Type: Enterprise investment scheme fund
Aim: Growth by investing in unquoted UK technology companies
Minimum investment: Lump sum £10,000
Closing date: April 5, 2010
Charges: Initial 5.75%, annual 1.5%, performance fee 20%
Commission: Initial 2.5%, renewal 0.5%
Tel: 020 3326 0684
Stellar Asset Management has teamed up with specialist technology manager Accretion Capital to create an enterprise investment scheme fund that will provide expansion capital to unquoted UK technology companies. Accretion Capital’s investment strategy will focus on firms with established revenue stream and proven technology, including companies trading on Aim. Accretion will invest on a three to five year view and will work with the companies in which they invest to agree on an exit strategy before any investment are made.
Hargreaves Lansdown investment manager Ben Yearsley thinks this EIS fund stays true to the intentions and spirit of the EIS legislation. “It intends to invest in small technology-based companies, but crucially these businesses have to have a revenue stream for the manager to consider them. “
He feels this is clearly a higher-risk, long-term product. “If it works, it could deliver substantial returns for investors. Stellar might a name that is less well known in IFA circles but the lead manager, Mike Bourne, has a long and successful history in managing technology investments,” says Yearsley.
He notes that Stellar has launched this as an unapproved fund to give it more flexibility of investing the funds raised. “Charges are relatively standard for this kind of product – a 1.5 per cent annual management charge and an outperformance fee of 20 per cent of net profits. “Again the upfront initial charge is relatively standard at 5.75 per cent. The IFA commission looks low at the front end at only 2.5 per cent, but it is paying 0.5 per cent renewal,” he says.
Turning to the potential drawbacks of the EIS fund, Yearsley says: “I am not sure there is anything to particularly dislike about the product. What you see is largely what you get – a higher risk EIS managed by an established manager.”
He points out that products of this type are clearly not suitable for that many clients, so they are not mass-market products. “With the increasing tax burden on the wealthy products like this, even though they are higher risk, can play a vital role in both investment and tax planning,” he says.
Scanning the market for competitors, Yearsley says: “I do not think there is any direct comparison in terms of other technology EIS funds. However, in terms of style of management and stage of company, I would say Longbow’s EIS products are competitors. There seem to be many more EIS products around this year; therefore I would urge advisers to choose carefully before jumping in and using any for their clients. Stellar seem a credible outfit, as do Longbow.”
Summing up Yearsley reiterates his previous comments about this not being a mass-market product and that investors are tied in, as with any EIS investment, for the long term. “In addition they are higher risk but obviously the tax breaks go some way to compensate for that,” he says.
Suitability to the market: Good
Investment strategy: Good