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What is ESG? – An Introduction – Part 1

What is ESG? – An Introduction – Part 1

ESG. You may have seen this term in the financial press or in our blogs. We recently posted the following blog, which was an update from Jupiter on Sustainable Investment Themes.

In our closing comments of this blog we said that we were currently developing our own ESG processes and would post more content on this shortly, so here goes.

What does ESG stand for?

ESG stands for Environmental, Social and Governance

But what is it?

Investopedia definition for ESG is;

‘Environmental, social and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments.’

ESG is more of a theme or a set of principles to follow rather than a single set principle.

Over the last few years, ESG has started being used more to describe how well a business is managed than to explain how sustainable its product or service is.

More recently, the mainstream press has been using ‘ESG’ as a catch-all term for investing with a ‘responsible’ or ‘ethical’ screen.

There are no official industry or regulatory standards for comparing these different approaches. However, with ESG now so important, some key definitions for certain factors have been accepted across the industry.

Breaking it down


Investing with consideration for the environment. This includes working to reduce pollution and climate change, and to source sustainable raw materials using clean energy sources. The focus is on how a firm approaches environmental concerns, the ecological impact of its products and its carbon footprint.


Investing with consideration for human rights, equality, diversity and data security. The focus is on how companies are incorporating these. It’s also about looking to see if each is actively investing/working towards a healthier and higher quality of life for staff and stakeholders.


Investing with consideration for positive employment practices, business ethics and diversity. The focus is on how a company builds its management structure and works with all its different stakeholders. How does it approach investor and employee relations? Does the board work with transparency, honesty and integrity? Does this filter down to the rest of the company?


Renewed efforts to combat global warming, cutting emissions and reducing our carbon footprints has been highlighted by the Covid-19 Pandemic and this has further raised the profile of ESG.

‘Doing the right thing’, ‘socially responsible’ and ‘ethical investing’ has now hit the mainstream press and become one of our regulators, the FCA’s, focuses.

As a firm, we are committed to ensure that we review the ESG policies of all the companies we work with and recommend.

We started looking at ESG over a year ago and discuss this regularly in our weekly team meetings. We decided that we would make this one of our key projects this year to ensure we stay ahead of the game because we believe this is the right approach and we believe that the regulator will issue guidance for firms over the next few years to ensure ESG is incorporated within their propositions.

We can already say that we are starting to incorporate this within our firms service proposition and are committed to driving this forward even further.

This blog is aimed as a gentle introduction to ESG. A lot of the ESG processes within this industry are built upon the 10 ‘UN Global Compact Principles’.

Check back for Part 2 of this blog next week, in which we will look at these 10 principles and the screening process investment firms use to assess whether an investment is compatible with these principles or not.

Andrew Lloyd


Data Source: Investopedia and Blackfinch Asset Management’s ESG Policy July 2020

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Legal and General: US Update

Please see the below update from Legal and General posted yesterday (29/06/2020) regarding the current situation in the US.

Their Asset Allocation team discuss their thoughts on the presidential election, the market’s likely reaction to what could happen, and the ongoing spread of Covid-19 in some states.

The electoral collage

Momentum is clearly with Joe Biden at the moment. Donald Trump’s handling of the pandemic and protests after the death of George Floyd have eroded his approval rating and have led to him losing ground in poll after poll.

Biden has always held a lead in national polls, but that advantage in poll averages has jumped from 4% in May to 10% now. Arguably even more worrying from Trump’s perspective are polls in swing states also shifting significantly towards Biden, and losses of support among both older voters and even his most reliable base of ‘white, no college’ voters.

Nevertheless, don’t count Trump out (again)! Our baseline remains that it will be a tight race to the end. The heat Trump is taking from the dual crises could calm down and the economy may well look stronger by November. Trump’s strategy again seems to be all about turning out his base. If he can get all of the 35-40% of voters that back him no matter what to turn out to vote, then it will take much more excitement about Biden from the rest of the electorate than is evident so far for him to beat Trump.

It should go without saying that it’s still early in the race and a lot can and will happen. To mention only a few wild cards: What will the economy look like in late October? What if there is a second wave of the virus in the autumn? What if a significant number of people get sick after Trump rallies? What if states need lockdowns on election day? What if targeted lockdowns inadvertently favour Democrats or Republicans? What if COVID-19 influences turnout differently among age cohorts? What if Trump or Biden themselves become ill?

