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EIS manager sends Mifid II 10% drop alert

March 19, 2018
Source:
Money Marketing

An investment manager offering enterprise investment schemes has alerted investors of a 10 per cent drop in value for one of its portfolios, just over two months after the introduction of Mifid II.

Downing, a London-based investment manager, has notified clients and advisers about the drop in value of its Downing Renewables EIS portfolio, which was launched in 2012 and carries a 30 per cent income tax relief.

The value drop, which was more than 20 per cent, affected one of the portions of the portfolio named Trance 8B.

Mifid II, which came into force on 3 January, requires firms to notify clients when the overall value of their portfolio, relative to its value at the beginning of each reporting period, drops by 10 per cent and multiples of 10 per cent thereafter.

Downing is the first firm Money Marketing is aware of that has sent a 10 per cent drop alert since the introduction of Mifid II.

In a letter sent to advisers, and seen by Money Marketing, Downing says it contacted advisers first to alert them of the drop in the portfolio value. It then said it would send an update to both the adviser and the client over the following three days with a “finalised valuation” in case clients were impacted by the 10 per cent drop.

But Money Marketing understands some advisers have not been notified of the exact drop in time and were told about it on the same day as their clients.

One adviser, who has two clients invested in the scheme, says Downing called his firm to notify of the drop in value but didn’t specify the exact value and didn’t call back to discuss the final figures.

According to the notification, the value of the Downing Renewables EIS portfolio has reduced from 67p to approximately 53p per £1 invested, which is equivalent to an approximate drop in value of 21 per cent. The net cost are of 70p after 30 per cent income tax relief, the letter states.

The firm also told advisers that once rebates and loss relief fees on exit at a rate of 40 per cent are taken into account, the estimated overall portfolio value will rise to 71p per £1 invested.

The reason for the drop in value was attributed to “ongoing issues” with some anaerobic digestion plants that were operated by Greener for Life Energy, one of the companies that the product invests in.

Greener For Life Energy, based at Cleave Farm in Devon, went into liquidation on 29 August, according to Companies House. However, directors at the firm received funding for a new company called Ixora Energy Ltd to buy its assets and contracts.

The letter from Downing says: “While all EIS investments carry a risk to capital, the performance of this tranche has fallen below expectations and we will therefore rebate the value of all management fees chargeable to date and due for the remainder of the investment.”

In an attempt to improve performance in the scheme, Downing says it is working with a new anaerobic digestion operator and external advisers to resolve the problems at affected plants.

A firm’s spokeswoman says: “The high risk nature of EIS investments is what allows investors to benefit from generous tax reliefs but it also means that, occasionally, a portfolio company may not perform as well as expected. We would like to reassure our advisers and clients that we are doing everything we can to improve returns.”

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