Private school fees are up 70% since 2004, almost three times higher than the consumer price index during the same period, and average annual tuition fees are close to £15,000 per year. These numbers are challenging enough, but are made even more difficult in a world of historically low interest rates.
With banks and gilts (and foreign bonds) no longer able to provide safe, low risk planning for the rising cost of tuition, the only option to make up the missing yield is to take on more risk. This usually entails either taking on riskier credit or owning risky assets such as equities or alternatives. However, this comes with a caveat, that capital can also be lost!
When investing our own monies, neither of these options sounded very appealing and thus we looked for different sources of yield but without taking much capital risk – we wanted classical fixed income. We discovered that the private lending markets provide the additional yield needed. We rely on the same caveats as any credit manager would when they assess whether someone can actually repay a loan, and we always take 100% collateral to ensure security. Ultimately, we use the growing market of commercially standardised and institutional lending where the banks are no longer active.
We have structured The Blu Income Fund for our families and clients, providing steady cash flows needed to match any future liabilities, such as rising school tuition fees.