Kuber Ventures, the only alternative fund investment platform offering access to diversified portfolios and funds in the enterprise investment scheme (EIS) space, has today warned financial advisors that the EIS market will face significant capacity constraints in 2017, which will result in missed investment opportunities if investors do not bring forward their due diligence process.
Kuber Ventures have identified that recent changes in legislation, specifically those removing the ability to invest in renewable energy production within an EIS investment structure, have reduced the market capacity of investible opportunities by an estimated £500 million* for the year 2016/17. In previous years, the energy sector would account for approximately a third of the total £1.6bn** invested via EIS, demonstrating the scale of the reduction.
This, in addition to a maturing book of some £200 million*** of previous years EIS investments, the majority of which will likely be reinvested via similar EIS structures, will have a corresponding impact of capacity in the market.
To compound the issue, renewable investments have historically been seen as an extremely low-risk investment in this space. Changes in legislation mean that investors will need to undertake in-depth due diligence on alternative EIS funds, to ensure the investment meets their preferred risk profile, while still ensuring tax incentivised returns.
As a result, Kuber Ventures today warns that the confluence of these supply side factors will create pressure points in the 2017 EIS market. Investors who do not begin their due diligence and recommendation process early may struggle to find quality investment opportunities, presenting the risk of investing in poor quality assets for the EIS structure.
In addition to beginning the process earlier, advisers should consider managing the increased risks, with the exclusion of renewable energy as an asset class, of EIS investing by building diversified portfolios. This is now significantly more important as a risk management tool and focuses further on the underlying investment strategy of each EIS being considered.
Piers Denne, Head of Sales for Kuber Ventures, said:
“What we are seeing is a series of events that have combined to put severe pressure on the EIS market. With significant quantities of EIS maturing in the autumn and capacity predicted to be much tighter as a result of legislative changes in the UK, we are encouraging people to start their due diligence early ahead of the coming season. Advisers who delay in running due diligence on EIS investment houses and establishing access to capacity in the appropriate assets run the risk of not being able to secure the right assets.
“Kuber provides the only fund platform for EIS funds in the market, and we are the first company to fully automate investors’ due diligence processes – saving investors both money, and crucially in this case, time.”
The industry has joined Kuber in issuing a warning to IFAs about the importance of early due diligence ahead of April 2017. Mark Brownridge, Director General of The EIS Association, the official trade body for EIS investments, said:
“What we have seen with the removal of renewable energy investment as EIS investments is HMRC and HMT stamping their authority to reiterate that the spirit of EIS is to fund small companies and encourage growth and development in those companies.
“For advisers and investors this means their due diligence on EIS schemes needs to be more detailed than ever and that they will need to explain to clients the relationship between growth investments and risk. Removing energy investments leaves a big gap on the supply side and advisers would be well advised to start the due diligence process as early as possible so that they can formulate their recommendation strategy and ensure their clients don’t miss out.”
*Source: Kuber Ventures, based on published monies raised by EIS providers in the last tax year
**Source: HMRC, Enterprise Investment Scheme and Seed Enterprise Investment Scheme, Statistics on Companies raising funds, April 2016
***Source: Kuber Ventures, based on known maturities in the market