Tax Efficient Review of Octopus Eureka EIS Fund with ... - Clubfinance

Octopus Eureka EIS Portfolio
Service
Strategy
Business
Fund investing both in UK quoted and unquoted
companies
Size
No cap (evergreen portfolio service)
Fund Manager
Octopus Investments (Ventures team)
Minimum investment £25,000
Maximum Investment
None
Estimated period to full investment 12-18 months
Commission
2.5% up-front plus 0.5% trail
Available Tax Years 2011/12 and 2012/13
Eureka EIS Portfolio Service is a discretionary portfolio service offering from Octopus Investments,
one of the largest providers of tax-efficient investments. Through various operating divisions (see
Table 2), Octopus offers Venture Capital Trusts, Enterprise Investment Schemes and Inheritance Tax
products in various forms, each with different risk/reward combinations.
This EIS offering is managed by Octopus' Ventures team, which also manages the Titan series
of VCTs (see Issue 75 for a review of Octopus Titan VCT 5). Funds raised by this EIS offering will be
co-invested alongside, and on the same terms as) the Titan VCTs and private investor group, the
Octopus Venture Partners, run by Octopus. The Octopus Ventures Team has been investing into EIS
qualifying companies since 1999 and has built a strong track record with a realised IRR of 36.1%.
This track record however is not one that investors in the Eureka product will recognise as relevant
for reasons we elaborate on later.
Eureka aims to offer investors the opportunity to generate returns by investing into a portfolio
of early stage, fast growth UK companies which also qualify for the EIS tax reliefs. Eureka is clearly
differentiated from Octopus’ other EIS offering, Octopus EIS. Octopus EIS is designed to produce
predictable returns for investors by investing into companies with the emphasis on risk mitigation.
Eureka invests for capital growth
As at the 15 August 2011, funds raised by this offering totalled £22.4m.
Eureka started life as an AIM EIS portfolio offering in early 2004 as a three year “rolling” EIS
portfolio and raised £11.5m. The intention was to hold individual AIM companies for at least three
years before selling and reinvesting, thus allowing the investor to claim a further 20% tax relief. The
expectation in 2004 was that the manager would be very rigorous in only selecting those companies
with clear visibility in revenue streams and where the manager thought there would be very
TABLE 1: EIS FUNDS UNDER MANAGEMENT by OCTOPUS’ VENTURES TEAM as at 23/08/2011
Source: Octopus Investments
Net assets
£m
Annual
Management
fee
£m
Still to be
invested
£m
EIS portfolio funds £22.4m Not disclosed £6.1m
Funds managed by the same group than can co-invest with EIS funds
Titan 1 & 2 launched in 2007/08 £29.9m £0.0m
Titan 3 launched in 2008/09 £19.3m £0.0m
Titan 4 launched in 2009/10 £20.9m £10.1m by
31/10/12
Titan 5 launched in 2010/11 £9.9m £8.8m by
31/10/13
Funds managed by the same group than cannot co-invest with EIS funds
Private investor funds £27.5m £3.0m*
TOTALS £129.9m £29.1m
Note: Only includes funds managed by Octopus’ Ventures team, not funds managed by other divisions of Octopus.
*Source: Octopus Investments, based on Venture Partners 2010 investment
4 Tax Efficient Review Reprinted for the use of Octopus Investments Limited November 2011