EIS finished 2017 on a high after it received a ringing endorsement in the Chancellor’s budget by upping the limit of investment for knowledge intensive companies. While funds focused on capital preservation will now find it much harder to get clearance, the view from the IFA community was that despite a potentially enhanced risk to investors money, the overall demand for EIS investments will increase among their clients. To meet this growing demand, and in light of the increased attention EIS has received in recent months, we have seen an increase in the number of new funds interested in entering the market.
With that in mind, for any new EIS managers looking to start an EIS fund or existing managers looking to expand or improve their operations, we thought it would be a good time to explore some of the administrative inefficiencies we see as Custodian and suggest what measures you can take to mitigate them.
Record-keeping underpins your EIS fund. Record-keeping for EIS funds has traditionally been done on Excel spreadsheets. Excel spreadsheets are very flexible which makes them a fantastic tool for calculating complex problems, but this flexibility introduces real challenges for recording static fund data, along with inherent issues such as version control and formula errors. Using a structured database for your fund’s records or an administrator with a robust secure and resilient software infrastructure is crucial for strong record-keeping and is crucial to be able to produce accurate, timely investor reporting.
2. Investor documents
When drawing together your investor documents (Information Memorandum/ Application Form) it is becoming ever more popular to keep things short and sweet. Including a supplemental document such as a custody agreement can be somewhat bulky so opting for URL links in the investor agreement for various supplement documents will help cut down the overall size, but you do need to make sure the investors actively confirm they have read these documents.
3. Moving to paperless
The move to a paperless system is on everyone’s to do list. The problem with this, particularly in alternative investments, is that a significant portion of investors in this market do not work online and so paperless communications cannot be universal. Working with an administrator which has the resources to offer both online (investor portal or secure email) and offline (post) communications will help manage this administrative burden during the transition to a fully paperless process.
4. AML procedures
It is essential to have up to date AML procedures in place and you must get professional advice in this area. It is up to whoever is entering into a contractual relationship with the investor to carry out the AML on that investor. If an investor is entering into a relationship with the regulated manager in the investment agreement, it is the manager’s job to carry out the AML. If, however, the investor has come through a regulated financial intermediary such as an IFA who has already conducted AML on the investor, the manager can rely on their AML confirmation.
Your administrator may be able to help simplify your AML process by receiving the original investor application forms and compiling the AML in an easy pack for you to review and sign off.
5. Contact information for investors
We, as the custodian, often get calls from investors where they should be calling the manager. The custodian is usually not the best placed nor the most knowledgeable to provide information on how an investment is performing, where as it would be the best party to provide more procedural information such as login details which relate to the administrator. Investors can often be unsure who they should be calling. Further clarity on your investor documents and ongoing investor communications such as emails about who to call would save investors time and give them peace of mind.
To speak to Mainspring about EIS administration services, please contact Natasha Head firstname.lastname@example.org or call +44 (0)7740 988170.