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No place like home within pensions says T&G



Type: Exempt unit trust

Aim: Growth by investing in London residential property

Minimum investment: Lump sum £10,000

Investment split: 100% in London residential property

Charges: Initial 7.5 &#45 11%, annual 1.7 &#45 4.8%

Commission: Initial 2.5%

Tel: 020 7426 9583

The panel: Martin Bamford, Consultant, Informed Choice,

Jeremy Parrot, Managing director, Birnbeck Finance,

Nigel Hemming, Managing director

Suitability to market 5.6

Investment strategy 5.6

Company&#39s reputation 6.5

Charges 4.0

Commission 6.0

Product literature 6.3

Teather & Greenwood&#39s Property Investment for Pensions is an exempt unit trust that allows self-invested personal pensions (Sipps) and small self-administered schemes (SSASs) to invest in residential property because it is listed on the Alternative investment market (Aim).

Assessing the market suitability of the product Bamford says: “This is unique as a residential property investment for a pension fund. It has arrived in the market at an interesting time as a number of commercial property funds are battling to control their cash holdings. Investment in residential property could offer greater opportunities for purchase of quality properties and a reduction in cash levels.”

Hemming says: “Due to its structure it occupies an unusual place in the market. There are no direct comparisons.” Parrot says: “In theory it fits quite well. To my knowledge, it is unique and offers a further investment option to Sipp and SSAS clients. But I am not totally convinced it will do well in practice.”

Identifying the type of client the fund could suit Bamford says: “This could be suitable for a Sipp or SSAS client who wants exposure to property but does not want to get involved in a direct commercial property transaction. It could also be suitable for a client who seeks to duplicate the returns they have enjoyed with their own residential property in their pension fund.” Hemming goes for pension fund members or trustees with at least 10 years to go before retirement. Parrot says: “Not for the faint-hearted. I think it would appeal only to speculative investors and those looking for a very different type of investment from the norm.”

Turning to the marketing opportunities, Hemming and Parrot say opportunities will be limited. Bamford says: &#39At last, an opportunity for your Sipp or SSAS to invest in residential property. Regardless of the structure, this product will still be sold as a way around the Inland Revenue rules on permitted investments. But it is important that the risks are fully explained to any interested clients.”

Looking at the main useful features the product provides, Bamford thinks it gives a good spread of risk and that the directors seem to have a wealth of experience behind them. Parrot says: “The product is innovative and gives a further investment option to clients. It offers a route into the buy-to-let market without the hassle of the actual property purchase.”

Assessing the investment strategy Parrot says: “I think it is potentially dangerous. I think there is a danger that property prices are at their peak and growth is severely limited. I also have concerns regarding the gearing. Timing is important and my gut feeling is this product is four or five years too late.” Hemming says: “It underplays vacancies and the opportunities to speculate turn very vague.”

Bamford says: “I have some concerns about the geographical spread of the holdings. It is limited to properties in London and the South East which seems slightly narrow. Certain pundits have raised their concerns about residential property prices in this region, predicting this will be the first area to experience any downturn in values. However, there is still a perceived shortage of residential property in this region and that could result in sustained future growth. However, the effect of gearing adds another dimension of risk to the investment strategy.”

Highlighting the negative features of the product Hemming does not like the gearing and says no dividends are paid. He also points out that performance will depend on the property management skills of Andrew Reeves. Parrot says: “It has a limited property target and relies too much on potential further growth in prices. Problems could also materialise with a downturn in the rental market and the charges look high.”

Bamford says: “Clients will remember the significant falls in their own residential property in the early 1980&#39s and 1990&#39s. Sipps and SSASs may already be overweight in property if they have business premises within their portfolio. It is questionable whether we would recommend a client with a direct holding in property to invest further funds in property.”

Assessing the company&#39s reputation Parrot says: “As a new issue, there is little to base this on. The ultimate property manager seems to have a good track record.” Bamford says: “The promoter of this product is a relative unknown in the IFA market. It will have to work hard to raise its profile to convince IFAs to recommend this.” Hemming believes Teather & Greenwodd has a good reputation.

Moving onto past performance Bamford says: “The lack of a past performance record is problematic but a larger problem is the lack of direct competition.” Parrot says the offer is based largely on past property prices, which have been very attractive. But he would be surprised to see similar rises over the last five to seven years.

Highlighting possible competitors, Hemming suggests Close Brothers. Bamford says: “Life company property funds, although these are becoming harder to access, especially with the current high cash holdings. There are some offshore residential property funds available but they tend to be very specialist and their suitability to pensions is questionable.” Parrot says: “There is no direct competition that I am aware of. Established commercial property funds will likely to be the main competition.”

Looking at the charges Bamford says: ” In comparison to the cost of direct property investment these charges seem fair. But as headline figures they will discourage clients and make it a less attractive proposition.” Hemming thinks the actual costs are high but intangible. Parrot thinks the charges look extremely high compared to other Sipp and SSAS-qualifying funds. He would need to feel very bullish about the underlying investment to accept the charges, but says he does not.

Discussing the commission Bamford says: “We would tend to charge a fee in respect of the recommendations for pension investments as the sums involved tend to be large in value. The initial commission is certainly reasonable if we were to follow the commission route. The lack of any trail commission would mean that we would need to negotiate a fee with the client for the ongoing portfolio management of their investments.” Hemming thinks it is fair. Parrot thinks the initial commission is about right but he does not like the lack of renewal commission.

Casting an eye over the product literature, Parrot thinks it is informative and covers everything. Bamford says: “The literature looks fairly basic. IFAs who specialise in this market will be aware of the concepts behind this product, but clear literature is more important from a client point of view.” Hemming says it is very good, balanced and clearly laid out.

Summing up Bamford says: “This is a great opportunity for pension holders to get involved in residential property investment within the Inland Revenue rules. It also provides the possibility of diversification within the property asset class which has not been available before.”

Parrot concludes: “Overall, I applaud the fact that this product opens up a further investment option but I do have major reservations about its timing and the charges.”


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