Rockpool EIS Portfolio Service

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Growth capital and management buyouts across a wide spread of sectors

Overview of Rockpool’s EIS portfolio service

Rockpool’s EIS Portfolio Service makes it easy for you to build a portfolio of unlisted equities, using the Enterprise Investment Scheme to enhance returns and reduce risk.The Service is designed to be tailored to your needs. You decide how much to commit to your portfolio and how widely you want to diversify your investment. You can also choose between three investment strategies, designed to deliver a range of risk and return. You can change these options at any time, in line with our aim to make Rockpool’s EIS Portfolio Service the most flexible route to tax-efficient investing.

We select companies for your EIS portfolio, investing in businesses in a wide range of sectors and at every stage of their development. Our typical EIS investment is £2-5 million of equity into a well-established business with good growth prospects. We guide the companies through the whole process from investment through to exit, and we report to you regularly on their progress. Rockpool is committed to giving investors and advisers the tools they need to better understand the Enterprise Investment Scheme. That is why we sponsor a specially designed website, which you can find at www.EISGuide.info.

We do not ask you to commit to a rigid fund format and we don’t charge you any upfront or annual management fees. Rockpool creates tax-efficient alternative investments for a network of very high net worth individuals. We call this the Rockpool Network. Our Portfolio Services enable a wider audience of private investors to co-invest alongside the Rockpool Network.Many members of the Rockpool Network are successful entrepreneurs, who have made money themselves and know what works. They join the Rockpool Network to share deals and experience and to tap into our flow of attractive unlisted companies. We don’t invest in any opportunity unless Rockpool Network members decide to invest. This informs our decision-making with an enormous breadth of experience truly focussed on the long-term success of the target company.Over the last 10 years, members of the Rockpool team have helped 950 entrepreneurs and other high net worth individuals invest £220 million in unlisted opportunities and built one of the UK’s largest tax-efficient private equity businesses. Team members have more than 50 years of unlisted company investing experience, gained at 3i, NatWest Private Equity, Foresight and Hotbed. Rockpool’s investment committee includes 2 successful entrepreneurs and an ex-managing partner of Ernst & Young. Our chairman has managed several successful fund management businesses.

Investment Strategies

There are three investment strategy options. Investors can choose one or combine them.

Exciting Growth: Designed for investors who see value in smaller companies and are prepared to take more risk in pursuit of higher growth potential. Exciting growth opportunities typically arise when ambitious businesses come to a moment of change. They need capital to establish or cement a competitive advantage, which could multiply investors’ capital by 3 times or more over a 5 year period. With full EIS benefits, this would translate into tax-free compound annual growth of 34% or more. The focus is on capital gains, so exciting growth investments do not usually pay dividends in the first 3 years. Investment returns often depend on a sale of the company, so timing is hard to predict. The average hold period is likely to be 5 years, with some investments exiting sooner and some later. Exciting growth may include start-up companies, but our intention is that most companies will already have significant revenues and will be profitable or close to profitability.

Next Generation: Maybe you’re thinking of putting part of your wealth aside for your heirs, but you don’t want to lose control of your assets. The exciting growth strategy might be too risky for this part of your portfolio. Next Generation investments are typically shares with preferential dividend rights in companies which Rockpool believes offer a lower risk profile, based on factors such as consistent profitability, a strong balance sheet or contracted revenues. The focus is on preserving the real value of your capital and saving 40% inheritance tax. A dividend yield of 5% will normally be targeted, equivalent to a pre-tax yield of 7.1% on net cost for an investor who obtains full EIS income tax relief when investing.

Exit Focus: This strategy is designed for investors whose focus is on a predictable exit as soon as possible after the 3-year minimum holding period. Assuming that an investment is sold at cost after a 3.5 year hold period, the 30% income tax relief alone would deliver a 10.7% compound annual return. As with Next Generation investments, Rockpool often uses shares with preferential dividend rights to reduce risk, whilst selecting companies with a lower risk profile. A mechanism is built into each investment to incentivise the company to deliver an exit for the Exit Focus shares during the 4th year. The focus is on the total return at exit, rather than dividends. Our aim is that investors should receive proceeds of between £1.10 and £1.20 per 70p of net cost, equivalent to between 13.8% and 16.7% compound annual growth respectively.

Examples of Planned Investments

Exciting Growth Strategy: A specialist installer of commercial kitchens, which also manufactures some bespoke equipment and provides maintenance services. Since 2010 a new management team has grown sales by 80% to £18 million, with profits rising to £1.3 million. This team is now buying the business, investing £250,000 personally to support their plan to double sales over the next 3 years. Rockpool investors are providing £3 million, including £800,000 of EIS-qualifying shares. Assuming that the business is sold after 3.5 years at a valuation representing 5 times profits, proceeds to investors in the shares would be around 5 times the net cost of investment.

Next Generation and Exit Focus Strategies: A company set up to build and operate a crematorium. Freehold property backing and predictable profits make this an attractive business for investors with lower risk tolerance. Investors will receive shares with a 5% fixed dividend plus a share of any upside. The company will offer to buy back shares at the end of the 3-year EIS minimum hold period, giving Exit Focus investors an opportunity to realise their investment with profits. Next Generation investors will be able to keep their capital invested to take advantage of potentially rising income and freedom from inheritance tax.

Please refer to www.rockpool.uk.com for further details.