Julian Hickman writes in this week's Professional Advisor:

"VCT and EIS funds offer a good route into enterprise investing and have the added attraction of offering tax relief, writes Julian Hickman, partner, Longbow Capital LLP.

Investing in early stage, dynamic, innovative British companies is something all investors should give serious consideration to. The life science, well being and healthcare sectors are typical examples of the British investment opportunities available.

However, not all openings are equal, and investors need to consider carefully how they can access such opportunities. One such way is to invest through Venture Capital Trusts (VCT) and Enterprise Investment Scheme (EIS) funds, both of which offer a range of tax reliefs for investing in innovation and reflect the risk and rewards available...." > Read More of Julian's article 'Reaping the rewards of British innovation at ifaonline.co.uk.

 Investors in 2010 Approved Funds will not receive income tax relief in the 2008/9 tax year.  We have been approached recently by a few IFAs who are convinced otherwise. 

We decided to clarify (again) the situation with HMRC itself, and we received the following in reply:

“The carry back rules are contingent upon the date the shares are issued, rather than the date the Fund closes. Relief can be carried back to the year before the year in which the shares were issued, so it would only be if the shares were issued in the same tax year as that in which the Fund closed, that the relief could be carried back to the year before the year in which the Fund closed.  If the Fund closed on say, 5 April 2010 (2009/10) and the shares were issued on 6 April 2010 (2010/11) the relief could only go back to 2009/10, not to 2008/09.”

Longbow’s 2010 Approved EIS Fund will close on 5 April 2010 (applications must be in by Thursday 1st April to be safe) and will attract tax relief in the 2009/10 tax period as in the example above.

There is one final opportunity to receive tax relief in 2008/9, and that is to invest into the Arrowhead EIS Fund by 1 March.  Longbow will invest in a portfolio of 4-5 companies by 1 April.

In the last few days we have been contacted by a number of investors keen to try and find some way of securing income tax relief for their 2008/09 earnings.

In 48 days it will become impossible to shelter this income from tax. Until 1 March, Longbow is keeping the Arrowhead EIS Fund open for investors who wish to shelter 2008/2009 earnings.

A rumour surfaced in the press last week suggesting that Pfizer was likely to buy Enzon.

Enzon is a leader in the field of PEGylation, which is a way of extending the time certain drugs stay in the body in order to improve results.

To us at Longbow this represents the clear endorsement that we are on the right tracks with our investment in Polytherics as we believe that they can do a better job.

It does not actually matter whether or not the rumour is true, the fact that the market “thinks” it likely means that PEGylation is coming of age.

Having completed the final investment of the Approved EIS Fund 09 in December 2009 I am now able to reflect with pleasure on the diversification we have achieved with this Fund.

The portfolio is well diversified across the healthcare and life sciences sectors with one beauty company, three related to cancer treatments, one to cardiovascular disease and one to orthopaedic/dental. There are two retail products, one biotech company and four medical device companies, with 2 products ready to launch, one awaiting regulatory approval and a fourth in development.

Co-investors have included Takeda Pharmaceuticals, Imperial College, Esmee Fairburn Foundation, Finance Wales and Scottish Enterprise.

We will be closing our 2010 Approved EIS Fund at the end of this tax year and there are already several exciting investment opportunities being explored and I am looking forward to another year of interesting and worthwhile investing.

Longbow is pleased to announce that ‘iPulse’ (CyDen’s European version of the iPulse ‘Smooth Skin’ light therapy hair removal device, also sold in Boots) has been recognized with a Telva Beauty Award.

Telva is a popular and leading Spanish women’s magazine which hosts Spain’s most renowned beauty awards. The jury, formed by the most important beauty editors in Spain, has selected iPulse as the best beauty device for in home use. They described the devices as “fabulous” and “great value for money”.

This is another great accolade this year for CyDen, whose home-use ‘Smooth Skin’ device is currently the best selling electrical item in Boots and the top selling product on Boots.com this year, having sold over 12,000 units since its launch earlier this year.

Other winners included L'Oreal, Lancome, Lancaster, Olay and Clinique.

Below is a photograph of Kevin Smith, Managing Director of CyDen receiving the award.

Breastlight was launched on Boots.com at the beginning of September 2009 and in-store during October with the help of the Boots Centre for Innovation. Please click here to read a case study, produced by the BCI detailing how they helped Breastlight reach Boots shelves.

I have been busy over the past couple of weeks having a final catch-up with portfolio companies before Christmas and there is a positive overarching theme.  All CEOs who have recently been to trade shows have reported a dramatic change in sentiment within their markets.

Harry Hatzakis at Biotronics 3D could barely contain his excitement today when talking about people queuing at the stand at RSNA (Radiologist Conference) in Chicago.  He reported interest from multinationals as well as smaller companies. 

