John Glencross, Chief Executive of EIS and VCT specialist Calculus Capital, reacted to press reports that government changes to the rules for tax-efficient schemes such as EIS and VCT are expected to receive Royal Assent tomorrow (Thursday 8th March) to bring them into law.
He said: “The Treasury has made it very clear that this is the end of the road for tax-motivated, low-risk investments that are ‘capital preservation schemes’. The Treasury estimates schemes like this accounted for over half the EIS market.
“This is a positive change for the tax-efficient space, where money will now have to be focused on investing into genuinely entrepreneurial growth companies. Calculus has always been a growth investor working within the spirit of the legislation. It’s going to become more important for advisers to look at the experience and history of the manager they are considering and their record in growth company investing, which is a very specialised area.
“Providing asset backing isn’t the only way of mitigating risk, a thoughtful and considerate approach remains integral to a successful investment process. That means carrying out thorough due diligence and active portfolio management by an experienced private equity team with a relentless focus on driving a successful exit, this has always served our investors well.
“It’s not just EIS that will be affected. We understand that there’s also going to be more pressure on VCTs to invest a higher percentage of their funds into growing companies – the minimum is going up from 70% to 80%, with the rest in low-risk cash deposits – and to invest it faster. That may cause a problem for some VCT managers because there have been some very large fundraisings recently that will now have to be invested more quickly than the managers might have expected, so the pressure on them to put the money to work will increase.”
Calculus’s recent investments include Open Energy Market, a digital platform for commercial energy contracts, and African-focused marketing services company, Every1Mobile, whose clients include commercial customers, governments and NGOs.