On the back of the latest pension reforms, Octopus Investments has decided not to launch new fundraises for its existing EIS product range as it focuses on growing its VCTs on the back of increased demand from advisers.

Octopus said in a statement: “We’re seeing a lot more demand for our range of VCTs on the back of the latest pension reforms as more people look for complementary tax efficient solutions to support their retirement planning. We saw record breaking inflows into our Octopus Titan VCT, which is the largest VCT in the UK investing into some of the UK’s most exciting early stage companies, over the most recent tax year end period. With demand on the rise, it makes sense for us to focus on growing our VCT products. We have no immediate plans to undertake further fundraising into our existing EIS products but will continue to review EIS qualifying investment opportunities.”

The company will stop accepting new applications for its Octopus Eureka EIS product from 13 May and will not be opening a new tranche of its Octopus EIS in the foreseeable future.

Octopus is the largest provider of VCTs and EIS in the UK. It currently has more than 7,000 EIS investors and manages more than £500 million in its EIS products having been offering EIS products in 2004. The company said that it continues to remain an active investor in the EIS market as it continues to deliver on its commitments to its existing EIS investors.

However, its fundraising focus from now on will be on its VCT products, which have had a hugely successful 2015-16 fundraising season.

It seems that as a result of the increased popularity of these offerings Octopus is shifting its emphasis in tax-efficient investments and will be focused on VCTs rather than EIS – at least for the foreseeable future. Octopus did tell us that the door will remain open for to offer EIS investments should the right opportunities arise.

The recent changes in legislation have meant the government is focusing future EIS and VCT investment into smaller, earlier stage entrepreneurial companies.

Octopus commented: “The latest changes to the EIS and VCT legislation demonstrate the government’s focus on helping early stage UK companies, which our VCTs are well positioned to support. It feels like it’s the right time for us to focus on growing our VCTs rather than expanding our EIS products.”

Importantly, readers should note that the decision has no impact on current investors. Octopus was keen to emphasise that there will be no change to the focus and commitment they put into the ongoing management of existing EIS investments, or their service to advisers and investors.

Guy Tolhurst, Managing Director of Intelligent Partnership commented: “This is the biggest change in response to the new tax-efficient landscape we’ve seen so far, and it’s interesting that it has come from the biggest player in the market. It’s a mature reaction to the new legislation, and demonstrates that they are not simply interested in asset-gathering for the sake of getting more funds under management and they view their VCT as the best way to invest in early stage companies.”

Over the last six months we’ve seen other providers have responded to the changes by launching more specialist EIS funds focused on growth and investing in non-contentious assets, but this is the first time we’ve seen a deliberate tilt away from EIS and towards VCT, which as a sector has traditionally raised much less than EIS.

It’s going to be interesting to see what impact the closure of these funds has on fundraising for the 2016-17 tax year, and if overall EIS fundraising drops, or if another provider can capture more market share.