Make Hay Without The Sun Shining
Where will investors and advisers look for safety now that renewable energy is no longer a viable home for EIS money? We talked to James Ramsey, EIS product specialist at Puma Investments and a former financial adviser, who warned investors to move fast this year.
Government price support and an increasing number of successful solar exits meant that renewable energy was yet again the top sector for EIS inflows last tax year. Whilst there was movement toward anaerobic digestion and hydro projects rather than more established solar and wind, the appeal to investors was clear. The rule changes of 5th May have pulled these out of the realm of the EIS though, so where should investors and advisers look for EIS-qualifying capital preservation now that renewables are no longer available?
One option is Puma EIS, a discretionary investment service from Puma Investments. Puma is known for being a traditionally lower-risk manager and has employed asset-backed strategies since first entering the tax efficient space in 2005. Puma EIS grew out of the class leading series of Limited Life Puma VCTs and offers a similar capital preservation mandate.
What are the issues this year facing advisers who are looking to secure EIS tax reliefs for clients with underlying capital preservation requirements?
The disqualification of the various renewable offerings is the obvious gap in the market this year. With the majority of advised investments being directed to renewable energy projects last year advisers will need to do their strategy selection research early this tax year as they will need to understand the alternatives available and be comfortable that they have appropriate capital preservation and risk mitigation built into their strategies. If they don’t get started now, they might find that the limited options available have filled up.
So there’s a risk of a rush into the more established strategies?
Absolutely. Renewables focused EIS and VCT products took in around £386.7 million last year – that’s a lot of extra demand to be swallowed up by the market. I can see several product providers hitting their maximums much earlier in the tax year than normally expected.
This is traditionally a quiet part of the year for advisers recommending EIS, but is actually the ideal time to be lining up your strategies, especially if you are working with those product managers such as Puma who have a track record of delivering EIS 3 certificates quickly – these strategies will be especially sought after in the marketplace.
So what capital preservation products are emerging to replace renewables?
In place of renewables there are a number of options opening up include, pre-contracted film and TV deals, ex-UK solar project, and emergency electricity generator schemes. At Puma Investments, our Puma EIS service is designed to offer the protection of real-estate backing, whilst giving investors exposure to the earnings of operating businesses with excellent management, together with the full EIS reliefs. We look for predictable revenue streams, solid counterparties, the security of tangible assets and realistic exit expectations. This is a simple evolution from the strategy we’ve employed for our class-leading series of Puma VCTs since 2005.
What are the other factors outside of strategy that advisers should consider when selecting EIS investment?
There are a number of factors that advisers have to consider when choosing which EIS schemes to invest their clients into:
- EIS 3 certificates: specifically how quickly a company can produce the HMRC-certificates to prove the company and investors qualify for tax reliefs.
- Allotment timing: how quickly allotment of shares and issue take place
- Trading speed: how quickly can the company trade to make the most of investments
- Realistic exit expectations: while companies should of course be aiming for investment growth, client expectations should be realistic.