24 September 21

Alternative investment strategies to target sustainable yield

Investors and savers face extreme pressures today. We are in the midst of an ultra-low interest rate environment, crowded markets, and all-time high valuations for equities and bonds. According to The Telegraph, the average UK household could see their savings shrink by £264 per year after inflation climbed at the fastest rate in over two decades. It is therefore no surprise that many are being forced to take disproportionate investment risks to satisfy their requirements for income and future planning.

This is the backdrop for alternative investments, which are now playing an increasingly prominent role for investors and savers. We are seeing an acceleration in the demand for positively yielding alternative investment strategies precisely at a time of increased hunger for investments that deliver long-term sustainable performance with a broader societal purpose - demonstrated by the stratospheric levels of capital flowing into ESG and sustainable funds, with assets touching a record high in Q1 2021.

Alternatives are already commonplace for a wide range of investors. They can mean anything from real assets, such as property or digital infrastructure, to private direct lending. Choosing the right vehicle and strategy is a challenge, and there are several options investors could consider, the most straightforward of which are in three key areas: Investment Trusts, Venture Capital Trusts (VCTs), and Leasing and Lending strategies.

Investment trusts

Investment trusts are an appealing option for investors and savers. Depending on the strategy and sector, they can provide a diversified, yet robust, sustainable investment portfolio that offers the dual benefits of long-term capital return and income. In 2020, investment trusts achieved an average 17.8% total return whilst the UK stock market saw a decline of 9.8%. With more than 400 trusts currently trading on the UK stock market, focused on more than 30 different sectors, there is an abundance of choice.

As an example, Digital 9 Infrastructure (DGI9), is an investment trust managed by Triple Point, whose strategy aligns with the United Nations Sustainable Development Goals – as indeed does its name. The ‘9’ refers to the UN’s ninth goal – ‘Build resilient infrastructure, promote inclusive and sustainable industrialisation and foster innovation’ – which reflects the trust’s commitment to improving global digital communications in an environmentally sustainable manner. The company addresses the exponential demands for supporting the internet by investing in a range of digital infrastructure assets that seek to achieve sustainable inflation-linked income of 6% per annum, coupled with long term capital growth for investors.

Venture Capital Trusts (VCTs)

Given the UK tech sector has boomed over the last 18 months and that by the end of Q1 2021 the start-up sector attracted record investment of close to $8bn, there is a huge opportunity for investors to back high-quality, better-capitalised companies with lower valuations. This is the focus of Venture Capital Trusts (VCTs).

A key feature of a VCT is its ability to pay out tax-free dividends, offering investors in pension drawdown a crucial alternative income stream. Furthermore, VCTs are main market-listed funds and can be sold – after being held for five years – with any profits on their disposal being CGT-free.

VCTs are an attractive investment for a range of investors, however – and particularly high-net-worth individuals constrained by the limits on their pension contributions. Another key feature of a VCT is the 30% upfront income tax relief, which is available on investments of up to £200,000 per tax year.

Triple Point’s Venture Fund VCT is now in its fourth year, having just launched a new top-up offer. Throughout the pandemic, the investment team has been actively working to provide new businesses with the money and support they need to grow, while giving smart start-ups access to fast, reliable capital at the earliest stages of their lifecycle.

Since inception, the fund is over £25m, invested into 25 early-stage companies across 11 sectors that actively solve challenges facing large corporates. With one exit to date, the Venture Fund VCT has delivered a total return over 14% since launch (including dividends and capital).

Leasing and Lending strategies

Direct lending is an asset class that was traditionally the preserve of banks and large financial institutions but is now being targeted by a much broader spectrum of investors. Having evolved over the last decade, the non-bank lending sector addresses the increasing demands for supporting SMEs and other groups underserved by mainstream lenders.

Leasing and lending can be a valuable addition to any investment strategy by providing a way to mitigate risk and produce predictable and uncorrelated returns. As an example, Triple Point’s leasing and lending strategies, the focus is relieving critical funding pressures in the public and private sectors, while generating predictable returns and capital growth for investors. Managing a diverse debt financing book with over £630m of AUM, the company provided £285m of financing to UK-based organisations to March 2021, including £125m of CBILS loans to those SMEs in communities across the UK most impacted by the pandemic.

The outlook for investment

While the success of vaccination programmes and the lifting of lockdowns point towards a brighter future, we know that there will be pressures ahead for investors and wider society. Investors would do well to capitalise on the current opportunity to diversify their portfolios with alternative investment strategies in order to optimise their chances of sustained and reliable returns.

There remain clear alternative options for those seeking profitable long-term investment strategies, designed to create value for communities and the people who live and work in them. Investment trusts, VCTs, and leasing and lending strategies, all have the potential to meet the needs of investors with sustainable goals and priorities.

The Triple Point Venture Fund VCT carries all the risks of investment in smaller companies and places investor’s capital at risk. There is no guarantee that target returns will be achieved, and investors may get back less than they invested. Past performance and forecasts are not a reliable indicator of future performance. Tax treatment depends on the individual circumstances of each client and is subject to change. Tax reliefs depend on the VCT maintaining its qualifying status.

Potential investors should refer to the information within the Prospectus which is available via the Documents section of the website and must only subscribe for or purchase shares in Digital 9 Infrastructure plc on the basis of information contained within it. As with all investments investors capital is at risk. Target returns may not be achieved and investors may not get back their full investment. Any references to past performance and expectations for the digital infrastructure market should not be taken as a reliable guide to future performance.

Triple Point is the trading name for the Triple Point Group. While Triple Point includes entities which are authorised and regulated by the Financial Conduct Authority, our SME lending activities are not regulated activities in their own right. This financial promotion has been issued by Triple Point Administration LLP which is authorised and regulated by the Financial Conduct Authority no. 618187.