Shane Gallwey, Head of EIS at Guinness Asset Management, talks to GBI Magazine City Editor Neil Martin about the firm’s approach to EIS investing
Guinness Asset Management’s approach to EIS investing has been welcomed by investors and their advisers for giving them a clear steer on what is anticipated for their portfolios and when to expect their subscriptions to be invested.
Guinness has two generalist EIS funds. The Guinness AIM EIS is focused on AIM-listed companies, whereas the Guinness EIS is focused on private growth companies looking for scale-up capital.
The firm closes tranches at regular intervals throughout the tax year, investing each tranche into a minimum of five companies across a range of sectors.
And the team intends to continue with this approach to generalist EIS investing for the 2018/19 tax year and beyond.
Shane Gallwey, Head of EIS at Guinness, explains: ‘Guinness has been able to give investors a sense of what the next tranche will look like by having a well developed pipeline of potential investments in place while funds are being raised. This approach has allowed the firm to offer visibility on when investmentswill be made, which has been welcomed by investors and their advisers.’
Guinness continues to grow, with 34 people now in the London office. And the Guinness Best of AIM product was launched in late 2017, which uses the stock screening methodology of the Guinness quoted fund range to select a portfolio of Business Relief qualifying AIM stocks.
I ask Gallwey for their views on the government’s recent changes to EIS.
‘The government has long wanted to refocus EIS on growth businesses, and away from capital preservation strategies and areas that were felt not to be in the spirit of the legislation. The recent risk-to-capital changes have been designed to deliver that refocus, and I believe have been effective.’
Given that, do they have any fears that future Government changes could undermine the schemes effectiveness?
‘I believe that the current rules are effective in focusing investment where the Treasury wants it to go. I therefore don’t envisage the present Government making additional changes. Whether that applies to future Governments, I couldn’t say. Past Governments have proved unable to resist the temptation to tinker with EIS, and the EU’s State Aid rules has forced additional change.’
So if you could influence changes to the schemes, what would you suggest?
‘The Guinness AIM EIS is one of the few ‘approved’ EIS funds on the market. There would be many more if the approved EIS fund structure was more user-friendly for investors. The current legislation means investors only get their tax relief once the fund is more than 90% invested. I would be minded to change this to allow investors to claim their tax relief up front for approved funds, which would make them more popular.’
How can EIS investments continue to help diversify client portfolios?
‘EIS investments are venture capital and as a result a different asset class to quoted company investments. They are usually uncorrelated with other investment classes and therefore can provide a useful diversification for client portfolios.’
So are advisers more receptive to the schemes?
‘Advisers are increasingly using EIS as part of the financial planning landscape for their clients. It is obviously only suitable for a certain type of client, and priority in financial planning is more often than not on pensions and ISAs before looking at investment opportunities like EIS.
And are clients more savvy about EIS and SEIS nowadays?
‘Our clients are often serial investors and are familiar with the advantages and drawbacks of EIS as an investment.’
Are there more clients becoming interesting in the schemes?
‘The amount of funds being invested into EIS qualifying companies has grown over the years, and recent data from HMRC shows that 3,470 companies raised a total of £1.8 billion of funds under the EIS scheme in the 2016/17 tax year. For Guinness, we have seen investment in the last tax year grow to £50 million into our EIS funds.’
The amount of funds being invested into EIS qualifying companies has grown over the years, and recent data from HMRC shows that 3,470 companies raised a total of £1.8 billion of funds under the EIS scheme in the 2016/17 tax year
How can advisers continue to educate their clients about the investment opportunities in EIS?
‘There are a wide variety of investment opportunities in the market and advisers research these before compiling a short list, or ‘panel’ of their favourites to offer to clients. Many advisers ask us to talk them through our investment pipeline so they can give their clients a flavor of what to expect from an investment portfolio such as Guinness.’
And does the industry need to do more to promote the schemes to a wider investor base?
‘The industry needs to be careful that EIS offerings are only promoted to those investors that it is appropriate for. This is where advisers play such an important role, in ensuring it is appropriate for their clients and that clients are aware of the risks.’
Has the continued confusion over Brexit affected the future of EIS?
‘Entrepreneurs are still forming businesses and looking to raise capital, and investors are still interested in making EIS investments. The ongoing uncertainties of Brexit are likely to have dampened this to some degree, but growth companies in Britain are still thriving.’
Guinness see any clouds on the horizon, such as trade wars, slowing global economy and, interest rate rises, that might spoil the party?
‘All these may have a negative effect on investor appetite for making EIS investment, but provided the benign environment for growth companies in the UK remains, and investors feel they are well serviced by the EIS funds available to them, I expect appetite for EIS to remain undiminished.’