EIS ISN’T DEAD, IT’S GONE
BACK TO ITS ROOTS “Reports of my death are greatly exaggerated,” famously quipped Mark Twain, and that could be true regarding EIS, according to Andrew Aldridge of Deepbridge Capital.
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henever there is significant change within a sector or industry, there will always be those who might consider it to be bad news for those active within it, particularly when that change fundamentally shifts the market and causes a significant number of players to adapt. Also, when that change comes from the Government and where there are a large number of stakeholders whose operations do not match the requirements of those changes, then you might also think that this could signal the end for many of them. That has certainly been a potential view of the EIS sector since the launch of the Patient Capital Review and the subsequent Government-led changes that eventually became legislation last year. However, while the EIS sector is undoubtedly changing and has moved away from its pre-Patient Capital Review self, our own view is that scepticism around EIS as a financial planning tool in this new environment has not just been “greatly exaggerated” but is very far from the truth. THE ‘NEW’ EIS WORLD First of all, I think it is important to acknowledge that there is some evidence to suggest that certain organisations are struggling with this ‘new’ EIS world – which ironically is a return to how the scheme was initially envisaged. The sector has recently made headlines in a number of ways which perhaps outline the difficulty some have had in developing an EIS proposition that might have worked a few years ago, but is not going to work now.
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GB Investment Magazine · June 2019
For instance, we’ve seen news around some providers withdrawing funds, others have apparently begun consulting on redundancies, while others have said they were not able to deploy EIS funds in the 2018/19 tax year. And, for those that might not keep a close eye on the sector, this might lead them to the conclusion that the entire EIS market is suffering. But, again, this is far from the truth and our opinion of these announcements is that they are specific anomalies and are not in any way a reflection of the industry as a whole. Let’s, however, not be under any illusion that certain providers have needed to change, and it may well be that they have been unable to cope with a new set of rules which introduced the risk to capital condition on their funds, and that effectively removed any remaining ‘capital preservation/asset-backed’ EIS propositions. For providers which exclusively operated in this part of the EIS market, then they have probably had to make a number of hard decisions. Could they truly move into the type of EIS investment sectors that Deepbridge has always specialised in, such as disruptive technologies and life sciences, for example? It’s one thing for providers to suggest they are acting in the spirit of the EIS rules, it’s another thing altogether to piece together a proposition which abides by the new rules and also offers a compelling investment opportunity. The recent troubles displayed by a number of providers appears to show that, for some, bridging that particular gap has been problematic.
