WHEN THE ADVISERS MET THE EIS FUND MANAGERS

Back at the end of November, Calculus Capital kindly played host to GBI Magazine’s latest EIS Round Table session; the participants were an even even split of financial advisers /planners and fund managers/providers. The highly flexible agenda included the Patient Capital Review’s effect on EIS, investee company selection, levels of investment success and failure and how to make the Scheme work harder. The intention was for both sides to get a clearer picture of the issues and concerns that they each face.

John Glencross, CEO and co-founder of Calculus Capital, kicked off with a sobering statistic: “The UK is number 3 in the world when it comes to starting companies – but we’re 13th in terms of being able to scale them.”

He noted that in the 25 years of EIS, it had proved to be the most important source of funding for UK growth companies. Two years ago he had taken part in the Patient Capital Review and the result had been “a mixed bag – which is normal. EIS was supported, but certain abuses and misuses were addressed. VCTs were supported too – both were regarded as playing a significant role.

“What it didn’t crack is scale-up. We’re still struggling when a UK company needs £30-40m to grow, except in certain tech areas. A lot of our best companies end up getting bought, usually by Americans. That’s fine for investors, but what UK PLC needs to sort out is scale-up. Do we persuade the big pension funds to put in more? Woodford hasn’t helped there. Ask a fidelity with a small company fund, they won’t put in less than £250m.

“The Patient Capital Review closed a few loopholes around film project finance, but it didn’t do much for companies which want to continue growing but aren’t in the corporate tech bubble. Such funds are available in the US, but we’re pushed to find them over here.”

Chairman for the session was Richard Angus, Head of Business Development at Hardman & Co; he invited the rest of the participants to give a quick snapshot of their specialist areas and what they hoped to learn from the session.

Chris Sandfield, CEO of Co Investor, the fintech platform explained: “We started in the world of EIS, that’s the DNA of the business and we’re now looking at working with fund managers with VCTs. The goal is to help facilitate the marketplace to the advisors and financial planning community and fund managers and digitise the investment process.

“It’s an inefficient process to review and access research material, review the funds, invest, and the big bugbear is on the reporting of those funds. We’ve built the tech for four years to digitise the investment process. We’re looking at strategic partnerships for a complete digital universe and see how we serve the investors. The one thing we’ve done is we’ve made it free for the community. We try to work with the funds and provide the service free of charge to investors.

“There is still plenty to do, not least increasing a full straight-through process and transaction capability. We’ll soon be launching a custodian suite, so we have a safe place to operate and handle complaints, then everything else is offline. The next evolution is the end-to-end process. Every advisor and investment manager we speak to says they’ll do it if we can make it easier. How can we create that marketplace in a scalable manner?

“We can be more transparent. We can have better reporting to create a level of intelligence and trust. We believe we have the tech to serve the community, we just need to embrace the digitalization.”

Curran Anstock, Director at Tilney Financial Planning, said this was his first Round Table, “so I look forward to hearing everyone’s thoughts. I’ve been working with clients with the EIS for 4-5 years, and there is still negativity when you speak to clients around taxefficiency.

“It’s therefore about demystifying that and learning more about the actual companies and benefits of the tax advantages and how they can drive these companies. So understanding that better and showing we’re investing in real things rather than just a product with a few tax benefits. It’s about if you would invest without the benefits.”

Ketan Patel, Chartered Financial Planner at Prerak Financial Services, took over his father’s business in 2007. “I’ve got about 125 wealth clients and about 700 mortgage and protection clients. They’re not interested in buy-to-let any more, so I’m new to EIS and VCT, and that’s the next best place for them to invest. The majority of my clients have parents with 4-5 properties they’re going to inherit, so we’re looking for alternative investments and I’m hoping today will help clear things up.”

Tim McKechnie is Investment Director at S4 Financial. “We now look after about 160 reasonably high net worth clients, most have their retirement planning sorted and are looking for something more interesting. EIS and VCT are options for many of those, particularly with the pension restrictions. A number of clients have set up as angel investors and we help them with EIS compliance and do all the HMRC.

“We’ve done some EIS investment via funds; one of the questions that keeps coming up with a number of clients is many funds are set up as blind and they don’t know what they’ll be investing into. We’ve seen things where we’ve seen EIS companies, who’ve historically invested into a different area announcing they’ll be investing in regional manufacturing, so how does this translate across?

The key question is how do people select investments and how can we give the clients confidence that the investment manager has the expertise in a given area? Take the film and media space - a lot of clients will have read that HMRC have challenged the film partnerships so there is a negative perception of the sector, and a lot of clients and investors won’t invest into that area because of the history.”

Kalp Shah is an IFA with Vintage Wealth: “We’ve been going for 30 years. We primarily advise clients, mostly businesses; a lot of referrals come from joint ventures with accountancy firms in London. As a firm, we’re a cautious investor, so the majority of clients want to protect their cash. I’ve been advising on EIS for about eight years, I like them, but the appetite seems to have gone down. My role is to work with our compliance department and educate them that that tax efficient planning should be part and parcel of our advisory role, and in doing so encourage other advisers to use them more.”

Bruce Elliott-Smith is CEO of Venture2Grow: “I raise money, consult and provide deal flow for 8 EIS funds and other investment funds too. I’m also an early stage investor in the GrowthInvest Platform. I’m not normally a participant at these things, but GBI Magazine invited me.”

The CEO of We Are Nova, Andy Davidson, has built an operating model which allows the company to cofound businesses with passionate co-founders. “We’ve done 80 businesses now and we have an 80% yearon-year growth record in our portfolio. Over a 10-year period, we’ve co-invested a lot, we have some luminary investors, we’ve also co-invested with EIS funds, and about a year ago we launched our own EIS fund.

“The thinking in our business is quite disruptive and tech-backed and looks to use technology to improve operations in the sector. We’ve looked at that with EIS funds. We’re building a platform around our fund to allow us to make it easy for investors to have a broad portfolio. “We want to get to a point where an investor can sign up to invest £500 a month, have their money deployed into 50 different companies, the certificates to be generated automatically, and for the forms to be filled out and tax reclaimed. We’re trying to drive out the paper trail and make it easy to take advantage of the tax breaks out there and investing in a class of assets that can deliver returns.”

Clive Nicholas is a Director of Morgans Independent Financial Advisers and he added “we’ve been doing EIS for 10-15 years, with VCTs as well. They all fit in with retirement and pension planning, and are all part of what should be considered for high net worth individuals and we get involved with the products.

“What I’m looking to find out is how others are sourcing the market as it’s hard to find what’s out there, who’s good in what sector, what they’ve done in the past, it can be difficult. It’s not like life insurance, it’s hard to select who’s good in what sector. You have to look at promoters, then the underlying investments they go for so it can all be a bit daunting for small and medium sized IFAs.”

So, an interesting opening round. Rounds 2 & 3 will be reported later in this issue... GBI