Blue wave versus Trump 2.0

We would not expect a big equity market reaction to any type of divided government. If Trump wins, it would be roughly the status quo; under Biden, it would likely prevent many of the most market-moving policies in either direction.

Yet a Biden victory of any flavour could still bring a few market-related policy changes. America’s China policy would largely remain unchanged in substance, but could become less volatile in style. A multilateral approach to China should make an all-out trade war with the EU less likely. Tech regulation should continue to tighten gradually but, unless personnel choices say otherwise, this has not been a policy area Biden about which has shown particular passion. Generally, expect the policy direction to be more social, more green and more redistributive.

On the other hand, a ‘Blue Wave’ in which Democrats control Washington would be the most market-moving outcome, in our view; this has become the single most likely outcome in betting markets. In short, from a market perspective, this would imply higher corporate taxes and more fiscal spending. Even if these two ultimately balance each other out, the market’s gut reaction seems likely to be negative.

And what would Trump 2.0 look like? The desire to be re-elected has arguably been a moderating force on Trump’s policy choices around issues like the trade war. But in a second term this factor disappears. So what does Trump want to achieve with a second term? Money? Power? Policy? Legacy? Dynasty? We don’t have a clear answer for this question yet. Either way, it is unlikely that Trump 2.0 will be calmer than Trump 1.0.

The only two things we are certain of are that the campaign will get very ugly, and that if Trump loses he will not go quietly into that good night.

Houston, we have a problem

The virus continues to spread at an alarming pace in southern states, with the one-week change approaching Italian peak levels in California, Texas and Florida – a risk James highlighted over a month ago. We don’t think this is due to greater testing (which would dilute the share of positive test results). State governors are becoming concerned, with some Texan cities suspending elective (non-urgent) surgeries to free up hospital capacity.

By and large, the re-opening of the local economy is being ‘paused’ rather than ‘reversed’. But new research from the University of Chicago argues that lockdowns only account for 7% of the loss of economic activity. Instead, it is fear that prevents people going out. The study calculated this by examining economic activity in border towns located between different regulatory regimes.

Apple mobility data also suggest Texans are already cutting back on activity, and there appears to be an inflection point with activity levelling off in the median US state.

From a market perspective, there has been a tug-of-war between economic data continuing to paint a V-shaped recovery picture and deteriorating virus newsflow. We would argue that equities are pricing something at the optimistic end of our Scenario 1, implying there will be little market tolerance of signs the virus is significantly slowing down the economic recovery. But at the same time, the starting point for sentiment is already slightly bearish, so it would not take much of a correction to turn our sentiment signals much greener.

As you can see from this update (and from the news!), the situation in the US looks problematic, with no resolution in sight. The run up to a presidential election is always volatile and this one is likely to no different (if not worse due to the Covid-19 situation).

It will be an interesting few months for the US in the run up to November.

Keep an eye out for further updates here on the US and the impact of their Covid-19 and election struggles, and of course general market updates and other content which we continue to post regularly.

Andrew Lloyd


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The FCA’s focus for the remainder of 2020

Our regulator is working on the advice market and helping to manage risk in this area.  We recently completed a return for the FCA that focused on how we are dealing with the pandemic and our business and financial resilience.

I am pleased to say this did not pose a problem for us and we are comfortable with our current position with the focus on keeping ‘business as usual’ for our existing clients while keeping our staff safe.

We have extracted the precis of the FCA’s current views from a third-party compliance business’ blog in an email received on Friday 26/06/2020:

In their latest 2020/21 business plan the FCA outlines 5 key areas of concern and risk:

  • there is a good level of operational resilience 
  • understand firms’ financial resilience so that firms can fail in an orderly manner
  • markets can function enabling price formation and orderly trading activity
  • customers are treated fairly
  • customers are aware of the risk of, and protected from, scams

In her speech earlier this month, The FCAs Executive Director of Supervision, Megan Butler outlined the regulators response to COVID19 and expectations for the rest of 2020.

