Review - Guinness AIM EIS
Guinness Asset Management (GAM) is a specialist fund manager with approximately £50 million invested in EIS funds and particular skills in the energy sector, both on quoted and unquoted investments. Andrew Martin Smith is the lead manager on this AIM EIS and is a former CEO of Hambro Asset Management (which merged with Guinness Asset Management in 1998). As well as this EIS, Mr Martin Smith manages the Guinness Global Money Managers Fund and has been making small and unquoted company investments for many years.
- This is the only EIS investing specifically in AIM companies
- Portfolio of 10-20 companies anticipated
- One tax certificate for entire portfolio
- Deferred fees payable on exit to maximise growth
- Tax relief available in 16/17 and 17/18 tax years
- £20,000 minimum investment
This latest offer is looking to raise £10 million to supplement three existing Guinness AIM EIS offers. It is structured as an approved EIS fund so investors receive only one EIS tax certificate (EIS5) instead of one per underlying company (EIS3). The certificate is issued once all the money raised has been invested. The investments should be made in the 2017/18 tax year and the tax certificate is likely to be issued in summer 2018; investors can use the income tax relief against their 2016/17 or 2017/18 tax liability.
Every investor in this fund gets the same portfolio of typically between 10 and 20 companies with a spread of sectors. The ideal company is profitable with an established management team that has a sound track record. A supportive shareholder base is important as growth-orientated businesses often come back to the market for more cash.
AIM companies raised a total of over £4.3 billion of new money in 2016. Of this over £1 billion was raised by 38 new companies. Mr Martin Smith’s role is to sort the wheat from the chaff. In a typical year, the team looks at 80-100 different opportunities. Crucially, they will only review companies that already have EIS Advance Assurance from HMRC. Guinness’s Investment Committee reviews every deal and offers guidance, but Mr Martin Smith makes the final decision. He is assisted by Tim Guinness, who founded the firm, Hugo Vaux and Shane Gallwey.
In the existing AIM EIS portfolios there is a wide range of companies and some unquoted ones too which Guinness will only consider if there is an intention to float in the near future. Previously Guinness has invested in companies such as wine maker Chapel Down, fishing tackle retailer Fishing Republic and Coral Products who manufactures and supplies injection moulded products.
The target is to return in excess of £1.30 per £1 invested at launch with a timeframe of four to five years, although this is not guaranteed.
As companies are listed on AIM, there is some natural liquidity and an exit route, although please remember AIM investments are generally less liquid than more mainstream investments. Guinness intends to offer the option of transferring the portfolio to an Inheritance Tax portfolio or to transfer the underlying companies to an investor’s own name during the fourth to fifth year.
The underlying companies are fairly early stage and could be quite small therefore their share price may be volatile and they may be more prone to failure. However in that scenario, EIS loss relief could be claimed.
The usual risks with smaller companies exist with this EIS offer. For instance, EIS investments are illiquid and capital is at risk. Investors should only invest money they can afford to lose. The value of tax relief will depend on individual circumstances and tax rules could change in future.
There is an initial fee of 5% and an annual management fee of 1.75% per annum. There is an annual administration fee of £60 and a transaction fee of 0.35%. The performance fee is 20% of any returns over the original £1 invested at launch. A useful point to note is that Guinness’s fees are deferred until the portfolio is sold, to maximise growth. VAT will be charged where applicable.
AIM has been a mixed market ever since it launched over 20 years ago, however amongst the poor-quality companies there are also some gems. Mr Martin Smith aims to find these. Whilst he is a very experienced fund manager, he doesn’t currently manage a huge amount in AIM companies. This makes the portfolio nimble and gives the ability to access investments other managers might have to ignore, but does Guinness have enough clout in the marketplace? Performance of the existing three AIM EIS portfolios is encouraging, but share prices could be more volatile than more established AIM listed ones and could be exacerbated by a market downturn. This is a higher-risk, more volatile EIS, aiming for higher returns.
This review is not intended to be advice or a personal recommendation to buy the investment mentioned, nor is it a research recommendation. Wealth Club aim to highlight investments we believe have merit, but investors should form their own view on any proposed investment.