A £1.5bn increase in city bonuses is boosting private investor allocation to venture capital in the UK, according to private equity network, Hotbed. City highfliers are said to view private equity and commercial property as preferred alternatives to traditional investments in UK listed equities or prime residential property.
Much of the new bonus money is being channelled through private banks, which have more than doubled their recommended allocation to alternative assets over the last three years from an average of 1% to 5% to between 10% and 15%. Some banks are suggesting an even higher allocation in alternative assets of between 25% and 30%.
Hotbed says around a quarter of its new investor members come from City institutions with new members in the last month including City traders, investment bankers, hedge fund managers and partners of City law firms (Man Group, Citigroup, Deutsche Bank, Freshfields.)
Gary Robins, Hotbed chief executive, says: “Investors have taken a drubbing on the stock market and they don’t want to buy into the residential property market just as it starts to slide. There is also the concern that the explosive growth of hedge funds now limits opportunities in that field. That leaves investors with commercial property and private equity, both of which have excellent long term growth records and prospects.”
According to data from the British Venture Capital Association and PricewaterhouseCoopers UK, private equity produced average annual returns of 14.2% over the last ten years compared to just 6.2% for UK equities. The Treasury also provides an incentive to investors under the Enterprise Investment Scheme whereby investors can take advantage of 20% income tax relief on investment and can defer unlimited capital gains. Venture Capital Trusts have also received new impetus from income tax rebates introduced earlier this year.