57
This is also referred to as the investment
focus or investment strategy.
Different providers use different terms
for classifying their investment objective
and risk profile, but for the purposes of
our analysis we have put them all into
one of three broad categories: growth,
capital preservation or exit focused.
Growth is focused on achieving market
beating returns, capital preservation on
achieving inflation level returns and exit
focused on achieving a relatively quick exit
from the investment, within 3-5 years.
The following section analyses the
EIS market by looking at the stated
investment focus of the products.
Looking at the market as a whole just over
half (56%) of investment opportunities
(single company and funds) are growth
focused. This is no real surprise as the
underlying aim of the enterprise investment
scheme is to stimulate investment into small
companies in order to fund their growth.
Capital preservation accounts for 32% of
the market and exit focused investments
just 11%. Capital preservation investments
may be asset backed and are often lower
risk than growth focused opportunities.
Both capital preservation and exit focused
investments have been criticised for not
taking on enough risk, and this has led to
some scrutiny from HMRC, but it should
be noted that there is always going to
be some element of risk surrounding
the exit whatever the stated investment
objective and skill of the manager. Smaller
company investing is a risky activity and
investors have to accept that exits may not
be achieved as intended and their capital
could be tied up for quite some time.
SECTOR SPLIT BY OBJECTIVE
Splitting the market down further we can see the different investment focuses across each
sector. At the extremes, the investments focusing on Transport and Construction are 100%
focused on capital preservation, while investments in the Technology sector are 100%
growth focused.
Again, this is logical: the opportunities available within Other are often asset backed
and therefore provide more protection for investors. In Technology, there are fantastic
opportunities to invest in new start-up companies, with the hits promising stellar returns
and the misses potentially resulting in complete loss of capital (thankfully mitigated by the
EIS tax benefits of course).
Media presents a good mix of opportunities covering all three investment focuses. Energy
is largely weighted towards capital preservation with a number of asset backed investment
opportunities. However, as we should expect, growth is the dominant focus in the majority
of sectors within the EIS market.
ANALYSIS BY OBJECTIVE
OVERALL MARKET SHARE BY INVESTMENT OBJECTIVE
INVESTMENT SECTORS SPLIT BY INVESTMENT OBJECTIVE
(1998-2014)
(1998-2014)
