A couple of years ago, it looked as if Sipps were about to become the ultimate vehicle for alternative investments. Newspapers were buzzing with excitement over the prospect of investors being allowed to get massive tax relief on everything from residential property to fine wine and artwork. But the mother of all anti-climaxes then ensued: the government did a u-turn and said Sipps were to remain a repository for unexciting conventional stuff like shares shares and bonds.
However, look beyond the disappointment, and the 'alternative' allure of a Sipp hasn't entirely vanished. There are in fact a number of non-mainstream assets that are increasingly finding their way into Sipps, and some of them are surprisingly exotic.
Sippland
You may not be able to put Spanish villas or buy-to-let flats in Bristol in your Sipp, but did you know that you can invest in assets as leftfield as telecom masts? Wealthier Sipp holders are increasingly putting money into these ungainly eyesores, which are jammed packed full of radio and telecoms antennae, and then rented out to the big mobile phone operators on long leases.
Like any commercial property, they can also be used as collateral against borrowing within your Sipp. They frequently yield between 7.5 and 11 per cent a year, and there's also the chance of some capital uplift if further networks choose to piggyback on the tower. With purchase prices ranging from £50,000 to £125,000 for each site, its little surprise that many investors are abandoning the precarious high-street world of shop lets and opting instead for a small portfolio of masts rented out to blue-chip clients who pay on time and aren't likely to go bust.
The surveyors who typically package up and sell on these telecom-mast properties are also reporting a booming trade in variations on the 'plot of land in the country' theme. More and more investors are buying into forests as an alternative investment and then planting them in their Sipps. Not all these forests are for lumber products. Some agents in southern England are reporting that investors are using their Sipps to buy amenity woodlands – bluebell woods, for example – or maybe even buying up fishing rights to river banks.
Rural land is also increasingly popular among investors with a green bent, as it can be used to locate an alternative source of power – and all potentially funded through a Sipp as a 'going business'. Specialists such as FIM are starting to launch small syndicates that own wind-power turbines. These earn a fairly generous income in the form of subsidies and power-supply contracts and can be sheltered in a number of tax wrappers.
But direct investments in rural land are mainly the preserve of wealthy investors who hold at least £100,000 and often a lot more in their Sipps. Smaller investors are more likely to use funds, especially an exchange-traded fund (ETF) provided by the likes of iShares or Powershares. Through these ETFs, it is now possible to track funds that seek to follow key alternative indices investing in forestry companies and rural land-based real-estate investment trusts (The EPIC code for iShares forestry fund is, appropriately, WOOD). These tracker funds are also targeting the green investor with investment vehicles that have exposure to renewable energy. Both Powershares and iShares are marketing renewable energy ETFs, while SocGen's tracker unit has a range of funds that invest in solar power, bio-ethanol and even uranium producers.
The art of retiring
Another category of alternative investment that previously looked poised to take the Sipp world by storm was collectibles – stamps, coins and art. Although these are not banned inside a pension, their inclusion will trigger a crippling tax charge. But smart investors have found an intriguing way around the rules: they've simply invested in the companies that sell these products. Shares in Stanley Gibbons, for example, have been steadily moving ahead as the company successfully turns stamps into a global alternative asset class through its auctions, internet-sales service and growing use of stamp investment syndicates.
In the rare coins field, Noble has also been making steady progress and has increased its grip on this small but thriving niche market through the purchase of leading dealers such as Baldwins. It's also worth noting that Noble has floated an investment fund that invests solely in coins called Avarae Global Coins, which can be held in a Sipp.
Gold and the wide spectrum of commodities have also become hugely popular among Sipp investors. You can hold gold directly within a Sipp, but the cost of this physical ownership is still fairly substantial, which is why investors have been flocking to funds and derivatives that invest indirectly in commodities.
ETF Securities, for example, has launched dozens of exchange-traded commodity (ETC) funds that act as trackers for a hugely impressive range of commodities. At the basic end, there are simple gold price trackers, as well as funds that physically hold a basket of precious metals. There are also trackers that give you geared exposure to the futures prices of oil and industrial metals. Most of these ETC tracker funds are still targeted at professional investors, as trading in commodity futures prices is a fairly specialised pursuit. But ETF Securities reports an ever-larger number of private investors using its plain-vanilla commodity index trackers or straightforward gold or precious metals trackers to increase exposure within their Sipp portfolios.
Hedge your bets
Another alternative asset category that was previously targeted at more professional investors is hedge funds. Direct participation in hedge funds is still fairly rare among smaller Sipp investors. Financial Services Authority rules tend to mean that hedge funds prefer to market only to investors with $100,000 (£51,000) or more, although some smaller corporate advisers, such as Close and Matrix in particular, have started marketing a few carefully chosen hedge funds directly to private Sipp investors. To take one example, Matrix's Ascension Plan (I through III) is sold directly to investors for their Sipps and has been a startlingly successful performer to date with total returns in three years in excess of 40 per cent.
Most investors looking for exposure to hedge funds have tended to opt for hedge fund-of-funds managers, managed by the likes of Thames River and Dexion. These listed investment trusts typically invest in a huge array of hedge funds and investment styles and returns have been fairly steady to date. There's also a growing demand for hedge-fund based ETFs that attempt to mimic the performance of leading hedging strategies. So far, though, there's only one vehicle available to Sipp investors: New Star's highly specialist Hedge ETS.
Jump into hotbed
Private equity is another fashionable alternative asset category that Sipp investors are coveting. Despite the global credit crunch, many wealth managers are reporting a steady increase in the demand for private equity, especially through the listed investment trust sector, where there are a number of hugely successful fund managers, including 3i and SVG. But these investment trusts are still a fairly indirect way of participating in the private equity buyout and venture capital market. A more direct alternative comes via the HotBed Sipp. This is actually an Alliance Trust Sipp, but comes with membership of the Hotbed scheme, which invests in a range of alternative assets including private equity and commercial property.
The private equity scheme lets investors contribute sums as small as £25,000 into Hotbed's own direct syndicates. These £1m-£2m syndicates typically participate in private equity transactions with a total entry value of £3m-£20m, aiming to create an exit value of £15m-£40m within three to five years.
