Only one type of private-equity fund of funds earns its fees

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Private-equity investments can be enticing, but also complicated. It can be expensive for institutional investors, endowments, and pension funds to find and monitor private-equity investments—which can then be illiquid and difficult to scale.

A private-equity fund of funds, which holds a portfolio of other funds, potentially provides diversification and economies of scale, as well as specialized investment services. But are the advantages worth an extra layer of fees? Private-equity FOFs typically charge investors an annual fee of around 1 percent, and management gets 5 percent of all gains. That’s on top of the standard “2-and-20”—2 percent of total asset value and 20 percent of any additional profits—usually charged by each of the private-equity firms in which FOFs invest. Research by University of Virginia’s Robert S. Harris, University of Oxford’s Tim Jenkinson, Chicago Booth’s Steve Kaplan, and Rüdiger Stucke of private-equity firm Warburg Pincus suggests that one type of private-equity FOF has been able to overcome that fee hurdle.

Read more on Chicago Booth

Waterfall

FTSE 100 history: how the index has changed over 33 years

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The FTSE 100 index has just seen one of its quarterly changes with security firm G4S and real estate investment trust Segro promoted to the top 100.

Although perhaps small in themselves, these regular events have changed the face of the UK’s leading index since it was formed in 1984.

For the many investors whose savings are tied to the fortunes of this barometer of the stock market, these changes are crucial as they have fundamentally altered the risks and returns to which their investments are exposed.

The FTSE 100 now looks vastly different from the 1980s. Just 28 of the original 100 remain listed on the index. UK-focused businesses and conglomerates have been replaced by international juggernauts.

Unlike the US Dow Jones index, which has seen fewer changes over the past 100 years, the FTSE 100 has evolved to reflect the global economic revolution. This creates issues for investors to consider.

 

Read more on City A.M

Alternative investment platforms – the changing role for EIS and VCTs

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Neil Martin talks to Daniel Rodwell, Managing Director at GrowthInvest, about the changes to pension allowances and how EIS & VCTs can take on an important role.

The predicted capacity crunch on VCT and EIS offers that took place in the last financial year, will mean that advisers and investors will have to start planning their tax-efficient investments even earlier this year, according to Daniel Rodwell, Managing Director of GrowthInvest.   It has traditionally been in the early autumn when VCT and EIS managers tend to launch their latest offers, but Rodwell believes that a fear of lack of capacity, combined with a growing realisation that tax-efficient investments can be a very effective part of pension planning for some clients.

A realistic alternative

Daniel says that pension changes are fuelling interest in alternative investments and driving a lot of new enquiries to the platform from advisers, and direct investors: “More advisers are beginning to understand how these investments can be used within pension planning for appropriate and suitable segments of their client base.  EIS and SEIS are a realistic alternative for those people that are hitting the upper limits of the lifetime value; those people that are impacted by the new rules”

 

Read more on IFA Magazine 

UK Trading Costs Rise Since Brexit

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It has cost fund managers an average of six additional basis points to trade UK equities since the UK voted to leave the European Union in June last year according to analysis by electronic broker ITG.

The Brexit referendum was held on June 23 2016.  ITG said the extra costs means that any investment firm trading up to £200m ($258m) per year would have to pay an extra £120,000.

Andre Nogueira, ‎head of EMEA Analytics client coverage at ITG said in an email:  “Given the current low volatility environment, it appears that, when it comes to trading costs, the UK has ended up with the worst end of a bargain since Brexit. In contrast, the clear trend for both Germany and particularly France is one of lower trading costs since Brexit.”

 

 

read more on Markets Media

Use ‘Enterprise Investment Scheme’ to slash tax on sale of farm cottages, experts advise

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Landowners who sell surplus cottages face paying up to 28% Capital Gains Tax (CTG) – but they could slash this by investing the profits into an Enterprise Investment Scheme.

According to Old Mill Accountants and Financial Planners, the savings from deferring CGT in this way could be considerable.

