As ever with ancient Greek wisdom, it can be applied to many things, including enterprise investment scheme (EIS) investment strategy.

There is a saying by the Greek dramatist Euripides which goes: “Youth is the best time to be rich, and the best time to be poor”, and it could apply to young investors.

While professional investors in their 30s are more comfortable with new technology and new business models, they may lack the experience and back the wrong investment opportunities or accept sub-optimal investment returns. This provides fertile ground for advisers wanting to develop a future group of active investor clients.

The EIS and venture capital trust (VCT) investment landscape has undergone a significant shift, driven by changes in HM Revenue and Customs rules for EIS eligibility, the government re-focusing on activist industrial policy, and ‘patient capital’ supply to knowledge-intensive companies.

This is contributing to a reallocation of EIS investments to companies in the ‘internet of things’, robotics, or artificial intelligence (AI), with applications across major industries.

Mega-exit success stories, such as AI companies Deepmind and Magic Pony, have been noticed by high-net-worth adviser clients, many of whom are business owners or serial entrepreneurs and who are looking for early-stage growth opportunities as investment opportunities, with EIS tax credits a welcome bonus.

Many of these opportunities appeal to a younger generation who are more comfortable with the risk reward trade-offs of venture investing in digital tech. Younger investors often have a personal interest in tech growth.

Crucially for advisers, they also seem to be more comfortable with a DIY approach to investment management, or with using digital platforms for financial advice.

Investors in their 30s have time to go through several investment cycles. Many knowledge-intensive investment opportunities will take five or more years to mature and provide high-return exit opportunities. They also carry a high level of risk, and so building a diverse portfolio over time is key.

Depending on the type of investor an adviser is supporting, there will be different appropriate portfolio building strategies.

Passive investors may require greater diversification across more EIS funds and investment opportunities.

Active investors may use EIS investments to identify larger follow-on investment opportunities.

An initial investment in an EIS fund may serve as a way of getting to know the fund management team and spotting those investment opportunities.

Impact investors look to deploy their funds in areas of social impact, such as healthcare and environmental technologies.

Many EIS investors are successful entrepreneurs and business owners who may be looking for the ‘next thing’ in which to get hands-on involvement. Each of these may seek different objectives in building a portfolio – seeking capital gains or regular income, different sectoral interests and different levels of comfort with venture risk.

To paraphrase Euripides again: an investor’s best possession may be a sympathetic adviser.

The old model of a once-a-year tax affairs review and largely passive allocation of investments may be coming to an end.

Increasingly, advisers will be under pressure to innovate to remain relevant for a new generation of more independent high-net-worth investors.

The emerging trends in EIS investment in the knowledge-based economy provide a potential win-win for advisers looking to differentiate, and a new generation of investors looking for a greater diversity and customisation in products.

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Source: FT Adviser, by Ilian Iliev, Managing Director of EcoMachines Ventures.



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