A portfolio investment entity (PIE) is a type of investment vehicle in some countries like New Zealand. It allows investors to pool their funds into professionally managed investment portfolios. The key features of PIEs include tax advantages, diversification, professional management, accessibility for smaller investors, and transparency around fees and performance. PIEs hold a range of investments like shares, bonds, cash, and commercial property. By investing in a PIE, investors can gain exposure to asset classes that would otherwise be difficult for them to access directly. The income and capital gains generated in a PIE are taxed at a capped rate, providing a beneficial tax treatment compared to direct investment. Overall, PIEs offer an easy and cost-effective way for investors large and small to engage in portfolio investment.
PIEs provide tax advantages compared to direct investment
One of the main benefits of investing through a PIE is the tax advantage. The income earned and capital gains made within a PIE are taxed at a maximum rate between 10% and 28%, depending on the investor’s prescribed investor rate. This is usually lower than an investor’s normal marginal income tax rate. It provides an attractive tax incentive for investment compared to owning assets directly and being taxed at full income tax rates. The specific tax rules vary by country, but the principles of capped tax rates and deferred taxation until the investment is sold make PIEs tax efficient.
PIEs allow pooling of funds for diversification
A key feature of PIEs is the ability to pool together funds from many investors to create a diversified portfolio. Individually, most retail investors do not have sufficient capital to build a highly diversified portfolio across asset classes, geographies, sectors, etc. But by combining funds into a PIE collective investment scheme, small investors can access diversification like large institutional investors. Spreading money over hundreds or thousands of investments in a PIE ensures less exposure to individual asset risk.
Investors benefit from professional portfolio management
PIE funds are constructed and managed by qualified investment professionals. They have the skills, tools, and experience to research assets and markets and actively adjust the investment mix over time. Individual investors rarely have the capability to manage multi-asset portfolios with high diversification. So investing through a PIE enables investors to leverage the portfolio management skills of investment experts – ensuring their money is prudently invested.
Smaller investors can access investments normally unavailable to them
By pooling together capital from many individual investors, PIE funds are able to invest in assets and markets that are normally only accessible to large institutional investors. For example, direct investment in commercial property typically requires huge capital outlays beyond smaller investors’ means. But a commercial property PIE allows investors to gain exposure to this asset class in a diversified way with a much lower minimum investment.
PIEs offer transparency of fees and performance
Because they are formally regulated investment structures, PIEs have statutory obligations to provide full transparency on costs, fees, and taxes to investors. Their investment performance track records are also publicly available, allowing investors to easily compare between PIE providers. This level of transparency ensures investors know exactly what they are paying for and can assess a PIE’s investment returns.
In summary, portfolio investment entities offer investors access to professionally managed and diversified investment portfolios with capped tax rates and full transparency. They allow pooling of investor capital giving small investors better access to assets. PIEs represent an easy, lower-cost way to engage in portfolio investment.