The speech Highlights:

  • In operational terms, advisers and wealth managers responded well to the onset of the coronavirus (Covid-19) crisis.
  • Whilst acting with speed has been the absolute priority, as the industry adapts to the long-term impact of coronavirus, there is a need to transition from the immediate ‘incident response’ towards focusing on longer-term impacts. In her speech to PIMFA’s members, Megan Butler explores the FCA’s priorities and longer-term expectations for the wealth management and advice industry.
  • Key areas of focus for the FCA include operational resilience in light of coronavirus, financial resilience (and within that the preservation of client assets and money) and acting with integrity.
  • On the latter, the FCA has identified some firms which have tried to avoid their liabilities to customers by closing down companies and setting up new ones. These practices are unacceptable, and the FCA will continue to take action against firms conducting such activities.

To ensure that firm’s stay on track with risk management, operational and financial resilience and customer focus, the FCA will be focusing on key outcomes:

  •  Client money and custody assets: They see an increase in clients running to cash, so firms are being encouraged to return finances that will not be invested in the short term and/or if firms are facing wind-down.

P and B IFA response:  At inception of our business we decided not to hold client money to minimise risk to our clients.  This is not an issue for us.

  •  Suitability and advice and discretionary investment decisions are (as always) front and centre of treating customers fairly and in their best interests, but will be scrutinised in particular around firms’ response to the pandemic

P and B IFA response:  Our key focus during the pandemic has been servicing our existing clients.  Our Due Diligence process on investments has been enhanced with additional criteria.  One area of interest is the ESG approach of Fund Managers.  ESG stands for Environmental, Social and (Corporate) Governance.

  •  Acting with integrity when it comes to charging appropriate fees is paramount

P and B IFA response:  The standard ongoing advice fee for UK IFAs is c 0.79% per annum according to our third party compliance consultants, with many IFAs targeting 1% per annum.  We remain competitive against our peers with our ongoing advice fee at 0.50% per annum.

  •  Firms need to continually showcase they have adequate systems and controls to manage Financial crime and market abuse

P and B IFA response:  We remain committed to fighting financial crime.  At our weekly Team Meetings and monthly Board Meetings we discuss risks, scams and blocking financial crime.  We have systems and controls in place to protect our clients and our business.

  •  There is a keen focus on pension transfer activity, with their detailed guidance on advisers providing triage, abridged and defined benefit pension advice.

P and B IFA response:  Due to regulatory and compliance input and escalating Professional Indemnity Insurance costs we have withdrawn from Defined Benefit Pension Transfer Advice.

Finally, there is a focus on the future of regulation, with a move to an outcomes based focus with new regulatory principles covering:

  •  Adaptive shift from ‘regulation and forget’ to iterative and responsive approach
  •  Results and performance driven regulation rather than defining a way, thus providing freedom to choose strategies
  •  Risk weighted approach, shifting to data-driven from one size fits all risk evaluation
  •  Finally, a collaborative strategy which aligns regulators nationally and internationally

It is good to see that our regulator, the FCA, is keeping an eye on advice businesses in the UK during this time of heightened risk.  We have taken appropriate actions to ensure quality ongoing advice is provided to our existing clients at this time and to lower our business costs for the time being.

We understand clients need to be kept up to date and constantly upload new blogs to keep you informed and email clients when appropriate during this pandemic crisis.

Our resilience and business continuity plans have been tested and we have adapted quickly to providing advice on a Covid-19 risk free basis (from a distance).  We will continue to monitor and try to improve our resilience and business continuity plans.

We are not sure how long this will last; it could be a while yet.  Personally, I am really looking forward to normal ‘business as usual’ when I can see my clients again!

Take care of yourselves.

Steve Speed


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Jupiter: The acceleration of sustainable investment themes

Please see the below article posted by Jupiter earlier this week from their Global Sustainable Equities Fund Manager, Abbie Llewellyn-Waters:

‘Several sustainable themes have continued to accelerate as a result of the Covid-19 crisis, said Abbie Llewellyn-Waters, Fund Manager, Global Sustainable Equities.

Firstly, momentum for environmental policy has gathered pace, despite the fragile state of the global economy. Policymakers have been quick to draw the link between the coronavirus and the environment – like viruses, greenhouse gases care little for borders. The debate around carbon policy, and specifically carbon tax, has notably accelerated. Abbie remarked on the recent write-downs and substantial price disparities within the oil sector as a further pressure point for tightening carbon policy.

