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TES white paper: how much should clients invest in venture capital?

For some time, the VCT and EIS fund industry has wrestled with balancing the tax and investment aspects of its products. Unfortunately, the former is easier to articulate, and usually ends up being emphasised over the latter. This white paper tips the balance firmly back in favour of the investment case. We show that adding venture capital to investor portfolios can raise expected annual returns by 0.5% to 1% for average risk investors without changing overall portfolio risk. We also show that the vast majority of investors should be adding some to their portfolio.

The paper explains how adding venture capital to a portfolio requires a holistic approach to asset allocation, with adjustments required to other assets to keep risk the same. It also dispels some common misconceptions, such as the pension fallacy, and highlights the genuine exceptions. Although the approach is independent of the tax breaks, it shows how these improve IRRs dramatically and their effect on asset allocation.

Brian Moretta, Head of Tax Enhanced Services at Hardman & Co said “the paper makes a compelling case for venture capital to be a normal part of most investors’ portfolios. Perhaps the VCT & EIS industry can move from ‘tax-efficient’ to venture capital with benefits!”