Investing on behalf of a private equity professional

The background

Michael is 45 and works in London for a US-based private equity firm. He is a senior member of a team responsible for operational improvements at portfolio companies across Europe. Michael focuses on consumer businesses and is not permitted to make any direct investments in the sector.

He is married with three children aged 7-15. He and his wife, Harriet, are both UK domiciled. Michael earns £750,000 per annum and regularly receives bonuses of a similar amount. He also receives carried interest payments each year. Harriet works part-time as a property lawyer for a mid-sized firm.

The couple owns a four-bedroom house in London and has recently paid off the mortgage. They also own two flats, which bring in rental income of close to £50,000. They have cash of £1 million which they are looking to invest. They have ISAs and JISAs worth £475,000 and various taxable investment portfolios worth £450,000. This includes a number of private market investments as well as listed equities. Michael has three pensions from previous employers worth close to £300,000.

Michael was recently introduced to us by his accountant. After difficulties with a previous tenant, he and his wife are looking to sell the flats. They are thinking of buying a holiday home overseas and would like to build a better-structured and more diversified portfolio. Michael is particularly interested in establishing a systematic approach to investing in venture capital and taking advantage of the associated tax reliefs.

How we helped

We had a long conversation with Michael and Harriet to understand their near-term requirements and longer-term objectives. We used our digital cashflow planning software to help the couple think through different scenarios, including the age at which Michael steps back from full-time employment, the impact of buying a holiday home and the possibility of sending the children to university in the US. We also modelled the impact of varying inflation and return assumptions.

In the first year of working together, we bought many of Michael’s investments in-house.

We consolidated his pensions into a SIPP. Along with his and Harriet’s ISAs, we transferred the children’s JISA’s in-house and helped set up stakeholder pensions for them. These longer-term investments are managed using our core, higher-risk strategy. We have agreed to automatically fund the ISAs and JISAs every year from cash balances in Michael’s investment accounts.

We transferred the cash and Michael’s listed equity portfolio in-house. Over a period of three months, we transitioned these assets to our Growth Portfolio Fund. The fund provides access to a highly diversified portfolio while minimizing tax drag. When investing through a fund structure, a capital gains tax liability arises only when units in the fund are sold and not when underlying investments are sold. We retained some cash in an account earmarked for satellite investments in EIS, VCTs and private assets. This account will be topped up regularly with Michael’s salary and bonuses.

Michael and Harriet now have a much clearer overview of all their accounts, accessible online or via our app. We have significantly reduced their administrative burden and helped ensure they are making full use of available tax allowances. We work closely with the couple’s accountant, particularly in connection with the EIS and VCT investments.

We have subsequently introduced Michael to our banking team to begin discussions around a possible loan to fund the purchase of a £2 million property in France.

Michael has attended a number of webinars and live events and very much enjoys being part of the Cazenove Capital community.

This communication is for information purposes only and is based on the author's understanding of the law in force at the time of publishing. This material is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Readers should seek professional advice for their individual circumstances.

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

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