There has also been important research quantifying pollution reduction, one of the few positives from this crisis, said Abbie. As a result of the global measures to combat Covid-19, the IEA expects global CO2 emissions this year to decrease to levels of 10 years ago. This is significant and could support the case for a more agile economic culture that includes more working from home. It is effectively an ‘investment-free’ solution to help deliver the legal commitments of the Paris Agreement.

There also continues to be strong momentum in human capital management within the sustainable companies that Abbie and the team focus on, with an increasing correlation between low staff turnover and high recurring revenue models.

Finally, another interesting new theme is the increasing attention on sustainable supply chain management. For years, efficiency has been the overriding aim in supply chains – “just enough, just in time”. Covid-19 has shifted the focus to security. While this has implications for working capital, it also offers new revenue opportunities. For example, infectious diseases have previously been mischaracterised as an issue mainly for developing markets. But a company Abbie recently spoke with highlighted that R&D investment into non-Covid infectious diseases in developed markets has already increased, which has the potential to create entirely new revenue streams not previously captured by analysts. All in all, Abbie expects the journey ahead to be much more complex than the markets rally suggests.’

Socially responsible investing has now gone mainstream and is a key focus for investors with a ‘put your money where your values are’ approach becoming more and more common.

ESG (Environmental, social and governance), which is a ‘set of standards for a company’s operations that socially conscious investors use to screen potential investments’ is now under the spotlight in this industry.

Keep your eye out for more blog content on this over the next few months as we at People and Business, develop our own ESG processes and scrutinise these criteria within the companies we use for our clients.

Andrew Lloyd


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PruFund Series E ‘Smoothed’ Funds Update – 25/06/2020

Hot off the press, I’ve just come off a webinar update from Prudential notifying us of the following positive Unit Price Adjustments (UPAs):

Series E only

PruFund Growth                            + 2.58%

PruFund Risk Managed 4             + 3.00%

PruFund Risk Managed 5             + 2.56%

The underlying unsmoothed assets were tested against the smoothed prices, the corridors, at 10.56 this morning.

You might ask why we have different UPAs for the different versions of PruFund?  For the following reasons:

  • Different asset mix
  • The starting position
  • Different smoothing limits

The last point, different smoothing limits, doesn’t apply to the three funds we use noted above.  The monthly smoothing limits in use for the funds we use is 5%.

Please see this link for details on how ‘smoothing’ works:

We could see further UPAs down as well as up, the outlook is for ongoing volatility.  We have a lot of risk in the market globally at the moment.

Steve Speed


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Brooks Macdonald Weekly Market Update: All eyes on the European Central Bank

Please see the below weekly market commentary update from Brooks Macdonald received yesterday (1st June 2020):

All eyes on the European Central Bank

  • Donald Trump’s press conference relieved markets by steering clear of a re-escalation of tariffs
  • The European Central Bank (ECB) will consider expanding their quantitative easing programme this week
  • However, this may reduce the perceived urgency of an EU recovery fund

Markets continued their strong run last week as economies reopen, stimulus is on the agenda and economic data picks up from its COVID-19 lows.

Donald Trump’s press conference relieved markets by steering clear of a re-escalation of tariff

On Friday, Donald Trump held a press conference to announce that Hong Kong would lose its special trading rights with the US. He added that Chinese and Hong Kong officials would be subject to sanctions in relation to their actions in eroding Hong Kong’s autonomy. Nonetheless, markets rallied. The view is very much that Donald Trump held back compared to what actions he could have taken with no re-escalation in tariffs or talk of withdrawing from the Phase One deal. Investors have taken this is a hopeful indication that the US President wishes to avoid the financial and economic ramifications of a step up in trade tensions.

The European Central Bank (ECB) will consider expanding their quantitative easing programme this week

The main event this week is likely to be the ECB meeting. Markets will be watching this closely to see whether there is talk of extending the pandemic quantitative easing (QE) programme, or any reference to the German Constitutional Court decision. Given the lack of agreement around an EU recovery fund, ECB officials will be pondering whether they need to step in to keep peripheral bond spreads under control. Italian spreads rallied when the Merkel/Macron plan was unveiled but given that agreement on the EU fiscal package seems unlikely to arrive imminently the central bank will be cautious of a retrenchment.

