In the final instalment in our series of exclusive interviews with industry experts, David Kaye, CEO of Puma Investments, provides his insight on the biggest growth opportunities and most common risks for investors, and discusses his company’s approach to investing.
1.) What tax-efficient schemes does your company work with, and how do you offer a unique/compelling approach for advisers?
Puma Investments was established in 2012. We initially created the business to build upon a series of Venture Capital Trusts (VCTs) known as the Puma VCTs, which had been successfully managed for several years by Shore Capital. Over the last ten years we have grown in breadth and scale of offering.
Today, we manage c£1 billion in assets and, through our Puma Property Finance business, have arranged £1.5 billion of development funding. Through our Puma Private Equity division, we also have a firm focus on scaling ambitious businesses, whilst also delivering long-term sustainable growth for our investors.
We have extended our offering from VCT investments to provide investors with the opportunity to invest in a range of Business Relief (BR) qualifying investments. Puma Heritage Estate Planning Service (EPS) is a discretionary portfolio service that invests in private trading companies focused on secured lending, primarily within the real estate sector, that are intended to qualify for Business Relief.
Puma Investments also provides investors with access to the Puma AIM (Alternative Investment Market) IHT Service, a discretionary portfolio service that seeks to deliver long-term growth whilst mitigating inheritance tax through investing in a carefully selected portfolio of AIM shares which qualify for Business Relief. The AIM portfolio, which is available within and outside ISAs, is distinct in the market as financial advisers are able to access the service for their clients through 8 different wrap platforms including Fidelity, Transact, M&G and Abrdn.
Puma’s flagship VCT, Puma VCT 13, was established as an evergreen VCT in 2018. Today, the VCT has over £110m of assets and has been recognised as one of the strongest performing generalist VCTs in the market over the past 5 years. In 2020, Puma launched Puma Alpha VCT which co-invests alongside Puma VCT 13. Lastly, we offer Puma Alpha EIS, a service that aims to invest in Enterprise Investment Scheme qualifying companies. Puma Alpha EIS also co-invests alongside Puma VCT 13 and Puma Alpha VCT, providing investors with access to well established, scale-up companies. We believe that focussing on scale-up rather than start-up businesses and doing so across sectors is compelling as a distinct strategy in the VCT and EIS market.
2.) How active are you in providing education to advisers on the types of clients that are suitable for these types of investments, as well as any changes in regulation or nuances in the existing rules?’
It’s important for investors to have a financial adviser with a deep understanding of the nuances and regulatory requirements of tax-efficient investments to help determine which options suit them best. We also know there are advisers who have never engaged with the VCT,EIS and BR markets due to the perceived complexity around them.
To help drive education and awareness we run regular webinars for financial advisers, hosted by our expert investment teams. These webinars provide information and updates on our tax-efficient products, market insight and we also bring in third party tax and financial planning experts to provide this educational material. Our business development team also host bespoke sessions for their clients where they are able to answer specific questions or queries from advisers.
We support this extensive programme of webinars with clear collateral with a particular emphasis on using case-studies to bring to life the myriad of scenarios where utilising tax-efficient investment products can help financial advisers advise their clients on planning for their long-term financial futures. We have also invested in building detailed illustrations for our products which financial advisers can, through our website, self-serve and tailor for their specific clients’ intended investments to clearly illustrate the impact of different growth rates and fees on their holdings.
3.) Where and in which types of companies are you seeing the biggest growth opportunities?
Puma’s investment strategy is sector and geography-agnostic, which helps us to identify attractive scale-up companies across the UK to achieve greater portfolio diversification for investors. Puma Private Equity is the investment advisor to Puma Investments which manages our VCT’s, including Puma VCT 13 and Puma Alpha VCT which are currently both open for investment, and invests into growing UK companies across a broad range of sectors, including consumer, tech and digital.
Our VCTs are currently invested in a diverse range of scale-up companies, including influencer marketing platform, Influencer, fleet technology specialist, CameraMatics and more recently, digital account provider, Pockit and the UK’s fastest-growing accessibility technology company, Transreport. For us, the key to growth opportunities is finding UK businesses that are looking to scale with experienced management teams and proven revenue streams. We firmly believe that in the current environment, focussing on scale-up rather than start-up businesses provides a strong risk-adjusted return for clients.
4.) What do you see as the biggest risks for investors?
Investors should be aware that investing in growth companies is considered a high-risk, long-term investment and it may prove difficult to realise their investment immediately, in full, or at all. Having said that, we take a rigorous approach to selecting the portfolio companies for our investment products and conduct extensive due diligence, with the assistance of experienced third-party professional advisers such as commercial, accountancy and IT experts, to analyse investment opportunities. We also draw upon experienced independent senior advisers that sit on our investment committees and portfolio company boards to contribute to the selection and monitoring of investments.
We believe in taking a proactive approach with our portfolio companies, supporting and advising them on key strategic decisions. For example, the Puma Private Equity team recently supported one of our portfolio companies, Pure Cremation, through an exit process. An abundance of strategic options were put forward, including meeting with potential acquirors – but ultimately an exit by way of an MBO was secured for the Puma VCT funds in June 2021, with Puma VCT 13 achieving a 4x money multiple on its investment, resulting in an IRR of 71%. Another portfolio company, TicTrac, was the subject of an acquisition by Canada’s Dialogue Health Technologies which provided a 1.9x money multiple and an IRR of 37%.
5.) Should advisers be worried about a lack of diversification, and why?
There is considerable evidence that suggests exposing an investor’s portfolio to growth investments provides stronger overall diversification due to a lack of correlation between publicly listed equities and private equity investments. The traditional 60/40 portfolio strategy, where an investor’s portfolio is exposed to 60% stocks and 40% bonds, has not performed over recent years with the economic challenges we have faced. We believe that alternative assets, and in particular private credit and private equity, now offer an important diversifier for investors’ portfolios.
At a product level, there is the potential for considerable diversification risk when it comes to growth investing. We believe our approach seeks to mitigate this risk. For example, our sector-agnostic investment strategy for our Puma VCTs and EIS products means we diversify this risk. At present, Puma VCT 13 is invested across 9 different sectors and has differing levels of exposure to B2B, B2C & B2B2C companies.
This allows the VCT to benefit from opportunities and growth across the economy, while reducing the risk of severe loss from any sector-specific challenges. Our investment vehicles (Puma VCT 13, Puma Alpha VCT, Puma Alpha EIS) co-invest and follow the same investment mandate. This allows our VCTs to participate in more transactions, and bigger transactions, than they might otherwise be able to access, enabling swifter deployment of funds and giving investors access to larger, better-funded companies.
