Venture capital trust and enterprise investment scheme providers have welcomed the Financial Conduct Authority’s decision to exclude their products from the ban on the distribution of Ucis to retail investors.
In its final guidance on the promotion of unregulated collective investment schemes, the regulator concluded that VCTs and EIS, as well as exchange traded products and offshore investment companies, will not be caught up an a ban on promotion to most retail investors, unless they are structured as Ucis.
Association of Investment Companies director general Ian Sayers says: “We very much appreciate confirmation of the FCA’s policy intention to exclude VCTs and offshore investment companies from the marketing restrictions. This is important for the investment company sector and allows ordinary retail investors to continue to access the benefits of VCTs and offshore investment companies. We look forward to working with the FCA to make sure the rules deliver this policy intention.”
Old Burlington Investments managing partner Brett Williams believes that the FCA’s decision will bring considerable growth to the EIS space, potentially reaching £2.5bn within the next three years from an estimated £800m last year.
Williams says: “Investors have been disappointed with the returns delivered by traditional asset classes in recent years and are looking at alternatives. EIS offers the potential of significant growth to portfolios and we believe that advisers will need to consider for a sizeable number of their clients. We expect that EIS will become a key part of retirement planning for the increasing number of people at or near the pension cap.”
Calculus Capital chairman of EIS fund manager Susan McDonald says: “Imposing a blanket ban on the promotion of all EIS to retail investors would have been heavy-handed and we are pleased to see that the FCA has been more measured in its final decision.
“There is arguably a place for EIS funds in the investment portfolios of a wide range of investors; as long as the risks have been properly explained to them and they understand the nature of the investment.”
Oxford Capital manager of private clients Simon Ruthers says: “The consultation process has taken slightly longer than anticipated and we are delighted by the outcome obviously it provides clarification and certainty in a number of key areas, firstly to advisers in terms of how they advise their clients.”
He adds: “On a wider footing there is the benefits to the UK economy continuing the flow of funds to smaller UK businesses.”
WH Ireland investment manager Paul Sheehan says: “We believe that there is a place for well constructed and risk aware EIS products in retail investor’s portfolios.”
Kuber Ventures managing director Dermot Campbell believes the uncertainty that has been experienced over the last six months has had a critical impact on EIS fundraising.
Campbell says: “The FCA’s announcement has finally silenced all the negative noise and the market can now start to focus on the business at hand.
“Financial advisers can have the confidence to promote EIS to suitable clients; small businesses can be made aware that there is a way to secure much needed funding; and retail investors, currently struggling to find returns, can benefit from the compelling tax incentives that EIS offer.”
Campbell says since the mid-1990s EIS and VCT have raised over £13.3bn to more than 20,000 companies and in 2012/13 financial year alone £500m was raised through EIS portfolios via the retail market.
Kuber expects the FCA’s announcement will have a dramatic impact on growth of the sector and stimulating the UK’s economy.
“It is important that the industry now starts making up for lost time, highlighting the importance of EIS to small businesses and investors alike,” adds Campbell.
Octopus managing director Guy Myles says: “In making this decision, the FCA has accepted that there’s a fundamental difference between what it considers to be risky, unregulated investment products and those it sees as being ‘higher risk’ in nature, but which already have strong corporate governance measures in place.
Puma chief executive David Kaye says: “Naturally, we welcome the FCA’s decision today not to restrict the distribution of VCTs as has been previously indicated by consultation CP12/19 ’Restrictions on the retail distribution of unregulated collective investment schemes and close substitutes’.
“VCT offers are well-understood and well-regulated – with all documentation given prior approval by the UK Licensing Authority; they have to be listed and their corporate governance structures and independent boards have to comply with the stringent listing rules for investment companies.
”We therefore agree with the FCA decision that VCTs should not be classified as unregulated collective investments schemes.”