TLDR:
A report from HSBC Life titled “The Three ‘I’s of Investable Capital” highlights the value of tax relief in producing good outcomes for clients in venture capital investments. However, research shows that only 17% of advisers think their clients are interested in investing in early-stage companies, while 45% of investors are keen to explore the asset class. Advisers should be considering tax-efficient investments, such as venture capital trusts (VCTs) and enterprise investment schemes (EIS), as opportunities to add value for clients. There is a misunderstanding around the risk inherent in venture capital investing, and advisers need to have conversations with clients about the potential benefits and risks involved.
Research commissioned by Octopus Investments found that only 36% of advisers advise on VCTs and 27% on EIS, compared to over 90% who advise on pensions and ISAs. This highlights a gap between client interest in venture capital and the advice being offered by advisers. To address this, advisers need to understand that venture capital investing can be suitable for clients with different risk profiles and should consider the proportion of assets at risk in venture capital relative to the client’s overall portfolio. Adding relatively small exposures to venture capital can improve potential annual returns without increasing the overall risk of the portfolio. Therefore, advisers should be taking advantage of opportunities to advise on venture capital investments, as they can offer diversification and potentially attractive post-tax outcomes for clients.
