Review – Rockpool Managed Inheritance Service
Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.
Rockpool’s Managed IHT service seeks to secure BPR status through lending money to UK based companies. Typically, these companies will have some form of asset backing against which the loan is secured. This service is three years old, and early performance is encouraging, though past performance is no guide to the future.
- Investment in unquoted lending business
- 5% annual target
- Regular withdrawal facility available
- Mix of asset rich and growth loan deals
- Minimum investment £50,000
The managerRockpool was founded in 2011 by Matt Taylor, a 21-year veteran of private equity. He is managing partner and runs the business with four others. In total Rockpool has 17 employees – six on the investment team with further recruits likely. Head of Investment Andrew Green is primarily responsible for the IHT service.
Target return and strategyInvestors buy shares in the unquoted trading company Novus Lending Limited, which makes loans to other UK companies and aims to qualify for BPR. It aims to deliver growth in net asset value with a target rate of 5% per annum.
Investors can roll up the growth, i.e. the net asset value increases over time. Alternatively, they can take an income by selling units every six months, either up to their annual CGT allowance or a set amount. Shares in Novus are valued monthly on a net asset value basis and will typically be sold on a matched bargain basis.
Lending strategyThe focus of future lending is on three areas: commercial property and asset-back lending; first charge acquisition finance; and short-term bridge financing.
The majority (77%) of the loan book is currently in commercial property or asset-backed lending.
Borrowers will typically be companies with significant freehold or long-leasehold property assets. Loans will be secured by a charge over the assets. For instance, a current borrower owns the freehold of an estate of 27 bungalows built to house vulnerable adults. The local council has guaranteed rents for 20 years.
First charge acquisition finance includes loans to companies established to acquire existing profitable businesses (e.g. within a management buyout). Loans will normally have a first charge over the assets of the borrower and its subsidiaries.
For both these categories, the loan terms will be three to five years and interest rates between 7% and 10%. Interest will typically be paid six monthly and the principal at the end of the term.
As the name suggests, short-term bridging finance is much shorter term: up to six months, normally with a second charge over the assets of the borrower and its subsidiaries. This type of loan will be up to 10% of Novus’s lending book.
PerformanceNovus Lending Ltd launched in 2013, the chart below shows performance since then.
Source: Rockpool. Please remember past performance is not a guide to the future. Investments can fall as well as rise in value so you could get back less than you invest.
RisksWhilst this service is three years old, the first claim has only just occurred, after an investor’s death. Therefore, HMRC hasn’t “approved” it from the point of inheritance tax mitigation. As this is very similar to many other IHT products, there is no reason to suggest it won’t qualify, however until the first claim has been approved this remains a risk. A second risk is size and lack of diversification. The largest loan accounts for approximately 20% of Novus’s net asset value currently. At a size of £10 million, Novus has just reached critical mass in our view, but performance can be affected if there are large cash balances awaiting deployment. It could take up to three months to realise an investment if an investor decided to encash.
FeesShares are issued at a 3.5% premium to the latest net asset value. Rockpool charges investee companies 1.5% per annum (on a quarterly basis) for arranging and monitoring the loans. This fee is waived if the 5% annual target is not met. In addition to these fees, Novus pays 0.5% per annum to Rockpool. If Novus’ secretarial fee is greater than 0.3% per annum, Rockpool refunds the difference. There is no performance or exit fee. The fee structure is refreshingly transparent.
Rockpool is an experienced investor and has designed this service with transparency in mind. Whilst the net asset value of Novus is just over £10 million today, the overall loan book (in similar loans) that Rockpool manages is over £60 million. Diversification is a slight problem at the moment, with only ten loans, however Rockpool reports good inflows into the Managed IHT service, which will increase the number and amount of loans made. Having mentioned the negatives, there are many positives with this service, notably Rockpool’s experience and transparency (for example on fees), something lacking in some other IHT services. One to watch.
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