However, this may reduce the perceived urgency of an EU recovery fund

There has been a significant debate about the efficacy of QE in the post financial crisis world. Critics say that the depression of funding costs tends to raise asset prices more than it helps the real economy. While the markets would undoubtedly appreciate the pandemic programme being expanded in size and duration, the read across to a boost in economic growth is not clear. The EU recovery fund talks continue in the background, but if there is a perception that the ECB has already done ‘enough’ by expanding their purchase programme, talks could falter. Herein lies the risk to the broader economic stability of Europe, a fiscal response could fail to materialise and the ECB covers the cracks by suppressing bond yields. This will simply ensure the divide within Europe just grows below the surface and will pose an even greater risk during the next crisis.

Another useful commentary into the market activity last week. The markets have had a rally over the last week and into this week. We do expect the volatility to continue and further drops could be around the corner as global economies continue to recover and fight against Covid-19. These commentaries from a range of fund managers help add context to the daily market fluctuations.

Andrew Lloyd


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Market Update

Market Update – 21/05/2020

Over the last few days, I’ve been listening to the following Fund Managers for their input on investments and their views on markets:

  • BlackRock
  • J.P. Morgan
  • Schroders
  • Invesco
  • Prudential

In addition I’ve been listening to Curtis Banks on pension technical issues and the Federation of Small Business to hear Liz Truss in her position of MP, Secretary of State for International Trade and her views on where we are up to in the UK and with ongoing trade negotiations.

This research is on top of standard client advice work, I’ve not quite moved into the office, but it feels like I have sometimes!

Why do I do this level of research?  I want to get the consensus view on the global macro situation in the markets from the experts.  Fund Managers have substantial resource and spend a small fortune on research.

Whilst it is not an exact science and at the moment there are a lot of moving parts to take into account, I would say the general view is of cautious optimism.  Most Fund Managers are positioning for growth over the long term and for some Fund Managers for growth over the short term too based on modelling of scenarios and probable outcomes.

Markets are generally probably slightly too high as they tend to look through the very short term and focus on the (post virus?) future.

The risks are many and varied, the biggest one is a bad second wave of the coronavirus.  In addition, we have the US/China situation, Brexit trade deals (no deal Brexit?), Europe and US politics to name a few.

Consensus varies on where to invest if you have the freedom to choose but again common areas that appear good value now are Asia and Emerging Markets if you can take the volatility and associated risks.  As part of a portfolio or fund that is actively managed you get this allocation and the risks managed for you to some extent.

What next?

In summary you need to remain invested as you are for now, it is still too volatile to make fund switches.  If you have spare cash it is also a good time to invest, asset values are still low compared to valuations earlier this year.  You can try and buy into the dips, but this can be difficult to time.  Over the medium (5 years plus) to long term (10 years plus) you will see growth without perfect timing.

Paying regular monthly premiums into either pensions or investments is a good idea too.  If you can afford to increase your regular monthly contributions, please do.  This is a lot easier than trying to buy into the dips with a lump sum investment.  You may, if you are lucky, have spare cash with your reduced holiday and leisure spend!

Steve Speed


Team No Comments

Brewin Dolphin – Markets in a Minute Update

Please see this weeks ‘Markets in a Minute Update’ from Brewin Dolphin

Brewin Dolphin – Markets in a Minute Update


Global share markets fell back last week amid worries about a second wave of the virus later this year.

Over the week:

  • US shares fell 2.3%
  • Eurozone shares fell 4.3%
  • Japanese shares lost 0.7%
  • Chinese shares fell 1.3%.

However, the mood changed as hopes of progress on a vaccine were boosted over the weekend, and the trend in new infections continued falling across Europe.

  • The FTSE100 gained 4.3% yesterday. Energy stocks outperformed on a rising oil price rebound in demand for fuel as economies open up again.
  • Stocks were up across Europe, while in the US, the Dow closed up by 3.8% and the S&P500 gained 3.1%.

Markets appear laser-focused on any good news on the fight against the virus and hopes for a quick economic recovery, while ignoring the downbeat economic data and more cautious forecasts.

No expense spared in hunt for vaccine

The government announced that it would provide a further £84m to fund the ongoing vaccine development at Oxford University and Imperial College London.

