VCT numbers have now been reported with £731M raised for the 2018/19 tax year. Whilst these VCT funds raised are broadly flat compared to 2017/18 (£728M) the EIS market is constricting.
When finally reported EIS funds raised for the tax years ending Apr ‘18 and ’19 are expected to show a considerable drop as compared to the average £1,893M per year raised under EIS over the three years up to and including Apr ‘17. Undoubtedly, this is a result of the new rules requiring EIS funds to be focused purely on growth investing with a key requirement for all investments to evidence ‘risk to capital’.
So who wins?
Despite concern around increased investment risk as a result of these new rules, there is corresponding pressure on advisers to maintain, and even increase, inclusion of EIS within their tax planning processes as their own client base continues to mature. Other legislation, such as the new pension limits, is also impacting on their options. As the leading technology provider in the sector we are seeing that together these two opposing pressures are starting to change the way advisers allocate client funds, and select managers for their panel.
Once the EIS market has settled into its new reality, advisers and investors are likely to select the managers they want to invest in based on a combination of investment focus and historic portfolio performance. Growth investing is a portfolio play and as with any investment portfolio it is not generally possible to determine the winners and losers at the outset. Advisers and investors are therefore reliant on gaining a better understanding of the investment team’s track record, and that clear and robust investment processes are followed to ensure detailed due diligence and appropriate valuations.
With all EIS fund managers now being growth investors, it is becoming increasingly important that managers differentiate their offerings, evidence their investment capability and upgrade the quality and depth of their reporting. This process will enable advisers and investors to make better allocation decisions given the inherent, and legislated, risk to capital.
To enable this, the market is going to need to be more transparent and better tools will need to be in place to aid this level of discovery. Technological advances in management software and investment platforms provide a solution for fund managers and adviser firms. Digital platforms, such as CoInvestor's, provides this functionality to better source, filter and compare fund manager offers, and both supports advisers in completing the investment and reporting process, while also discovering and engaging with a wider range of fund managers - a win for all.
Charles Owen is the Founder and Director of CoInvestor Technologies
As with all investments, the offers shown on the CoInvestor platform will place your capital at risk: Investors may not get back the full amount invested. The investments listed are unlisted companies which are likely to be harder to value and sell than quoted shares. Read full risk warning