 Eddy Littler (CEO of Domainex) returned in November from BIO-Europe saying that it had been the best week since he joined the company in January 2008.  That sentiment was echoed by Keith Powell (CEO of Polytherics).  Both were on the receiving end of interest from both large pharma and smaller biotech seeking collaboration. 

If this continues, 2010 will be a good year.

It has been a busy couple of months for the Boots Centre for Innovation having aided with the launches of two interesting new products into Boots Stores, as well as talking part in two events, in Glasgow and Dusseldorf.

Breastlight is a new health and wellbeing product for women. It is a handheld, battery operated device that helps women with their monthly breast self examination by shining a high intensity red light through the breast tissue, enabling users to see inside their own breasts and get to know what is normal for them. The Boots Centre for Innovation team was introduced to Breastlight by our venture capital partner Longbow Capital, and we carried out a technical and commercial evaluation to validate the science behind the product before recommending that Boots should offer Breastlight to its customers. Breastlight launched on www.boots.com at the beginning of September and then launched in store during October and November. It retails at a price of £84.99. Please click here to read the full case study.

The Physicool^TM therapeutic range of unique stretchy reusable bandages was introduced to the Boots Centre for Innovation in June 2009 and has now been launched on the Boots website.  Physicool is a unique stretchy reusable bandage with an interesting story.  When applied to a physical strain or injury the temperature of the affected area drops significantly, about 10C-15C. Straight out of the pack, without prior need to freeze or introduce ice as with other solutions. The cooling and compression provide instant treatment for inflammation and bruising of muscles, tendons and ligaments, rapidly reducing swelling and pain; helping to speed up the healing process.  Please click here to read the full case study.

The team have continued to review new products and enterprises during November many of which were reviewed at the ‘Making the right connections’ Event in Glasgow. The Centre sponsored the event and gave a detailed overview on future trends in consumer healthcare to a large group of Scottish SMES (Small to Middle Sized Enterprises) who are working in the health and wellness sector. The Centre also raised awareness of the Open Innovation opportunities for Scottish SME’s as the event facilitated 1-2-1 partnering meetings where companies were able to pitch their ideas to the team with a view to potential partnering, licensing or some other strategic relationship.

The team have also been as far as Dusseldorf this month attending the world’s largest medical trade fair, where a number of new consumer opportunities were identified. This event was particularly useful in informing the Centres Testing and Screening strategic work and establishing links with Trade support organisations from Germany and Italy. The Centre hopes that these links will lead to future contacts for future BCI hosted events.

If you are interested in reading more about the Boots Centre for Innovation please visit www.bootsinnovation.com for more information. 

Back in 2006 the Finance Bill confirmed unquoted shares were an eligible investment within a self invested personal pension (SIPP). Since then many advisers have remained hesitant to recommend inclusion of these shares in their clients’ pensions. I believe unquoted stocks can reduce the overall risk of an investment portfolio and provide a powerful boost to performance. Here are the reasons why it may be a good time to reconsider venture investments within a SIPP:

Strategic asset allocation advocates investment in higher risk funds.

Any consideration of portfolio construction encourages diversifying investment across different asset classes. This serves the dual purpose of reducing exposure to a volatile market while offering the opportunity for enhanced returns.  It has been shown that holding around 20% of any portfolio in alternative investments, volatility is reduced because alternative investments are affected by different factors to equities and fixed interest. For instance they are often less sensitive to swings in the stock market.

Identifying the optimum balance between risk and return

Combining asset classes in the right proportion can reduce the impact of market volatility on a portfolio and can also enhance returns. The approach advocates holding a proportion of higher risk investments alongside traditional classes. Alternative asset allocation can include property, absolute return funds, private equity or venture capital.

Lack of Alternatives

SIPP holders cannot currently hold residential property, therefore any property held as an investment must be commercial or held through a REIT (Real Estate Investment Trust). This is disappointing for SIPP holders, as it was originally believed that residential property would be allowed, however, unquoted shares offer another way to diversify.

Giving sophisticated investors a choice

Many SIPP holders are highly sophisticated investors experienced in assessing unquoted shares. These investors may wish to diversify their SIPP with unquoted shares.

Generating more income in retirement

Most asset allocation models suggest 5 – 15% as a good private equity holding within a portfolio. This tactic limits downside risk, yet allows strong returns to have an impact and be felt across the whole portfolio. This proportion of private equity can be a valuable component to generate income in retirement.

Since Longbow launched their SIPP Venture Fund alongside Axa Winterthur in 2008 SIPP providers have begun to review this issue and we are now pleased to announce that many of the top SIPP providers are offering this to their clients.

SIPP providers who do offer this are as follows:

Axa Winterthur

Standard Life

AJ Bell

Hornbuckle Mitchell

SIPP Centre.

For more information on investing through your SIPP please call 020 7332 0320 or email nrobson@longbow.co.uk.