Dispatches from the sector’s front line
Amersham Investment Management
SEIS and EIS investing in Q1 2020 was, like practically every other sphere of economic activity, severely impacted by the consequences of the Covid-19 pandemic. S/EIS investing has become in recent years less centred around the tax year-end, with closes arranged by investment managers in this sector throughout the year, for example in biannual or quarterly closings. Nonetheless, the tax year-end remains a significant hard deadline in the fiscal calendar by which many investors seek to ensure deployment of their allocated funds in order, especially, to benefit from the opportunity to “carry-back” their tax reliefs to the previous tax year, SEIS in particular remaining a specialist ‘passion-centred’ investment
At the time of writing (April 2020) it is too early to infer any hard, detailed industry-wide assessment for S/EIS but anecdotally most managers known to this firm have had deployment plans affected quite seriously.
In our case we also found that expected inflows for deployment came under pressure, not to the extent that deployment was jeopardised but that additional criteria for investment had to be considered in investors’ best interests, as always.
Our firm, focussed wholly on the S/EIS sector, will always seek to meet challenges and keep investing as subscribers have trusted us to do in their tax-advantaged allocations and of course we remain open, working remotely.
In some respects it remains too early to assess the true impact of the coronavirus pandemic on our industry, and to understand the effects it has had on fund managers, fundraising and distribution, and of course the health and longevity of investee companies across the UK.
The real impact on the overall tax year was only really seen in March, rather than any earlier, and so whilst we saw some impact on the usually busy last few weeks of the tax year, by that stage many of our advisers and clients had already made their tax-efficient investments. However, while we continued to see growth within our own business during the 2019-20 tax year end period, we are aware that fund managers across the market have struggled to raise and deploy assets, and it appears that figures are significantly down on the same period in the 2018-19 tax year. We are also conscious of the high number of start-up companies that have been forced to make drastic changes to their headcount and draw back their revenue-generating activities.
As Haatch is a relatively new fund we were, in some ways, fortunately positioned to weather this current storm simply because we weren’t expecting a vast tsunami of tax year end EIS funds to land in order for us to meet our targets and drive our business forwards. We run our funds very much in the same way we expect our invested companies to be run – lean and prudently with 12 months plus of runway and agility to spare.
It’s because of this that we see the future more brightly than most and while the pandemic has certainly sharpened our focus on certain industries a little more than before our approach has changed little. We remain committed to investing in digital pioneers and disrupters at an early stage and we are certain that they will be well placed to grow throughout the coming recession.
EIS subscriptions were up 94% year on year (£4.5m v £2.3m), though starting from a low base.
Investments from the Par Investor Network were down 18% year on year (£5m v £6.1m)
We estimate that between £0.5m and £1m additional subscriptions were lost as a result of C-19, but as all our investment opportunities were fully subscribed by the end of the tax year, this would have been used to invest in the new tax year.
Of course, some of our portfolio companies are hurting in the face of C-19, but others are capitalising on the opportunities that it brings. The majority are technology companies that are continuing to develop well and cut through the noise.
Overall, we are optimistic about the outlook for both our portfolio and fundraising.
First and foremost we are a technology company and our very DNA is within the tax efficient market. As such we were incredibly fortunate to be able to transition to the new normal and work from home without any business continuity issues. Working closely with fund managers, investors and advisers we felt keenly that the industry as a whole was not so fortunate; the timing of the pandemic could not have been worse for the tax year end investment cycle and we have been working hard with all sides of the market to ensure our digital market place, the CoInvestor platform, is able to deliver a solution in these extraordinary times.
Looking ahead we are also working with a high number of fund managers to list single company deals from their portfolios on the platform. Should these be at fair value then the ever-increasing number of HNW investors (and elected professional or sophisticated investors) using our platform will be able to invest in the funds themselves as well as support individual companies. We see this as an opportunity for all.
Hardman & Co
One of the consequences of the current financial crisis is that it has become much more challenging to value many private companies, including those within EIS funds. The world has changed, stock markets are down, and funding has suddenly become less plentiful at a time when many businesses really need liquidity.
The ability to value many companies is particularly important to provide a ‘fair value’ assessment when undertaking a transaction or valuing portfolios.
Hardman & Co has been involved in private company valuations for several years. This includes significant experience in working for funds administrators helping to establish fair values for private companies held in daily-priced investment funds. Our expert team of analysts bring their knowledge of real-world circumstances to underpin the valuation computation derived from accepted industry practices and methodologies.
Hardman & Co is now bringing this expertise into the EIS market, to help ensure that there is fair value for investors, managers and the companies themselves.