What is investment-backed lending?

At Arbuthnot Latham, we offer a wide range of lending solutions tailored to the needs and goals of our private banking clients. One option is investment-backed lending, which provides a smart and flexible way to access liquidity while keeping your long-term investment strategy intact.

Investment-backed lending enables you to borrow against the value of your investment portfolio, rather than selling assets to raise funds. This can be particularly attractive where selling investments would trigger capital gains tax or force the sale of assets at an unfavourable time. 

How investment-backed lending works

Where an investment-backed lending facility is suitable for a client’s circumstances, the bank may lend up to a percentage of the portfolio’s market value. The amount will depend on the types of assets held, the level of diversification, and the associated risk profile. As a guide, we typically lend up to 60% of the portfolio value. 

This approach can provide quicker, and often more cost effective, access to capital compared with other borrowing routes. It also removes the need to unwind an established investment strategy.

Where investments qualify as security, clients benefit from the convenience of managing both their investments, and their borrowing with Arbuthnot Latham, creating a seamless experience. 

Situations where investment-backed lending can help:

• Acquiring high-value items such as artwork, a vintage watch, or sports car
• Making gifts or a loan to family members or trusts
• Accessing funds to support growth opportunities for a client or a family members’ business
• Meeting the increase in education costs smoothly
• Managing a short-term liquidity need – such as a large tax payment.

Why investment-backed lending was the chosen option

Choosing to fund the £500,000 through an investment-backed loan offered several advantages compared with other funding routes:

1. Maintains investment value without realising gains

Selling investments could have triggered a capital gains tax liability, reducing the amount available to gift. Borrowing against the portfolio allowed the client to retain the full investment value.

2. Preserves long-term investment growth

By keeping the portfolio invested, the client maintained their exposure to long-term market growth and avoided disrupting their investment strategy. Selling assets could have forced a sale during a temporary market downturn, resulting in an unfavourable outcome. The lending facility enabled the client to preserve return potential and stay disciplined in their investment strategy.

3. Faster access to liquidity 

With no valuation or conveyancing requirements, investment-backed lending can provide access to funds more quickly and with fewer administrative steps than other forms of lending.

4. Cost-effective solution

Using the client’s investment portfolio as collateral resulted in lower overall costs of borrowing than other forms of borrowing.

5. Greater flexibility in repayment

The client could have more flexibility in how they repay the loan. They could time repayments to match when they plan to sell assets, which means they avoid the pressure to sell investments or property to cover short-term obligations.

Understanding the risks of investment-backed lending

While investment-backed lending can offer flexibility, it is important to recognise the risks involved.

Market movements may reduce the value of your portfolio, which could trigger a margin call that requires you to add extra security or sell investments earlier than planned. Borrowing in a different currency introduces exchange rate risk, and investment values can fall as well as rise, meaning your capital is at risk. 

This type of facility may not be suitable if you rely on your investments for income, or if your aim is to fund residential property renovations.