  • Oxford will receive £65.5m and ICL will receive £18.5m as the vaccine trials on humans and animals are expanded. The idea is to cut the development time for a vaccine from the usual eight years to just two years.
  • Oxford University has also agreed a licensing agreement with AstraZeneca for the commercialisation and manufacturing of their potential vaccine. If the trials are successful it means that AstraZeneca will make up to 30m doses available for UK residents by September, as part of an agreement to deliver a total of 100m doses.
  • The government also plans to contribute up to £93m towards the construction of a new vaccine manufacturing centre, which is intended to open next summer in Oxfordshire, and will have the capacity to produce enough doses for the entire UK population in as little as six months.

However, a note of caution. Nobody has ever succeeded in producing a vaccine for a coronavirus. Even if we develop one, we don’t yet know what depth of immune response it would generate and how long that response would last. It is possible, for example, for a vaccine to prevent suffering from a disease but without inhibiting its transmission. There are numerous reasons to be cautious but the government does at least appear to be throwing everything at its development, and the UK is among the frontrunners in the ongoing research.

Monetary policy

Last week we heard from Bank of England Governor Andrew Bailey. His most eye-catching comment was that the Bank of England can spread the cost of the crisis over time. This is a welcome statement, as it came against the backdrop of a leaked document from the treasury to the Daily Telegraph, which said the government faced a stark choice between spending cuts and tax hikes in order to prevent increased debt triggering a sovereign debt crisis. In other words, a return to austerity once the pandemic is under control.

Since austerity removes liquidity from the economy, it reduces investment and productive capacity, which is essential for economic growth, especially at a time when we will (hopefully) be emerging from recession. There has been a broad outcry from economists against the Treasury’s conclusions.

By way of tools to prevent this eventuality the Bank of England obviously has the ability to buy more bonds and also fund the government through the ways and means account (temporarily of course). At the same time the UK has a floating exchange rate which can decline to improve the attractiveness of UK debt at the cost of inflation to UK consumers. Therefore, there seems no risk of a sovereign debt crisis, even as debt to GDP does increase drastically.

Furlough scheme extended

Chancellor Rishi Sunak extended the job retention scheme that pays 80% of staff wages until the end of July, and then beyond to the end of October. It was due to finish at the end of June. During this longer extension there will be some sharing of the financial burden between the government and employers. There will be details emerging on this over the next fortnight allowing the standard “devil will be in the detail” conclusion. If the extended furlough scheme is not generous enough then it could see a serious increase in unemployment. If it is too generous it will see a serious increase in indebtedness. The latter looks the lesser evil for the time being.

Encouraging news from Asia

Asia is further ahead of the curve and generally seems to have better procedures for tracking and tracing potentially infectious individuals. Infection rates remain well contained. There were some stories of new infections in the Chinese cities of Wuhan and Jilin but the numbers are very low. The same is true for Hong Kong. Asia’s experience probably offers the best case of how we can expect the release of lockdowns to go in the west.

Activity is ramping up in China. Traffic jams have returned to Beijing while 100m students have returned to school across the country. Restaurants are also reporting that customers are dining out again, with no need for social distancing, although diners’ temperatures are usually taken on arrival.

Signs of life in UK property market

Rightmove said on Monday it saw an immediate release of pent-up demand on the day the housing market reopened last week.

Home-mover visits to Rightmove’s site returned to pre-lockdown levels on 13 May with circa 5.2m visits, up 4% on a year earlier. Unique sales enquiries were just 10% behind the same day in 2019, while rental enquiries hit the highest level since September 2019.

However, it seems likely that given the imminent recession, many properties will sell at a discount.

Oil price jumps

Oil prices rebounded by 20% in the week to Friday as production fell and demand rose (US gasoline demand rose by 22% in the last week of April). US WTI rose by a further 4% on Sunday to break through the $30 level for the first time in two months. Global benchmark Brent Crude rose by 3.9% at the weekend to more than $33 a barrel, and continued up past $34 yesterday.

Capital and income from it is at risk.
Neither simulated nor actual past performance are reliable indicators of future performance.
Performance is quoted before charges which will reduce illustrated performance.
Investment values may increase or decrease as a result of currency fluctuations.
The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.

