In the swing: Why asset-backed does not mean sitting back

Harnessing Business Relief to free your clients from inheritance tax is only just the beginning of our estate planning. We want your clients to enjoy the strength, security and non-correlation of our expertly selected and actively managed, asset-backed investments.

To illustrate how you and your clients can benefit from our distinctive approach, I would like to start with something close to my heart – a good round of golf. 

Helping clients prepare for later life

Picture one of your clients as they come up to retirement. Like you as an adviser, these are the people I spend a huge part of my professional life thinking about. How can we develop the best possible solutions for all their different and sometimes hard to reconcile needs and aspirations?

This preparation for retirement is a pivotal moment in the financial journey, as wealth accumulation gives way to preservation. Your clients do not want to be taking any more than minimum risk. But neither do they want to see all their wealth languishing in low yield deposits and bonds. Ideally, they would like the kind of return that would help them to enjoy what could be 30 or even more years of retirement without eating into their capital.

Similarly, it is only natural that he or she would want to pass on as much of their hard-earned wealth to their loved ones as possible. This risk is seeing 40% of their estate swallowed up in inheritance tax. At the same time, they should not have to relinquish control of their wealth to free their estate from inheritance tax.

Welcome relief

Investing in assets that qualify for Business Relief is an important part of the answer. Business Relief can eliminate inheritance tax liabilities after just two years, rather than the standard seven for a gift or a trust. It would also enable your client to retain full control over their investments and the proceeds from them.

There are restrictions on what qualifies for Business Relief – the person or vehicle controlling the investments cannot deal mainly in shares, for example. It also needs to be a trading entity so it can be passed on to a chosen beneficiary when the owner dies, much like a traditional family business. But that still leaves a broad range of qualifying assets, stretching from commercial forestry and property development to acquiring and running hotels and other leisure facilities. The foundations for investment security are tangible assets such as land and real estate. Further reassurance for your clients comes from the fact that the assets are non-correlated, so resistant to shocks and swings within the capital markets.

Raw deal

Yet, while Business Relief opens up a world of opportunity, investors can still end up getting a raw deal from their estate planners and investment managers. Once a fairly minimal target return is achieved, few benefit from any upsides above and beyond that – the provider generally pockets any surplus.

I am also concerned about whether the investments within Business Relief qualifying asset portfolios are sufficiently diversified. As the economic impact of COVID-19 has underlined, diversification is the most effective risk mitigant.

Above all, I think a lot more could be done to optimise the returns from these assets – management can at times be wastefully and neglectfully passive.

Sharing the benefits

Here at Stellar Asset Management, our business model is built around a fairer and more rewarding deal for clients.

We set a realistic long-term target return – typically 4-5%. But we do not stop there. Unlike many other firms, our investment returns are uncapped, so clients get their rightful share of the benefits when yields exceed target.

We also diversify our portfolio across up to nine asset classes, all tangible and all located in the UK. Active investment in a further two is paused as we wait for their market cycles to turn (farming and sustainable energy).

Turning around investments

Above all, we seek to maximise the potential of the assets we acquire. Our growing investment in golf clubs and golf resorts is a clear case in point.

This is a sector with huge and still largely untapped potential. For a start, a lot of these places are crying out for investment. As someone for whom golf is a passion rather than just a pastime, it pains me to see poorly kept courses, rundown club houses and user-unfriendly services. There is also a lack of vision and ambition in clubs that are only interested in catering for a dwindling list of ageing members, rather than reaching out to families, visitors and potential new golfers.

We want to turn these assets around and maximise the value potential. In 2015, for example, we acquired the Murrayshall Country House Hotel and Golf Club in Perthshire. We brought in a new management team and have invested £2.5 million to uplift and extend the facilities, both on-course and within the hotel. Five years on, this is now one of the country’s leading courses (ranked 52 and rising). The rooms have been beautifully refurbished and the catering elevated to deliver what is now award-winning cuisine. As a result, Murrayshall is thriving – revenue streams have been both augmented and diversified. Plans in the pipeline include a doubling of room capacity and new indoor spa and leisure facility.

Our golf investments also now reach into Hampshire and the New Forest. This includes our acquisition of Bramshaw Golf Club and the adjacent Bell Inn Hotel. By upgrading the facilities and integrating the hotel and club, we aim to provide an easily accessible and quality destination for golf holidays for people coming from London and the South-East, as well as visitors from abroad via Heathrow and Southampton Airports. We want to make everyone welcome – not just seasoned golfers, but also families, wedding parties and anyone else who wants to enjoy all that is now on offer. We also want to make this an easy and accessible experience – introducing online booking and a range of visitor packages, for example.

The hotel and course will be integrated with our nearby Paultons Golf Centre to create the New Forest Golf Group. At Paultons, our investment has helped to create attractions that range from a championship course to state-of-the-art driving range complete with video game options for all the family. We have also refurbished the dining, meeting and conference facilities.

All our investors can come and enjoy these facilities at special friends and family rates, enabling them to see for themselves what they are investing in, and the potential it offers.

Inside knowledge

For golf and other asset classes, we use specialist joint venture partners with close knowledge of their sectors to help us select and manage the investments.

Our partners’ inside knowledge helps us to identify investments with significant uplift potential and buy off-market at good prices. We set clear parameters for our partners in areas such as investment risk and target return to help protect the interests of our clients. Use of specialist partners also helps to contain fixed costs.

Realising the potential

So as you can see, I am a passionate advocate of asset-backed investment and ensuring clients get the most from the opportunities. When I say asset-backed it does not mean sitting back, recognising and realising the value potential are the keys.

We bring specialist sector expertise and rigorous due diligence to the selection and acquisition process. We invest, actively manage and divest at a premium price. We diversify to minimise risk and seek to ensure strong returns across the economic cycle.

If you would like to discuss any of the issues raised in this article, please get in touch with one of our team today on 020 3195 3500 or contact enquiries@stellar-am.com.

Written by Jonathan Gain

Important Information

Stellar Asset Management Limited does not offer investment or tax advice or make recommendations regarding investments. Prospective investors should ensure that they read the brochure and fully understand the risk factors before making any investment decision. The value of investments and the income from them may fall as well as rise and is not guaranteed. No assurance or guarantee is given that any targeted returns will be achieved. Forecasts of potential future results are not a reliable indicator of actual future results.

Stellar Asset Management Limited of 20 Chapel Street, Liverpool, L3 9AG is authorised and regulated by the Financial Conduct Authority.