" The new reality for many investment managers will be far different to what they have previously experienced."
Of course, just being an investment manager doesn’t mean the inflows of investment are guaranteed; indeed, in the EIS/SEIS sectors we find ourselves in an interesting position given that many investment managers, and the propositions they manage, will be under plenty of scrutiny, especially as the Finance Bill – which includes the Chancellor’s changes for our sector as announced in last November’s Budget – draws towards being given the Parliamentary seal of approval.
You may have seen some recent media coverage about the Finance Bill itself, and the changes it will usher in for EIS/SEIS managers, particularly focusing on those schemes and sectors which will not ‘make the grade’ in the new environment. The Finance Bill received its Royal Assent on the 15th March and it delivers a very different EIS/SEIS landscape for the 2018-19 tax year. The changes to be ushered in have been widely discussed and deliberated on, however it’s worth reiterating that the new reality for many investment managers will be far different to what they have previously experienced.
Those managers who have focused on capital preservation schemes will have to reassess the sectors and companies they choose to invest in, if they are to maintain their EIS/SEIS position. They may also decide to look towards ‘knowledge intensive’ businesses, which have the potential to deliver large growth in sectors like technology and life sciences, but also come with a far greater degree of risk than they will be used to offering advisers and their clients. This is a veritable sea-change in investment profile for many managers and it would not surprise me to see some of our peer group seriously considering their options if they lack appropriate experience and knowledge to be able to deal in such sectors and offer EIS opportunities in the new world.
It could also follow that advisers might well conduct due diligence and decide that inexperienced operators, with no track record in qualifying sectors such as technology and life sciences, are not going to be the best place for their client’s money. Since the Budget announcement, we’ve already seen a number of peers attempting to reposition themselves as ‘tech experts,’ despite their historic investments having tended to be focused on ‘asset backed’ opportunities which may no longer qualify for EIS.
What all this promises to do is make the ensuing 12 months, and beyond, very interesting for our sector. Indeed, I think it’s fair to say that we could see some seismic shifts in the type of managers that are active, and the range of investments they are willing and able to make.
There may still be something of a ‘get it while it lasts’ mentality at present as some investors seek the same type of investments that can no longer make the grade post-Royal Assent. However, the future will be very different and require a new perspective and mentality about what works and what doesn’t – from our side of the street it’s a very exciting moment for our industry and one that might take some time to get used to, but will ultimately still be very rewarding for those that know what they’re doing.
There has never been greater demand for EIS opportunities from advisers and investors, and it should be reassuring that the Chancellor has very publically backed the EIS as an initiative. Advisers and investors should also be reassured that there are a number of very capable investment managers who have the skills and experience to provide potentially compelling growth-focused EIS propositions which adhere to the new qualification criteria and the overall ‘spirit of EIS’.