Some good news and signs that we are generally moving in the right direction. It may take some time before we reach our ‘new normal’, but these steps in the fight against the virus and some slight recovery in the markets are a good sign. However, we could see further downward legs before we move into full recovery. Volatility will continue.

Andrew Lloyd


Team No Comments

Business Blog – Commercial Property in your Pension – why?

Over the years a proportion of our clients use their pension assets to buy a commercial property.  Why would they do this?

The general benefits are as follows:

  • You do not pay any tax on rental income received into a SIPP (Self Invested Personal Pension)
  • No capital gains tax is paid on disposal of a commercial property from a SIPP
  • For ‘connected tenants’ (a business owner renting their pension’s commercial property to their own business) rent is generally a tax deductible business expense
  • SIPPs generally are not subject to inheritance tax
  • In insolvency the pension assets are normally out of reach of the trustee in bankruptcy

These are fairly standard benefits above; in the current situation a few useful ideas are as follows:

  • If your limited company owns the commercial property sell it to your pension to inject cash into your business to help with cash flow challenges and/or repay loans
  • If you own your own commercial property personally you could sell your property to your SIPP and if your business needs capital, make a Director’s Loan into your company (if viable)
  • By selling the commercial property you own to your SIPP you reduce your personal inheritance tax bill (if applicable)
  • In the past I have had clients sell their commercial property to their business to enable them to change business bank

When we think of commercial property you would normally think of offices, warehouses, industrial units and shops.  In addition, some stranger commercial property could be:

  • Sports stadium
  • Museums
  • Zoos

It is important to buy only commercial property with your pension, buying residential property could incur tax charges of up to 70%.  If you are not sure we can quickly get opinion on whether a property is commercial or residential for pension purposes.

The process for commercial property into a SIPP is as below:

  1. Validate if it is a potential SIPP investment (commercial property)
  2. Acquisition.  This involves good ‘due diligence’
  3. Ongoing management of the property, rent reviews, leases, insurance etc.
  4. Disposal of the property

During the acquisition stage you are likely to need the assistance of a few professionals, your accountant, a solicitor, a surveyor, the SIPP provider and a bank if you need a loan to assist with the purchase.  And obviously your IFA!

Due diligence is thorough and includes a report on title, information on the lease (is it suitable?), legal title, insurance, VAT, a copy of the EPC and search results (environmental searches too).

Loans to assist Purchase

If you do not have enough capital in your pension fund to buy the required commercial property you could borrow funds to purchase it.  Loans are restricted to 50% of the pension fund value.

For example, if you had £240,000.00 in your pension you could borrow a further £120,000.00.  Please note that you must factor in fees etc.

Connected Purchases and Connected Tenants

If you already own the property and you sell it to yourself this is a connected purchase.  You will then rent the property to yourself and you would be a connected tenant.

Connected party transactions must be completed on commercial terms.  You pay a commercial price for the property and you pay a commercial rent.  Normal due diligence is completed.


Rent paid initially can be used to pay any loan off asap if there was a loan used in the purchase.  Rent can then be invested in standard investment assets in your SIPP.

Investments can be funded by lump sums and on a regular monthly basis.  Building good liquid assets alongside your property assets is good practice.


In general terms fees for commercial property purchase in a SIPP and ongoing fees are more expensive than a standard property purchase.  This is because it is more complicated.

You also have the additional costs of your SIPP provider and your IFA in comparison with a standard property purchase.  Are the additional fees worth paying?  That depends on your circumstances and objectives.  Please take advice.


Whilst it is not for everyone buying commercial property with your pension could be useful, particularly now.  Some general benefits are that you take control of your working environment, property maintenance (and hygiene now) and if you have the space you could have a tenant too.

You can also join together with your life partner or business partners to buy commercial property with a few SIPPs.  You would own the property in proportion to your percentage paid.  This can get complex later, particularly at retirement.

Occasionally a SIPP may not be the right pension vehicle for your commercial property purchase.  A few of my clients prefer the additional benefits a SSAS provides (Small Self-Administered Scheme).   We won’t go into the SSAS benefits in this blog.

Retirement options include retaining the property and using the rent paid as part of your retirement income or selling the property.  If you are selling your business and retaining the property in your SIPP, you should also negotiate good long lease terms to the buyer of your business.

