Savings & Investing

Building bridges

Nov 4, 2016
By David Lamb

Bringing infrastructure investment to retail clients who seek to generate income that would increase in real terms.

Every year St. James’s Place sends a survey to every client. Typically, some 10% or so reply meaning that in 2015, we received 47,500 responses.

75% of these responses told us that their greatest concern about the future was having enough money to live on in retirement and not running out. 47% worried about having enough to pay for long term care if they needed it, the second highest score. Clients were able to list three concerns.

Our clients need to accumulate enough for their retirement across all asset classes and tax wrappers; including pensions and ISAs, property etc. and then invest in a way which provides both a real income and a hedge against longevity.

There comes a point when clients focus less on the day to day value of their accumulated assets and more on the income generated. That said, clients still want any remaining value to be available on death to be passed on to their nominated beneficiaries.

We think the need for an income in retirement is an investment need that can be met by the industry.

The idea

For some time now, we have been exploring how to bring infrastructure investment to retail clients who are seeking income generation, and moreover an income that would increase in real terms. There are, of course, a number of challenges with this:

  • Illiquid investments;
  • A need for large capital investments;
  • A lack of experience in investing in projects;
  • A lack of good project managers, etc.

However, if we can overcome these challenges, we think there would be significant demand for this approach. Such an investment might have the following characteristics:

  • Be available in sensible tranche sizes, say £50,000;
  • Be a collective, to enable significant sums to be pooled together;
  • Focus on income generation in real terms, with the flexibility not to worry about daily values or daily dealing.

We recognise that such an asset class couldn’t be daily priced, nor should it be. Quarterly dealing would be sufficient (and may need to be facilitated).

The solution

An infrastructure capital pool available to retail investors, perhaps supported by Government, which would also be able to benefit from the pool of capital raised, which could fund specific infrastructure projects, where clients can invest as part of their overall investment strategy, alongside more traditional, liquid investments, such as equities and bonds.

This could provide a potentially large source of infrastructure investing – probably at the expense of traditional annuities.

It may be that the right structure – to ensure some liquidity and certainty of capital is an Investment Trust structure. It’s interesting that Neil Woodford raised £800m for his recent Patient Capital Investment Trust launch.At SJP, we believe a fund with quarterly dealing could raise more.

Such a structure should appeal both to the Investment Community and to Government, as well as to our clients. It would see individuals commit capital for their long term needs at the very time ‘pensions freedom’ provides access to it – thus going someway to help mitigate the risk that individuals run out of money too soon by spending what they have accumulated. How much they are able to commit to this new fund would, of course, depend on what they have already accumulated – there is no getting away from the fact that they will need to be persuaded to continue to invest for their retirement.

Building bridges

Hear from David Lamb about how bringing infrastructure investment to retail clients can help to generate income.

David Lamb

About the author 

David Lamb
Managing Director, St. James’s Place Wealth Management

David Lamb joined the SJP Group in 1992 and was appointed to the Board in 2007. David is the Managing Director with responsibility for Operations, including Client Services, Marketing, Business Development and the Group’s fund range. He is Chair of the Investment Committee and a Trustee of St. James’s Place Foundation.

David is a non-executive director of The Henderson Smaller Companies Investment Trust PLC and a director of the Wealth Management Association. He is also Governor of the University of the West of England, a graduate of City University, London and a Fellow of the Institute of Actuaries.