquisitions across qualifying trades in different asset classes, industries and in companies of divergent maturities. Focus on diversification varies across investment managers, but there is a traditional concentration among BR unlisted providers on renewables and infrastructure. Consequently, manager diversification does not always equal sector diversification. One place to find that is in managers that have unique sector focus. Triple Point, for example, is the only provider to offer leasing as a BR qualifying investment. It has also developed a sector tool to enable investors and advisers to establish the levels of sector diversification offered by unlisted BR providers.

Spreading out your BR investments to reduce risk

Since the lease payments are received at varying, but regular intervals across the year, returns are generally predictable and reliable. Because of the number of agreements, it would take a substantial number of delayed payments or defaults to disrupt income payouts to investors. The lease terms of the deals also vary and this can help to smooth out potential volatility in difficult periods. When interest rates go up, higher lease fees can be applied to deals which come up for renewals at different intervals.

Volatility of return through the economic cycle

The regularity of income means that it is not difficult to predict and manage the availability of cash to facilitate current or future redemption requests. So, concentration risk is clearly a driver of various levels of diversification, but these examples suggest that, when carefully considered, some diversification strategies can bring additional benefits.

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Avoiding concentration risk in Business Relief investments

Avoiding concentration risk in BR investments

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oncentration risk is the potential for a lot of the investments in a client’s portfolio to move in the same direction. If those investments constitute a big proportion of the portfolio and all lose value at the same time, for example as a result of market shocks, this can pull down the value of the entire portfolio to a potentially unrecoverable value. As a general practice, diversification is an important strategy for any investment portfolio to spread risk, minimise potential losses and potentially increase overall returns over time.

Focus on diversification varies across investment managers, but there is a traditional concentration among BR unlisted providers on renewables and infrastructure.

Sector focus/Underlying assets

The trade of lending and leasing assets to a huge range of organisations, from the NHS to smaller firms across the UK, means that Triple Point has literally thousands of agreements for assets from ambulances to bin lorries. The resultant debt financing book includes multiple debtors, many of which are high quality, public bodies. Consequently, the failure of one lending and leasing arrangement, with one or two entities, is unlikely to have a material impact on the overall value of the debt financing book. Also, leasing and infrastructure finance are typically uncorrelated to other major asset classes such as equities and property.

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Billy Brown

Strategic Relationship Director, Triple Point

By Billy Brown, Strategic Relationship Director, Triple Point

Sector focus/Underlying assets