F&C PR EQ Zeros Share Discussion Threads

[hpotter] 11/4/2010 17:06

SKYSHIP,
Re. your comment on 26 March about FPEZ being an excellent SIPP holding. Could you please explain. Is it because you can income drawdown 8.4%pa. or is it just that its a high yield over the 5 year period?
Until now I've used my SIPP for capital gains investments but with retirement looming this is about to change. Thanks also for the preference shares info.

[jonwig] 27/3/2010 09:16

Is it wise to rely on low CGT rates when evaluating this?

... tax advisers warned that the gap between these rates of CGT and the 50 per cent top rate of income tax is highly likely to be closed in a post-election Budget – no matter who is then chancellor.

[badtime] 26/3/2010 10:21

Aye thts wher mine is

[skyship] 26/3/2010 09:10

mbu69 - no, you haven't missed anything; but bear in mind that this really should be viewed as a 5yr hold which will slowly accrete toward its redemption price. The notional 8.4% GRY makes it an excellent SIPP holding.

[mbu69] 24/3/2010 20:29

I also bought a few 5k this morning , not really got a clue about the intrigacies but happy to park some cash and really like the idea of paying less tax i.e. CGT not income lets see ...... unless i'm missing a rather large trick ?

[badtime] 24/3/2010 20:12

Took a nibble today

[skyship] 24/3/2010 14:04

Stemis - the trust continues on after redeeming the Zeros.

[ianbrewster] 24/3/2010 12:56

Am I right in thinking that these will fail the 5 year rule and hence not be ISAable?

[stemis] 23/3/2010 20:27

Sorry, I know the ZDPs have a finite life, I just wondered if the Trust has (i.e. will it need to just find the £45m for ZDPs or liquidate everything!).

[skyship] 23/3/2010 19:02

Stemis

1. FPEO is a fund-of-funds trust, ie investing in Private Equity trusts, not directly in PE. Ergo, far more secure and far easier to liquidate holdings as and when required. When it came to yield pricing I expect they had to look at the most marketable prefs - the Aviva prefs - at a yield of 7.75% - then add 1% for the PE risk = 8.75%.

2. No - has a finite lfe - that is always one of the main advantages of a Zero. Redemption is @ 152.14p on 15/12/2014

[stemis] 23/3/2010 14:10

The investments are largely in unquoted buyout and private equity funds, so very illiquid and valuations as much a guess as anything.

I presume the vehicle has an indefinite life?

At present the cover of the ZDPs is pretty high (about 400% on final value) hopefully they should be able to liquidate the approx. 30% of the investments needed to pay them out

[skyship] 23/3/2010 12:15

Absolutely - one of the main reasons for the launch of Split cap trusts (ords & zeros) back in the 60s was the abilty for people to take the return as a capital gain rather than income.

[llygad] 23/3/2010 12:05

I understand that the return is classified as capital gains and would be taxed at 18%. If you have not utilised your capital gain allowance for the tax year (2014) then the return would be tax free assuming the return was less than your annual capital gains allowance.
If this is the case then it would seem to be tax efficient investment even outside an ISA or SIP.
Can anyone confirm if I am correct in this assumption.

[badtime] 22/3/2010 10:31

For that return it would be a welcome addition to my sipp portfolio..like u i am on inc drawdown and have committed certain funds to providing a 'guaranteed' return either short or long term.

I'll ponder further

[skyship] 22/3/2010 10:02

Looks like it. To my mind FPEZ provides a bit of certainty in an uncertain financial world - rather in the way the Royal London Zeros did until redemption in Sept'08.

[badtime] 22/3/2010 09:43

Gd cover then skyshipper

[skyship] 22/3/2010 09:25

F&C Private Equity Trust is a well-diversified "Fund-of-Funds" trust which in Nov'09 had Gross Assets of £180m and bank debt of £31.5m. In Dec'09 they raised additional debt through the issue of 30m Zero Dividend Preference shares (ZDPs):

9 December 2009 - Placing of Zero Dividend Preference Shares:

The Board of F&C Private Equity Trust plc is pleased to announce that its new wholly-owned subsidiary, F&C Private Equity Zeros plc, has received Placing commitments to subscribe for 30,000,000 ZDPs @ 100p per share.

The ZDPs will have an illustrative initial capital entitlement of 100 pence and will be entitled to the Final Capital Entitlement of 152.14 pence as at 15 December 2014; this would equate to a gross redemption yield of 8.75% per annum based upon the 100p Placing Price.

I'm unable to provide a link to the prospectus as it appears not to be freely available online, so for your copy email the fund manager (see below) and he will reply with an html doc.:

[e-mail]

All the facts and figures for the trust and its portfolio can be found on the company website:



There is also a fair amount of information accessible through ADVFN on the pages for FPEO (the ords) & FPEZ (the ZDPs).

At a time when the stock-market recovery may well have run its course (or at least the Risk/Reward favours to the downside with the FTSE @ 5650), there are many who are looking for elusive high-yielding safe havens. Personally I have 25% of my SIPP in high-yielding preference shares:

AV.A, ELLA, GACA, IERP, the more speculative RUSP and finally these new Zeros – FPEZ.

Though they don't pay a dividend in the traditional sense, nevertheless the Gross Redemption Yield at the current offer price of 103.3p (104p inc exps) = a highly attractive 8.36% - effectively fixed for nearly 5yrs.

What I find particularly attractive is the security aspect. The Zeros rank ahead of the ords and after the bank debt, so there is effectively £150m of net equity to support the current £30m of Zeros, which will need just £45.6m to pay out @ 152.14p in Dec'2014.