16-Mar-18

Navigating the pathway to uncorrelated equity returns

Finding an investment that is able to provide returns that are wholly uncorrelated to equities is one of the great challenges within the investment industry. 

The search has led investors down many different paths over the years, with more and more alternative solutions being launched. However, at the same time as trying to find uncorrelated investments, many investors are also faced with the challenge of planning for inheritance tax (IHT) liabilities. 

In 2013, Triple Point launched an Estate Planning Service which matches investors’ needs and aspirations with unique business opportunities that can meet them. 

Two examples illustrate this well; both are well established businesses with compelling track records of delivering against expectations. Firstly, TP Leasing Limited is a leasing, lending and infrastructure finance business. It focuses on providing a smaller number of high value leases to good quality customers, like an MRI scanner or an ambulance to an NHS Trust, or an asset such as a gritter or refuse removal vehicle to a local authority. The target return to Triple Point’s clients is 1.5% to 2.5% (net of fees).

Secondly, Navigator Trading Limited provides different types of backing to UK based small and medium sized enterprises (SMEs). It focuses on providing large numbers of smaller leases and loans, to a diverse spread of businesses, and manages risk by carefully analysing the underlying deals – individually and in aggregate. Like TP Leasing, Navigator Trading has also been able to demonstrate the consistent achievement of its targets, and has delivered annualised returns to Triple Point clients of 5.6% (net of fees), which is at the upper end of its 4.0% to 6.0% target. 

Both of these businesses, each of which matches one of Triple Point’s Service strategies, are able to utilise deep expertise in understanding and managing their risk profiles to the satisfaction of Triple Point’s Investment Committee.  

Belinda Thomas, Triple Point’s Head of Sales, says, “We want clients to be able to invest in a diverse range of fast growing businesses, with good solid returns,” pointing out, “the fact an investor is eligible to save a 40% IHT liability is a further benefit.”

To achieve full relief from IHT after just two years, capital is used to back unquoted UK companies which qualify for business relief (BR). However, Triple Point has developed opportunities and relationships considerably distinct from other services available to investors, providing both a great track record and a unique, uncorrelated investment opportunity.

EIS and VCT investments occupied much of the attention in November’s budget, and Thomas is pleased to reflect on the fact that Triple Point’s service is squarely aligned with the government’s overall objective of supporting SMEs which will fuel growth in the UK’s economy. 

“Through the provision of specialist leasing and lending we are able to strongly support the SME sector in a responsible and reliable way,” she says, “often stepping into areas that the high street banks left behind in 2007 and have not returned to.” 


So where exactly does the money go? Allocations are made to three core sectors: SME finance, secured funding and corporate trade finance. The first, SME Finance, currently represents the lion’s share of capital, with, for example, one programme having rolled out 45,000 card payment terminals to UK SMEs.

Another recent example has been the provision of funding to support an app-based vehicle hire company, which utilises clever data analysis to be able to select reliable drivers and automate collection of their payments.

The secured lending line, representing just over a third of the business, is focussed on property bridge lending, with corporate trade finance currently a small but growing share.

The key, says Thomas, is that by spreading business across these three core areas, returns are not dictated by movements in equity markets, and are furthermore not dictated by the fortunes of any one sector. The closest correlation is probably to movements in interest rates, albeit returns will track interest rates up (or down) in the medium and longer terms.

Triple Point first focussed on the leasing sector in 2006 and has since then supported over 60,000 small businesses, providing truly unparalleled expertise. 

Thomas concludes that this decade’s worth of private capital leasing and lending experience, gained through full cycles in the economy, sets the firm apart in the alternative marketplace. “Due to the broad spread of counterparties, diverse sectors and high volumes of individual transactions, risk is both broadly distributed and manageable,” she says.

We are confident that it is exactly this type of diversification, across truly unique sectors, that provides the uncorrelated exposures that today’s investors seek – a true differentiator.

 

Risks: Past performance is not a guide to future performance and may not be repeated. There is no guarantee that the target return will be achieved and investors may get back less than the amount they invested.

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