Finally, given their experience and track record of managing unquoted BR-qualifying companies, what does the manager consider to be their source of competitive advantage? There are a range of possibilities here, whether it be deal origination or execution, or the ability to execute a timely exit.
The biggest test of the liquidity of any investment is the ability not to price it, but to actually realise the value of the asset when the client needs or wants an exit.
Four: what corporate governance is in place?
Advisers should have a reasonable understanding of the governance structure of the investment manager, as well as how governance of the underlying companies is undertaken. For example, what roles do the investment manager’s governance functions (risk, legal, compliance) play in the design and running of the service? Do they have an investment committee? Can the manager describe how its trading activities are selected and monitored?
Unquoted companies are harder to value, as the shares are not valued on an open market, and they are not required to publicly disclose information on which valuations are based. Therefore, managers should be able to explain the methodology they use to value their book, as well as confirming whether those valuations are independently reviewed or verified.
The issue of mark-to-market valuation dogs all unquoted investment funds at present. Market sentiment is moving rapidly in terms of how it views these type of investments, but no client wants to be caught the wrong side of a liquidity trap, even if the assets appear to be rising in value.
Non-executive directors can play a significant role in helping to ensure an underlying company is managed responsibly, while also giving independent oversight that the company is carrying out BR-qualifying trades. Where NEDs are in place, it is important to know their experience level and profile.
Five: customer service
With any estate planning investment, communication is essential. Does the manager make their investment team available to advisers via webinars or update sessions?
And of course, the investment is just the first undertaking. At some point the client will pass away, and it becomes the responsibility of their executor to ensure the investment and its proceeds are managed according to the client’s wishes. Managers should have experience of interacting with vulnerable clients and people who have recently been bereaved.
It is essential that the manager understands the customer service-related aspects of their role and is committed to delivering the best outcomes at a particularly difficult time for those involved.
