This publication interviewed the CEO of Puma Investments, a firm operating structures such as Enterprise Investment Schemes, which continue, it says, to thrive by filling a key set of needs.

While politicians of all hues find it hard to resist changing tax reliefs and other rules affecting pensions, there are some other savings vehicles that have mostly kept their shape intact despite the UK parliamentary merry-go-round. Which is good news for wealth advisors’ clients.

A prominent example of a robust investment structure, its advocates claim, is the Enterprise Investment Scheme, first brought out in 1994 by the Conservative administration of John Major; the EIS kept going during the Tony Blair and Gordon Brown Labour administrations and continued when the Conservative/Liberal Democrat coalition took over in 2010. As of the time of going to press, the EIS remains.

These vehicles carry significant income tax and capital gains tax reliefs (there is initial 30 per cent income tax relief, which means a net cash outlay of 70 pence in the pound, and no CGT to pay; there is a potential 40 pence in the pound saving on inheritance tax saving as well). EIS schemes are designed to back start-ups and relatively risky ventures – so they don’t exactly resemble US Treasuries.

Another structure is that of the venture capital trust (VCT), which are described as highly tax-efficient, closed-end collective investment schemes providing private equity capital for small firms and start-ups. VCTs are listed like stocks and were introduced in 1995; they come with income tax reliefs and are exempt from CGT on share disposals. Both VCTs and EIS structures have their charms, if one believes the marketing hype, at a time when recent administrations have whittled down the tax-exempt amount of lifetime savings people can hold via pensions.

At Puma Investments, a subsidiary of UK-based Shore Capital, its managers say its suite of EIS, VCT and other structures fill a number of gaps in the investment and wealth management toolkit as well as play an important role in enabling cash-hungry firms to obtain funding at a time when banks are still reluctant to lend.

David Kaye, chief executive of Puma Investments, argues that his firm’s low-risk approach to such investments fills an important niche. “We put money into companies but we always like to have some downside protection,” he told this publication in an interview at his offices in London’s Mayfair district. He referred to how Puma likes to look for asset-backing in a company, such as physical assets, contract receivables and intellectual property rights.

“Our strategy has come into its own in the last few years…..the banks have retreated from funding SMEs and people like us have stepped into that gap,” he said.

“If the worst happens and the investment goes wrong we can exercise security to get your money back,” Kaye continued.

The approach hadn’t always been a big hit, as Kaye admits with disarming modesty. The business model Puma adopted was difficult to make popular seven or eight years ago when banks were eager to lend, but that has changed radically after the financial crisis and credit freeze, he said.

“In our early years things were quite difficult,” he said.

Kaye and his colleagues are no novices to this world – they have been engaging in such investment since 2005; Shore Capital, which started in 1985, set up the Puma operation more than two years ago to focus on such specialised investments. The role of scrutinising investments for clients appeals to the barrister in Kaye (after graduating with a degree in law from Oxford he was called to the Bar in 2000). After a period of advising in areas around complex investments, he joined Shore Capital in 2006, becoming the CEO for the asset management arm of Shore Capital in 2012.

Puma Investments has been on a roll, according to statistics issued at the end of March by its parent firm. The firm said it raised record figures in the 2014/2015 financial year ending 5 April 2015 for its private client investment offerings. Its Puma VCT 10 closed in May last year, having raised over £27.8 million, making it by far the largest limited-life VCT, and accounting for 54 per cent of the market, it said. The most recently closed fund, Puma VCT V, is the “most successful limited-life VCT in the 30 year history of the industry having returned 106.3p per share”, it said.

Another example, the Puma EIS Portfolio Service, launched in November 2013, had a “strong opening fundraise”, the largest of the 2013/14 tax year for any new EIS strategy seeking lower risk, Puma said. Puma has recently launched a discretionary portfolio service to mitigate IHT by investing in a portfolio of shares on London’s Alternative Investment Market. In the six months since launch, Puma AIM achieved returns of 4.72 per cent net of fees, a 15.32 per cent outperformance of the AIM Index for the same period, it said in its end-March report.

Puma Heritage is described by the firm as a trading business designed to mitigate IHT. Puma Heritage focuses on making secured loans to counterparties, particularly within the real estate sector. Puma Investments, in this case, acts as the promoter (helping it to raise money from investors) and as an advisor.

As is to be expected, Puma Investments isn’t the only player in town. Other providers of such structures that WealthBriefing has spoken to in recent years include Calculus Capital, Octopus (which wins the prize for the best name, surely) and Ingenious. 

Family offices
Family offices are interested in such investment options, Kaye said.

“They want to keep in line with inflation and are concerned about inheritance tax. They also don’t want to give up a lot of control. Control is very important to family offices.”

“People say `don’t let the tax tail wag the investment dog’ but the reality is that tax does matter but is not the only thing that matters. Investors should consider both the investment strategy and the tax efficiency,” Kaye said.

This publication had to ask Kaye about controversy about potential abuses, as had come to light with celebrities putting money into film financing schemes. In February this year, for example, former football managers Alex Ferguson and Sven-Goran Eriksson have been among hundreds of investors facing possible bills after a court ruled that a film scheme they had invested in, Eclipse 35, was designed for tax avoidance purposes.

Kaye argued that unlike such schemes, the great benefit of a structure such as EIS was its 21-year pedigree and the fact that they enjoy what is called “advanced assurance” from HM Revenue & Customs. The process enables managers to find out from the tax authority whether a particular investment can qualify for EIS or VCT investment before the manager pulls the trigger.

As we now now, the UK achieved a decisive result last week in a general election. Even before that result became known, the fact that the EIS, VCT and other entities have survived the past 20-plus years reasonably intact was a likely indicator that they would continue to do so.