In a recent Tax-Efficient Investment (TEI) special edition of IFA Talk, Mei Lim, Managing Partner at Anthemis, joined us to explore the role of tax-efficient investment schemes in a well-diversified portfolio.
We started by asking Mei why private assets are becoming such an important part of a well-diversified portfolio. She believes that investors should look at their asset allocation and ensure that they have clear diversification, with private markets becoming a key part of the conversation for several reasons. “In terms of long-term asset allocation, it provides quite a nice tilt towards an outperforming asset that can provide some good financial returns over a long-term horizon,” Mei said.
Investing in the UK
Zooming out, Mei cited a clear tailwind for retail investors, where the UK government are showing a clear focus in encouraging more retail investing in private markets, demonstrated through the range of available tax reliefs.
Mei pointed to the importance of investing back into the UK economy. “If they’re investing back into the economy, this has a material impact for when they retire,” she noted. “It’s really important that we start investing in the UK economy early.”
Capitalising on scale-ups and early-stage investing
Scale‑ups represent only a small proportion of UK SMEs by number, yet they punch far above their weight economically. They are responsible for a disproportionate share of job creation, productivity gains and economic expansion.
Mei described the scale-up economy as a key engine of growth but noted that we need to see more funding in this segment of the economy. “If the UK is to truly find growth in the economy, that’s where we should be disproportionately putting more capital into these types of companies,” she added.
Mei believes that early-stage investing has “a bit of a Marmite reaction” from individuals, noting that some view it as a bit of a roulette game. However, she added that venture investing is a thoughtful process, which requires a great deal of due diligence when sourcing quality companies.
“It’s important for investors to have a small allocation into this space as part of a diversified portfolio, because they can get an outsized financial return from investing in these innovative technologies,” she noted.
AI as a catalyst
Mei outlined Anthemis’ focus on AI, which has become a major effort across the industry. Mei sees a lot of potential for AI to boost productivity and efficiency, making advisers’ lives easier.
She pointed to Anthemis’ platform, Common AI, which provides the essential toolkits for a start-up looking to build a company within the AI space. “Common AI aims to provide all of those essential bits that you would need to build up your company, but on a fractional basis, so it’s much cheaper” she said. “We want to level the playing field and reduce the barriers to entry.”
Mei noted that Anthemis have received plenty of support from the government on this, with it being an area that the UK Government want to see more investment in. “The UK Government is clearly keen to support this area and to retain a lot of that innovation within the UK,” she added. “It’s becoming a little bit of an arms race with the UK creating their own technological capabilities, so it’s really important that we start investing now, because it’s very easy to be left behind.”
It’s clear therefore that domestic investment is essential. Mei stated that geopolitical uncertainty only accentuates the importance of having your own technological know-how, a fact which is true across a range of sectors. “The audience out there will be alive to that, but it’s really important that we retain a lot of that know-how within the UK, just so that you’re in control of your own destiny,” Mei said. “You’re not subordinate if you’re reliant on other countries for that technology.”
Mei added that AI is going to be a key area to retain that sovereignty, adding that AI is more than just a sector. “At the heart of it, AI is an infrastructure layer that runs horizontal, supporting all of these really important sectors in the UK,” she advised. “It’s going to be a key engine of growth for the UK.”
Geopolitical uncertainty
And despite the geopolitical tension we’re currently seeing, Mei reassured us that it hasn’t necessarily increased the risk of tax-efficient investment schemes such as EIS, SEIS and VCTs. “I think investing appropriately in the right types of companies de-risks it,” she said. “There are a number of tailwinds that make investing in innovative companies the right thing to do.”
She expanded on this, reiterating the UK Government’s intention of promoting technologies such as AI, along with defensive sectors like energy, healthcare and financial services. “Having an allocation in these sectors is a good way to have exposure to areas which will play a fundamental role in promoting growth in the UK,” Mei added. “Whilst people think that venture is risky, I don’t think it’s risky to take a bet on where long-term trends are playing out.”
Focus on private credit
Mei concluded by discussing private credit, which she described as “an area of focus” within private markets. She revealed that private credit is being viewed as a route in for investors to have exposure to venture, but in a de-risked way where private credit is structured. “You get security and collateral as well, and you get more visible cash returns over a fixed period.” Mei said. “For some investors, that’s a really nice way to get financial return exposure to that asset class of early innovative companies.”
Conclusion
As the investment landscape continues to evolve, tax‑efficient schemes such as EIS, SEIS and VCTs are playing an increasingly important role in helping investors access private markets in a measured and diversified way. As Mei highlighted, long‑term trends point to a compelling opportunity to back innovation at home while generating attractive returns.
The full episode is available to listen to via our website, as well as Spotify, Apple Podcasts, and Amazon!
You can read this piece and more in ‘Reform, risk and opportunity: the new tax-efficient investment landscape‘, the latest issue of Tax-Efficient Investment (TEI) Magazine!
