Veteran fund manager Neil Woodford has called on the government to create a new Isa which lets investors tap into early stage science companies.
Speaking at a science and technology committee hearing at the House of Lords yesterday (21 March), Mr Woodford talked about the need for what he described as a “patient capital tax wrapper”.
According to the star manager, the tax incentives offered by this type of Isa would encourage the flow of private savings towards investment funds focused on early stage firms in order to invest in young businesses that need it.
One of the three investment vehicles managed by Mr Woodford is the £758m Patient Capital trust, which largely invests in disruptive early-growth companies.
The fund manager, who is founding partner of Woodford Investment Management, has previously pointed to evidence which suggests many investors would invest in early-stage businesses over the long term if they had the appropriate incentives to do so.
Investors would also be encouraged to hold shares for at least seven years if they were granted inheritance tax taper relief, he said.
This idea sounds utterly pointless and would contribute to another level of bureaucracy Dan FarrowMr Woodford, who is one of the most well-known manager in UK fund industry after making his name at Invesco Perpetual, is currently working with the government on its Patient Capital Review, which was announced in the Autumn Statement.
While he accepted that investors need to be educated about the risks involved, he said improving the cash flow to young companies increases their chance of success, meaning the risks are likely to be less than they are often portrayed.
Estimates from his firm suggest that investments of up to £2bn a year would help many businesses scale-up and offer employment to thousands of people in high-skilled jobs, which could in turn boost the British economy.
The Patient Capital trust, which is Woodford's only closed-ended vehicle, has returned 3.6 per cent over the past year, underperforming the UK All Companies sector, which has scooped up 20 per cent over the same period, FE figures revealed.
Last year, the trust was hit by negative sentiment in the healthcare sector which caused some of its biotechnology stocks to suffer.
However, data published this month revealed that investment trusts focused on the healthcare sector had actually topped the performance league table over the past 18 years.
Commenting on the new Isa idea, Dan Farrow, director of SBN Wealth Management, said the proposal was “utterly pointless” and would contribute to another level of bureaucracy.
“This sounds like a niche product that would be similar to peer-to-peer lending.”
He said there are enough Isas and other tax efficient vehicles on offer, pointing to initiatives such as venture capital trusts and enterprise investment schemes, both of which tap into young companies.
“This kind of product would be at the high end of the risk spectrum, and no IFA in their right mind would recommend this to a client.”
The SBN boss also said investments in unlisted companies can have liquidity and transparency issues.
He said: "This is a niche product that would probably have to charge extremely high fees to cover the cost, which would be detrimental to the overall returns; in my opinion, a product like this has a high risk of disappointment.”
katherine.denham@ft.com
