Back in 2006 the Finance Bill confirmed unquoted shares were an eligible investment within a self invested personal pension (SIPP). Since then many advisers have remained hesitant to recommend inclusion of these shares in their clients’ pensions. I believe unquoted stocks can reduce the overall risk of an investment portfolio and provide a powerful boost to performance. Here are the reasons why it may be a good time to reconsider venture investments within a SIPP:

Strategic asset allocation advocates investment in higher risk funds.

Any consideration of portfolio construction encourages diversifying investment across different asset classes. This serves the dual purpose of reducing exposure to a volatile market while offering the opportunity for enhanced returns.  It has been shown that holding around 20% of any portfolio in alternative investments, volatility is reduced because alternative investments are affected by different factors to equities and fixed interest. For instance they are often less sensitive to swings in the stock market.

Identifying the optimum balance between risk and return

Combining asset classes in the right proportion can reduce the impact of market volatility on a portfolio and can also enhance returns. The approach advocates holding a proportion of higher risk investments alongside traditional classes. Alternative asset allocation can include property, absolute return funds, private equity or venture capital.

Lack of Alternatives

SIPP holders cannot currently hold residential property, therefore any property held as an investment must be commercial or held through a REIT (Real Estate Investment Trust). This is disappointing for SIPP holders, as it was originally believed that residential property would be allowed, however, unquoted shares offer another way to diversify.

Giving sophisticated investors a choice

Many SIPP holders are highly sophisticated investors experienced in assessing unquoted shares. These investors may wish to diversify their SIPP with unquoted shares.

Generating more income in retirement

Most asset allocation models suggest 5 – 15% as a good private equity holding within a portfolio. This tactic limits downside risk, yet allows strong returns to have an impact and be felt across the whole portfolio. This proportion of private equity can be a valuable component to generate income in retirement.

Since Longbow launched their SIPP Venture Fund alongside Axa Winterthur in 2008 SIPP providers have begun to review this issue and we are now pleased to announce that many of the top SIPP providers are offering this to their clients.

SIPP providers who do offer this are as follows:

Axa Winterthur

Standard Life

AJ Bell

Hornbuckle Mitchell

SIPP Centre.

For more information on investing through your SIPP please call 020 7332 0320 or email nrobson@longbow.co.uk.