Laurence Callcut, Partner and Head of Sales at Downing, explains to GBI Magazine City Editor Neil Martin how the firm has built upon its success and is looking forward to the years ahead
The key to success for one of the sector’s leaders, Downing, has been diversity.
In addition to the firm’s core development capital activity, within the leisure, healthcare, technology, healthtech and energy sectors, it has built up its early stage ventures activity and developed its property development business.
London-based Downing was founded in 1986 by the current Chairman and Chief Executive, Nick Lewis and Tony McGing.
During 2018 the firm has built upon its previous successes and has grown all levels of investment. It has expanded into new, larger offices and staff numbers have grown to over 140.
Deal-flow in 2018 has been strong, with plenty of investment opportunities, although pricing for some transactions, says Callcut, is ‘full’. All their focus areas are experiencing growth and offer promising returns.
As for the firm’s USPs, Callcut puts it down to: ‘All round experience, a large investment team, the ability to invest in construction projects, energy expertise, healthcare expertise and being one of the UK’s most active ventures investors.’
The UK has plenty of bright and driven individuals going in to early stage companies, as an alternative to going in to the city, or industry. Couple this with plenty of new ideas and a good tax environment, and you are encouraging entrepreneurialism
There were also some changes to the schemes in the year and Laurence has some views on this: ‘The government has recognized the undoubted value of EIS and VCT schemes in supporting UK companies with patient capital.’
‘However, the limit to types of business, largely favouring tech and super-fast growth companies, may cause distortion as there is a lack of funding for many businesses, because of perceived lower risk.’
‘Limits on structuring of a deal will put the scheme at disadvantage, particularly in follow on rounds with non-EIS/VCT investors.’
‘The seven year rule is entirely arbitrary and will leave a swathe of growth companies excluded from the scheme.’
When asked if they have any fears that future government changes could undermine the schemes effectiveness, Callcut says: ‘There have been changes every year recently, which makes the scheme hard to manage. We hope for a more stable environment going forward. Brexit may offer an opportunity to reinvigorate the scheme by removing some of the EU based limitations.’
Asked if they had any suggested changes to the schemes, Callcut ticks off three: ‘Firstly, take away the seven year rule, or at least ignore a level of early sales. Secondly, allow some replacement capital, not MBOs, as companies often need some capital reorganization to capitalize on growth opportunities and thirdly, allow some funding to repay bank debt or loans.’
The conversation then turns to how EIS investments can continue to help diversify client portfolios?
‘It provides exposure to the exciting entrepreneurial environment in the UK, which has a place in everyone’s portfolio to a modest extent.’
And talking about entrepreneurs, why does he think that the UK has a strong start-up and entrepreneurial culture – what does he put that down to?
Callcut replies: ‘The UK has plenty of bright and driven individuals going in to early stage companies, as an alternative to going in to the city, or industry. Couple this with plenty of new ideas and a good tax environment, and you are encouraging entrepreneurialism.
‘You can also add in the fact that there is a technical ability based on international skill sets in the UK and there is less bureaucracy than other countries, with a flexible workforce, fewer language barriers across the world and easier access to US.’
When it comes to the adviser community, does Callcut believe they are more receptive to the schemes?
‘Advisers are receptive as they have been introduced to and become comfortable with EIS and VCT over an extended period now. The issue they face is a lack of supply. With EIS in particular it is difficult to find funds which are not dedicated to early stage businesses. There is pent-up demand from exiting ‘lower risk’ schemes where the client now has a problem matching their risk profile.’
Does he think clients are more savvy about EIS and SEIS nowadays?
‘Yes. Clients, through their advisers, have become more accustomed to these schemes and how they can be effective tools from a tax planning point of view, whilst also allowing access to investment areas they may otherwise be unable to reach.’
So are are there more clients becoming interested in the schemes?
‘As pension restrictions such as the lifetime allowance and capping of contribution levels for higher earners bite, clients are looking wider for tax efficient vehicles to use to continue building their retirement portfolios. The benign nature from an IHT perspective that Pension Funds now enjoy is also changing people’s views on how they will utilise them, perhaps looking more at preservation for the next generation. This leads to a requirement to create alternative funds to be utilized during retirement.’
There is a technical ability based on international skill sets in the UK and there is less bureaucracy than other countries, with a flexible workforce, fewer language barriers across the world and easier access to US
And how can advisers continue to educate their clients about the investment opportunities in EIS?
‘Simply by ensuring that they are part of the standard toolkit that is used when reviewing client’s needs. If they do not, someone else will.’
Does the industry needs to do more to promote the schemes to a wider investor base?
‘Probably not, as these products are almost exclusively advised, it is advisers that will be discussing them with their clients. As long as advisers are engaged and understand how the schemes can be used in a wide variety of client scenarios, then they will make recommendations appropriate to their investor base.’