Ahead of the Government’s Autumn Statement, alternative assets platform CoInvestor urges the Chancellor not to move further away from the pensions freedoms which have given investors more control and choice over their investments.
Nearly half (48%) of mass affluent Britons benefitting from the Government’s changes to pensions legislation in 2015, said this was because it gave them control of their own investments, research carried out by YouGov has found.
A further 28% enjoy being able to withdraw their pension at a lower tax rate, whilst one in five (20%) felt it allowed them to diversify into tax efficient investments. Only 21% of respondents felt that pensions freedoms had not benefitted them, but nearly one in three (31%) of these said this was because they are already drawing their pension.
Increasingly, it seems, investors are turning their heads towards diversification of their portfolio – particularly in uncertain macroeconomic times. Around one in ten respondents said they are interested in investing in private equity funds (11%) and start-ups (9%) in the future. This trend was strongest amongst younger generations, with one in five (19%) of those under the age of 34 saying they are more willing to invest in alternative investments post-Brexit.
Investors are using multiple methods to seek out these alternative investments. More than a third (35%) prefer to invest directly using an online platform, an option which is particularly popular amongst those aged up to 34 (44%). Roughly the same number of respondents (32%) would still prefer to go through a financial adviser in the first instance. Only one in five (20%) listed investing through a fund as their preferred route to access alternative investments.
The main driver for this move towards investing in alternative assets is the pursuit of higher returns (40%), tax efficient investments (38%) or to generate additional income yield (37%). One in three (33%) said they are seeking to further diversify their portfolio.
As is expected, these motives change with age. One in two (51%) 45 to 54 year olds are looking for tax efficient investments, whilst over two in five (41%) people over the age of 55 are looking to generate additional income yield from their alternative investments as retirement beckons.
Three quarters (74%) of 18 to 44 years olds not yet invested in alternatives are not worried about the risk involved. This highlights an emerging generation of sophisticated investors that are more comfortable with risk and choosing to invest directly online, suggesting the financial advisory community needs to adapt and engage with younger audiences in a different way.
However, despite this, many people remain hesitant about diversifying their portfolios into alternatives. The main reason for this is the feeling that they do not have sufficient knowledge to be able to make an investment decision (55%) whilst a further 36% said they were worried about risk.
Charles Owen, Founder of CoInvestor, commented: “Clearly we are seeing a trend by private investors to take control of their pensions, their investments and their money. Individuals want to maximise their returns and protect again market volatility which is especially apparent in the current fragile socio-political outlook.
“As such, there is increasing consideration of alternative assets as a way to generate more income yield, take more calculated risk or maximise tax efficiency. This is particularly relevant for an aging population looking to support their retirement.
“However, there remains some lack of understanding surrounding alternatives. Technology has fuelled the growth of a number of online platforms that now enable private investors to access asset classes that were previously exclusive. Financial advisers should be making it an absolute priority to work closely with these platforms and provide solutions for clients that allow them to diversify their portfolios and reap the benefits of this third asset class.
“If financial advisers do not adopt these technologies they risk losing relevancy, especially amongst a growing, online-savvy younger investor audience that should be their next generation of customers.”
CoInvestor is an online marketplace for alternative assets that allows private investors to coinvest in unlisted companies alongside experienced fund managers, and is working closely with the financial advisory community to help address these growing demands.
The platform is endorsed by top fund managers including Oxford Capital, MMC Ventures and Chelverton Asset Management and has the backing of a number of major industry figures including Matthew Peacock, Founding Partner at Hanover Investments, who acts as Non-Executive Chairman.