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Fund managers predict growth of EIS as pension alternative (FT Advisor)

by Geordie Clarke

Investors looking to use enterprise investment trusts (EISs) and venture capital trusts (VCTs) as alternatives to pensions are being urged to diversify their holdings in order to mitigate downside risk.

Dermot Campbell, managing partner of Kuber Ventures, the EIS platform that launched in 2012, said because EISs are private equity investments, they have different characteristics from listed equities and have a greater risk of failure. However, he added that these risks can be reduced by choosing skilled managers and spreading the investment across several funds.

Mr Campbell said the decreased annual pension contribution limit, now at £40,000, means some investors might be looking for another tax incentivised scheme to complement their long-term savings needs.

“With EIS, there isn’t any limit to the fund size,” he said, adding that while they can be viewed as illiquid investments, the long-term nature of the investment should reduce those concerns.

Managers of venture capital trusts (VCTs) have also been promoting their funds as alternatives in recent years, suggesting high net-worth investors will consider the tax relief as attractive as a pension scheme.

“From next year I can put £40,000 into a pension, the annual limit for which is going down and down,” said Eliot Kaye, director of Puma Investments, the VCT manager.

Kaye’s firm offers VCTs that have a mandate of capital preservation, which he says offers lower risk to investors. “What’s out there that gives me the tax break but the risk is mitigated?” he said. “There is a real appetite for the capital preservation VCTs.”

 

See full article on the FT Advisor website.