Tai cheung

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There have sầu been a number of significant developments acrosscapital and financial markets in recent weeks, many of which havebeen directly or indirectly related to the ongoing impact ofCOVID-19, otherwise known as Coronavirut. As I am sure readers willbe acutely aware, following the unprecedented sell-off acrossfinancial markets, there have sầu been a number of both fiscal andmonetary policies put in place to provide the necessary support tothe economy. Much of this support has been focused toward many ofthe smaller businesses which will come under strain, & manycurrent & future investors are left to wonder how futuredevelopments will impact deployment rates, valuations, and exitopportunities within the tax-advantaged market. Further, it cannotgo unmentioned that recent events have sầu transpired as funds withinthis space prepare for an increase in fundraising in the monthleading up to the April tax year kết thúc. Below, the team here at MJHudson Allenbridge have outlined some key considerations in thecurrent environment.

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Broader Market Implications

During periods of market volatility, there is evidence tosuggest that that investors take a "relative sầu flight toquality", rotating toward the perceived stability oftraditional safe havens such as sovereign debt markets. However,even demand for these instruments has been tempered by concernssurrounding massive sầu stimulus packages announced by manygovernments. Nonetheless, it does raise some concerns about theimpact that this may have on the availability of funding forinvestments placing higher on the risk spectrum, such as companiesthat would qualify for VCT or EIS/SEIS relief.

It should also be mentioned that as many EIS & VCT portfoliocompanies will work toward an exit via trade sales, struggleswithin broader industries may also create pressure either onvaluations or on acquisition timelines, which may delayrealisations across fund portfolgame ios. In addition to this, start-upsmay struggle with an increase in absentees, alongside heighteneduse of benefit packages, such as healthcare or siông chồng leave, whichwill put a strain on companies' available liquidity. Underlyinginvestee companies with svào balance sheets, & investors withdeep pockets & who believe in the longer-term growth story, mayfair better than others. Nonetheless, as these broader marketpressures come khổng lồ the fore, it may ultimately have an impact oncompany valuations, and the ability for managers khổng lồ deploy intounique investee companies.

Supply Chain Disruption

General supply chain disruption, specifically within technologycompanies which rely on components provided by foreign vendors, maycreate situations where investee companies struggle khổng lồ source thenecessary inputs required for their products. When this isaccompanied by a laông chồng of diversification in revenue streams, forexample companies with an individual hàng hóa or kết thúc market, theymay be faced with the prospect of having khổng lồ absorb losses, as partsbecome scarce or increase in price. At this stage, the developmentof contingency plans và constant communication between portfoliocompanies and the investment manager is essential, so that theformer benefit from the shared knowledge that the manager hasaccess lớn.

Leisure và Hospitality Sectors

Certain industries will be affected disproportionately by theoutbreak. Government measures regarding the closure of venues, barsvà restaurants are already causing hardship to lớn the leisure andhospitality industries. Although there is no definitive clarity onthe timelines imposed by the UK government on closures, we wouldexpect many companies operating within these sectors to lớn encountersome cash flow issues, with those that have taken on debt or are atthe earliest stages of development likely lớn be affected to lớn ahigher degree. Companies will have lớn work closely with managers inorder to lớn establish the best course of action, which may involvetargeting significant fixed costs, such as staff and property, withthe over goal of lowering costs & increasing cash positions.

There is also a commitment from the Government lớn mitigate costsin this area, which comes in the khung of a full Business RatesRelief applicable khổng lồ businesses operating within the retail,hospitality, & leisure sectors, a measure which intends to lessenthe damage caused by closures by decreasing the overall cost-baseof the relevant businesses. Although it is unclear to lớn what extentthis will help mitigate a prolonged loss of earnings, given thattentative sầu models created by Imperial College, on commission fromthe Government, suggest that the proposed measures need khổng lồ besustained for several months in order lớn have the desired impact,suppressing consumer spending further.

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On the other hvà, the increase in fundraising volumes in recentyears may be seen as having created a moat which should put somemanagers in a good position to tư vấn ongoing businesses, althoughmanagers must vì away with the ever temptation of pursuingcompanies which are likely lớn fail.

Government Response

The new Coronavirut Business Interruption Loan Scheme("CBILS"), which was announced at Budget 20đôi mươi, attemptsto lớn offer some support for companies struggling to obtain creditduring the coming period. On releasing final details of the CBILS,Government has made it clear that all EIS và SEIS funded companieswill qualify for the scheme. However, some would argue that itfalls short of providing the necessary tư vấn lớn a large portionof the EIS/SEIS investment community, as it can be time consumingprocess, through which companies must apply through the traditionalbanking routes và satisfy an eligibility kiểm tra which may proveunduly onerous in circumstances when applicant companies'revenue projections are expected to lớn falter over a longer period. Inaddition, there is a concern that, since borrowers remain fullyliable for the debt under the scheme, this may create furtherstrain on companies later in their cycle. Therefore, in order khổng lồ befully effective, measures taken will need lớn bolster equityinvestment made alongside the CBILS.

Conclusion

It would be fair to say that this has been a less than normalrun-up to lớn the tax-year end. With the potential for slowerfundraising, it could arguably create an environment wheredeployment will become more selective than ever. Now more thanever, managers who employ a hands-on approach in managing investeecompanies và have sầu a deep understanding of their businesses'mechanics will be able khổng lồ demonstrate their value-add lớn both theirportfolio of investee companies, and ultimately lớn the investor.Much hope is placed on Government's tư vấn, however given thesituation which provides an abundance of distractions forauthorities, investors must be prudent in placing heavy reliance onWhitehall to lớn deliver further relief in this area.

Subscribers khổng lồ AdvantageIQ can find our Report on How khổng lồ Invest& Manager Availability during CoVid-19 in their market insightthư mục within their document centre, here. This report lets you know about all the managerswho are still open for investment, their response to CoVid-19including changes to tương tác details và application processes. Ifyou are not a subscriber, you can sign up here.

Originally published March 24, 2020.

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The nội dung of this article is intended to lớn provide a generalguide lớn the subject matter. Speciacác mục advice should be soughtabout your specific circumstances.


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