 “The Chancellor has become increasingly keen to raise the tax burden on individuals who are second homeowners,” explains director of rural services Paul Neate.
“This can have quite an impact on farmers who may have surplus cottages on farm holdings that provide diversified rental income.”
As part of the changes introduced from 6 April 2016, CGT rates on the disposal of second properties are levied at 28% for higher rate taxpayers and 18% for basic rate taxpayers.
“Any farmer selling a farm cottage is likely to have owned it for many years, so the capital gain could be substantial, even after applying the annual CGT exemption,” warns Mr Neate.
Read more on Farming Uk

Venture Capital Investing Process Improvement Through “Machine Learning”

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Technology executive Veronica Wu looks at machine learning and the process of Silicon Valley venture capital investing, a traditionally a “long shot” method, with an eye to improving win percentage. In a McKinsey question and answer session as part of their June quarterly report, Wu reveals how they use technology to build better predictive models for venture capital investing that integrate with humans. Like much of the gloss coming out of Silicon Valley regarding “machine learning,” however, the questions were light in key areas. This includes pointing to exactly where a machine scans information it wasn’t programmed to scan, “learn” knowledge or gain insight based on entirely new patterns not related to an if-then formula, and then develop an investment method that didn’t follow any patterns from past strategies? Wu’s use of computers to create models that assist in decision making are tangible nonetheless, even if it is an accomplished human more responsible for the success of the machine.

 

Read more on Value Walk

Investing in venture capital funds: Do your homework first

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While returns are potentially high, risks are high too, and you must have holding power

Investing in a venture capital (VC) fund is not for the average retail investor because while returns can be high at about 20 per cent or more a year, the risks are high too.

The minimum investment amount is usually $1 million for individuals and the gestation period about eight to 10 years. The illiquidity of VC investments means that investors must have holding power and there is no guarantee that the fund will succeed.

But if you have spare cash and wish to increase your wealth while helping other firms to grow, the VC fund is a viable asset class to consider.

 

Read more on Straits Times

The Narrowing Risk Gap Between Traditional and Alternative Investments

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This article was written by Matthew Cushen, co-founder of Worth Capital.

Ten year anniversary

As we approach the ten-year anniversary of the financial crisis there seems an interesting contrast between then and now.

10 years ago we had a financial meltdown that had a seismic impact on day-to-day economics and the life of the man in the street (at least a Western developed market street). It was the bankers and the investment community that bought the pain that was then shared across the society, and the age of austerity was born.

Whatever the causes – continuing austerity measures, further globalisation, migration and/or increasing automation – in the developed world we now find ourselves in a period of remarkable political and social turmoil. Only Germany seems to be the exception that proves the rule.

But unlike 10 years ago, the impact of this turmoil on the big investment markets barely registers. Why is market sentiment so benign? Fair enough for the FTSE 100, the impact of our pound continuing to tumble benefits the high participation of foreign earnings. But the S&P, FTSE 250, 350, AIM have all looked for the most part impervious. Even stocks like Merlin Leisure – that you’d expect to be hit by the recent terrorist activities – have stayed buoyant.

Read more on finance Magnates

Investor Chronical: How our ‘Best of the FTSE 350’ is performing

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I am wary of waxing lyrical about the virtues of systematic stock selection techniques. This is not to say they don’t work – witness the success of Investors Chronicle’s benchmark momentum portfolio – but there are bound to be times when strategies underperform, which is disheartening in a period where simply holding a cheap index tracker is more successful than chopping in and out of trades.

Read more on Investors Chronicle

FTSE 350 companies’ level of support for pension schemes sinks

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Companies’ ability to fulfil pension schemes promises at its lowest level since the recession- according to PwC’s Pension Support Index.

New research by PwC reveals the ability of FTSE 350 companies to fulfil their defined benefit (DB) pension obligations has sunk to its lowest level since the recession. PwC analysis shows that despite growth in the FTSE, the relative support companies provide to their pension schemes has weakened significantly.

PwC’s Pension Support Index tracks the relationship between the financial strength of the FTSE 350 companies and the size of DB pension scheme commitments, rating the overall level of employer support offered to these schemes. This year’s score of 69 out of a possible 100 is down from 82 the previous year, and is the lowest score since 2009.

Read more on Small Business