Right now, it could be difficult to get a valuation on a property, but business will gradually start returning to normal over the rest of the year – hopefully, a vaccine will speed things up!

Steve Speed


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The European Central Bank aims to ‘thread the needle’

Further input from J P Morgan received at 18.25 on Friday night, 01/05/2020.   Although this article is slightly out of date, I think this is important input and an area we need to watch.

The European Central Bank aims to ‘thread the needle’

The leader of the European Central Bank (ECB) has become very familiar with the challenge of ‘threading the needle’ in recent years and the test facing Christine Lagarde today was no different. After last month’s major announcements regarding the expansion of its QE program, the ECB announced few new meaningful measures today. It left its key interest rates unchanged and made no enhancements to its asset purchases. It did however decide to make borrowing conditions more favourable for euro area banks under its Targeted Longer Term Operations III (TLTROs) facility.

With an increasingly restricted toolkit to provide further stimulus, the ECB’s messaging had to be reassuring enough to avoid triggering market volatility and at the same time diplomatic enough to appease divergent views from across the euro area on the appropriate policy path. This task was only made harder by the downgrade of Italy’s sovereign bond rating by Fitch to one level above junk status and the large contraction in eurozone GDP for the first quarter of this year (-3.8% quarter on quarter).

Few new policy changes

With its deposit rate already at -50 basis points, the ECB’s decision to not reduce interest rates so far this year suggests a strong reluctance to go even lower. However, the ECB is not alone in seeing limited value in pushing rates further into negative territory. The Federal Reserve in its own meeting yesterday dismissed the idea that it would consider negative interest rates. The ECB is instead focusing on other tools as its main policy levers.

Borrowing costs for the TLTRO III programme were lowered to -1%, a further 25 basis points lower from last month’s meeting. The recent ECB bank lending survey showed a material increase in demand for loans across the euro area as corporates search for funds to get them though this period. In the near term, another series of short-term refinancing operations were also made available, likely as a safety net over the coming months. These are helpful measures but the magnitude of bond purchases is likely to be more important in supporting government spending to help mitigate the impact on the economy.

What are the other options?

With markets focused on debt sustainability, particularly in countries such as Italy, the ECB will need to focus on expanding its asset purchase programmes. It could do so by ramping up purchase amounts under the Pandemic Emergency Purchase Programme (PEPP). In the press conference Lagarde suggested that PEPP is the preferred tool as opposed to Outright Monetary Transactions (OMT), previously used in the sovereign debt crisis, given this is a euro area wide issue. An extension of PEPP beyond the end of this year, dependent on the duration of the virus was also highlighted as an option.

Having already announced that it would accept recently downgraded high yield bonds – so called ‘fallen angels’ – as collateral for banks’ loans and made Greek bonds eligible for the PEPP, the ECB could also widen the scope of the asset purchases to include high yield bonds. Lagarde stopped short of explicitly confirming the forthcoming implementation of these measures, but stated that the flexibility of the ECB’s mandate can be increased if required.

Ultimately, it is clear that the ECB will need to increase stimulus measures this year to ensure that the wave of bond supply required to fund government stimulus packages is smoothly digested by the market. At this meeting, Lagarde preferred to take a “wait and see approach” in the hope that coordinated government action will shoulder some of the burden and lift some of the pressure on the central bank to save the day.

Investment implications

Trying to find the perfect balance of policy announcement and forward guidance was always a tough challenge and markets appear to have reacted negatively to the measures announced today. The euro has fallen around 0.3% versus the dollar and European equities are also down on the day. The spread of Italian 10-year yields over Germany has been volatile and has broadly risen. With expectations from the ECB that eurozone GDP could fall by 5% – 12% in 2020, calls for further central bank action look set to get louder over the coming months.

As we know markets fell a further c 138 points on Friday, 2.34%.  The ECB will have it’s work cut out keeping all of the eurozone happy with the issues facing the likes of Italy, Spain and Greece and the strength of Germany who don’t want too much change even when we have a crisis of this magnitude.

It does look like countries within Europe are standing on their own. As an initial response to Covid 19 some European countries closed their borders.  Understandable but not very European.

Let us see how this plays out, it could be interesting.  The ECB will have to do a lot more to keep everybody happy.

Steve Speed