Positioning EIS as Private Equity component of a portfolio

Private equity is investment in unlisted securities which means that the investments are in private companies that are not traded on a recognised stock exchange. There are pros and cons of this but private equity as an asset class can offer significant rewards.

The attraction of private equity is that your investment goes directly into companies who deploy the capital to expand and grow. This differs from investment in listed securities because with listed investments, you are not investing capital directly in the company, but, buying shares from someone else so your investment will not provide the company with new capital to help it grow.

It is important to carry out detailed due diligence on investments. Skilled investors will be able to get a very good understanding of a company they a considering investing in, however this requires painstaking analysis and research but the rewards are there. It is very important that an investor gains a proper understanding of each investment before proceeding.

The investments are not listed on a stock exchange which means it can be very difficult and sometimes impossible to sell a position – in other words, the investments are illiquid. For these reasons, you should not invest unless you are able to commit your capital for the medium to long term.

The benefit of using Discretionary Managers

A discretionary investment manager will often take an executive or consultancy role in companies that they invest in, working with the management to secure a successful exit on your behalf. If you are only a minor shareholder, you will not have much influence on the company and strength in numbers is often a good idea.

Angel Networks and Crowd Funding Platforms

Angel networks and crowd funding platforms offer a collective approach to investing by pooling the knowledge, experience and resources of members to complete the due diligence process. Crowd funding platforms may collate due diligence on behalf of investors and in some cases validate the source. With both angel networks and crowd funding platforms, you need to gain confidence in the decision making process and verify the source of the data which you are making a decision on. You should be aware that both angel networks and crowd funding platforms are not normally regulated by the Financial Conduct Authority (“FCA”).

Conclusion

Governments offer many tax incentives for private equity investors as they recognise that private company growth drives the economy. This is particularly true in the current economic environment and the UK government has introduced some very significant incentives to encourage investment in the last couple of years in a bid to replace bank funding which has dried up since the credit crunch.

Private equity as an asset class offers you a unique way of investing, with the potential for exceptional tax efficient investment returns. Creating a well-diversified portfolio with carefully selected discretionary managers is the key to success. Kuber Ventures offers a way of investing that allows you to create diversification in a manageable way, reducing the cost of investment and providing you with a host of valuable services.