AIM Report 2019

54 55 BY PRODUCT TYPE According to MICAP, as of June 2019 there were 33 open AIM offers on the market, of which all but two were for BR products, while those remaining were both for EIS products. In recent years, VCT has been by far the most popular product to be launched. Since November 2016 there have been 12 VCT products launched, with the remaining five in that period being BR products. All of the offers launched in the 12 months to June 2019 were VCT offers, but all closed before June 2019. That means all of the currently open offers - mostly BR with two EIS - are historical, having been launched over a year ago, which suggests VCT managers still see a use for AIM albeit for a short window of opportunity for investors (which is not unusual for VCTs). Meanwhile, there has been a break in the launching of new EIS and BR offers, both of which tend to stay open longer. Of the 61 AIM focused tax-advantaged offers ever launched, 34 have been BR offers, 22 VCT offers and just 5 EIS offers. Given that EIS and VCT have broadly the same rules in terms of qualifying companies, it may be surprising to see the disparity between the number of products available for the two. However, part of the answer to this could be that, as VCTs are listed vehicles themselves, they are more comfortable with quoted companies. Marcus Stuttard, Head of UK Primary Markets & AIM at London Stock Exchange, has referenced this, saying that VCTs act as ”important crossover and cornerstone investors”. He added that companies will often raise VCT finance ahead of an IPO, with the investment putting them on a good footing to make the jump onto AIM. Meanwhile, the lack of BR offers launched since December 2017 may again be down to the uncertainty over IHT following the OTS review - although Stuttard underlined that the report does acknowledge the government’s commitment to protecting the important role that BR plays in supporting growth investment in AIM. BY STRATEGY Of the 33 open offers available, 69% have Growth strategies, while the remaining 31% have Growth & Income strategies, which distributes dividends back to investors. This is an increase for the use of the Growth & Income strategy, underlined by the fact that since 2018, the five products launched into the market, which are no longer open to investment, all followed Growth & Income strategies. All AIM-based VCT offers have a Growth & Income strategy, which of course is in keeping with their ability to issue tax-free dividends. However you slice this particular pie, what is clear from the strategies is that there is a laser-like focus on growth, highlighting once again that AIM-quoted tax efficient investment offers are perhaps most suited to those investors who are more willing, and have greater capacity, to take risks with their money. Highly risk-averse individuals who are seeking to preserve their wealth and dislike volatility should look at different tax efficient planning options outside of AIM. BY INVESTMENT TYPE Of the 33 open investments on offer, there are two investment types available: Discretionary Portfolio Services and Alternative Investment Fund (AIF). The main difference between the two investment types is that for an AIF, the manager needs to complete an appropriateness test on the investor, whereas a suitability test must be completed by Discretionary Portfolio Services managers. The appropriateness test, which is to check that the client has the necessary knowledge and experience to understand the risks involved with the investment, is less onerous than the suitability test, which involves identifying and understanding the client’s financial background and needs. While this might suggest becoming an AIF should be more popular with managers, the process involved and the administrative and reporting burdens for the manager may cancel out the benefits of less onerous investor checks. Historically, of the 61 products in this space, 55.6% have been Discretionary Portfolio Services, while the remaining 44.4% were AIFs. Of the open products, however, only one offers the AIF. OFFERS BY PRODUCT TYPE EIS BR VCT Historical offers Open offers OPEN OFFERS BY STRATEGY OPEN OFFERS BY INVESTMENT TYPE GROWTH ALTERNATIVE INVESTMENT FUND GROWTH & INCOME DISCRETIONARY PORFOLIO SERVICE AIFs were brought in through the Alternative Investment Fund Managers Directive in 2013. At that time, some managers may have looked to establish AIFs, which promised to enhance supervisory practices to prevent market instability and improve investor protection by requiring enhanced transparency. However, a number of fairly demanding requirements were also introduced by the AIFs, including requiring some fund managers that already hold a permission to manage investments to be re-authorised, as well as introducing new EU-wide ‘passports’ to market and manage AIFs. It may therefore be that the benefits of AIFs proved to be outweighed by the additional requirements placed on managers and as a result many have reverted to Discretionary Portfolio Services. BY SECTOR Tax efficient products focusing on AIM investments are generally agnostic when it comes to the sectors in which they invest, and all products ever captured by MICAP have stated General Enterprise as their investment sector. However, as we have seen earlier, there remains a wide variety of sectors covered by the underlying companies that are listed on the AIM market. “Portfolio diversification is vital when investing in AIM.” — JONATHAN GAIN, CHIEF EXECUTIVE, STELLAR ASSET MANAGEMENT 6% 94% 12% 13% 75% 69% 3% 97% 31% Industry analysis / Quantitative analysis Industry analysis / Quantitative analysis