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THE SITUATION ON EIS/SEIS UNDER THE NEW RULES

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T T Martin Heffernan

Martin Heffernan, Partner at Thompson Taraz

Thompson Taraz Applauds the FCA’s Position on UCIS, EIS and SEIS

Having taken part in the FSA/FCA’s consultation process surrounding the decision to potentially restrict the distribution of unregulated collective investment schemes (UCIS) and close substitutes to the retail market, Thompson Taraz is delighted that the FCA, at the end of June, decided not to capture all Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS) within their new rules which are to be introduced in January 2014.

T T Martin Heffernan

T T Martin Heffernan

Much to the market’s relief, the situation on EIS/SEIS under the new rules is:

  • a single company offering of shares under EIS and SEIS will not be caught
  • EIS and SEIS funds will also not be caught as long as long as they are not structured as UCIS, but
  • EIS and SEIS that are structured as UCIS (of which there are very few) will be caught.

The way forward for EIS and SEIS,” reiterates law firm Maclay Murray & Spens, “is for them not to be structured as UCIS.”

Good UCIS, EIS and SEIS funds remain excellent investments for the right kinds of investors; the problem in recent years has been that they have ended up too often in the hands of unsophisticated investors or those who couldn’t afford the potential for total losses.  It was this that the FSA identified through their review of the market which led to the changes being proposed and it is exactly this that the FCA has sought to address, and in our opinion has succeeded in addressing, with their new rules.

While UCIS are more restricted by the new rules, the FCA has focused their ban only on “ordinary” retail investors meaning those who are neither sufficiently financially sophisticated nor wealthy enough to understand the risks or bear the losses which may result.  This seems eminently sensible to us and we’re pleased that in addition the FCA have not only made mis-selling less likely but have also made sales to the right investors a little easier.

EIS and SEIS funds are generally not affected by the new rules.  This is a relief to many as they serve an important part of the market.  Simon Webber, TT’s Strategic Regulatory Consultant suggested: “If ordinary EIS funds were to be included in the definition of non-mainstream pooled investments (NMPI), it might well cause advisors to direct people to invest in a single company EIS which would not provide any spread of risk and where the investment would not necessarily be managed or monitored by a regulated firm.”

The latest bump in the road for EIS and SEIS is the FCA’s recent statement published in their policy on the Alternative Investment Fund Managers Directive.  This says that although EIS and SEIS funds aren’t (generally) UCIS and aren’t caught by the new policy on retail restrictions, they may well be an Alternative Investment Fund which is captured by the new Directive.  This would mean that, depending on the size of their manager, EIS and SEIS funds would need to have separate managers and custodians and the managers would need to employ risk and investment management techniques designed to regulate hedge funds.  The additional costs of complying with the Directive would crush many EIS and SEIS funds.

There is however some relief in that EIS and SEIS portfolios where they are not run as single funds (even though they may often co-invest the funds of a number of clients) will not be caught by the Directive.  We therefore expect the EIS and SEIS market to move further in this direction.

Looking to the future

To date, the negative sentiment surrounding UCIS and by implication, all higher risk, alternative investments, together with fear in the industry about mass claims  and the FSA and FCA’s deliberations on the new policy have contributed to the lack of take-up of EIS and SEIS in the first half of this year.

Whereas the new rules looked like the green light for EIS and SEIS funds, the potential impact of the Directive may well continue to act as a brake on these funds, at least during the year of ‘transition’ into the Directive from July 2013 to July 2014.  The market is now watching and waiting to see whether there will be a renewed interest in these investment opportunities.

Wherever UCIS, EIS and SEIS sit in the marketplace – whatever product label we apply to them – these products are intended for those comfortable and familiar with sophisticated investment strategies and higher levels of associated risk.  We’re delighted that as a result of these rules, this is exactly where they will be targeted in the future.

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Dollar edges lower as investors favor higher-risk currencies

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Dollar edges lower as investors favor higher-risk currencies 1

By Stephen Culp

NEW YORK (Reuters) – The dollar lost ground on Friday as market participants favored currencies associated with risk-on sentiment over the safe-haven greenback.

Risk appetite was stoked by better-than-expected economic data and expectations that U.S. President Joe Biden’s proposed $1.9 trillion coronavirus relief package will come to fruition.

“The dollar’s down against other currencies but not by a whole lot,” said Oliver Pursche, president of Bronson Meadows Capital Management in Fairfield, Connecticut. “I expect the dollar to be where it is now at the end of the year, and the main reason for that is while I see some signs of improvement in the economy, monetary policy is going to stay where it is.”

“I don’t think the dollar is underpriced or overpriced,” Pursche added.

For the week, the dollar slid about 0.2% against a basket of world currencies, the euro was essentially flat, and the yen lost more than 0.5%. But the British pound advanced more than 1.1% against the dollar, its best week since mid-December.

Bitcoin continues soar to record highs. The world’s largest cryptocurrency was last up 6.6% at $54,961.67, hitting $1 trillion in market capitalization.

Its smaller rival, ethereum, was last up 0.7% at $1,953.28.

The digital currencies have gained about 89% and 1,420%, respectively, year to date, leading some analysts to warn of a speculative bubble.

“One concern I’ve always had (about cryptocurrencies) is how susceptible they are to manipulation,” Pursche said. “But they’re going to continue to gain legitimacy.”

“While it’s great that Tesla made an investment in bitcoin, I’m more intrigued by Blackrock and other major investment firms taking a hard look at cryptocurrencies as a viable investment.”

The Australian dollar, which is closely linked to commodity prices and the outlook for global growth, was last up 1.21% at $0.7863, touching its highest since March 2018.

The New Zealand dollar also gained, closing in on a more than two-year high, and the Canadian dollar advanced as well.

Sterling, which often benefits from increased risk appetite, rose to an almost three-year high amid Britain’s aggressive vaccination program. It had last gained 0.27% to $1.40.

The euro showed little reaction to a slowdown in factory activity indicated by purchasing manager index data, rising 0.21% to $1.2116.

The yen, gained ground against the dollar and was last at 105.495, creeping above its 200-day moving average for the first time in three days.

(Reporting by Stephen Culp, additonal reporting by Tommy Wilkes; editing by Jonathan Oatis)

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Shares rise as cyclical stocks provide support; yields climb

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Shares rise as cyclical stocks provide support; yields climb 2

By Saqib Iqbal Ahmed

NEW YORK (Reuters) – A gauge of global equity markets snapped a 3-day losing streak to edge higher on Friday, as the recent selling pressure on high-flying big technology-related stocks eased even as investors showed a preference for economically sensitive cyclical sectors.

Oil prices fell from recent highs as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather, while the U.S. Treasury yields extended their recent rise.

The MSCI’s global stock index was up 0.47% at 681.88, after losing ground for three consecutive sessions.

On Wall Street, stocks steadied as cyclical sectors edged higher while tech names made modest advances after concerns about elevated valuations led to some selling in recent sessions.

“What we saw (this week) represents a market that is tired and may not do very much. So we are headed for some sort of a pullback, but I don’t think we’re there just yet,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

“Investors are not really pulling out of the market, but they are becoming more cautious. It already has factored in another good positive earnings season.”

The Dow Jones Industrial Average rose 119.97 points, or 0.38%, to 31,613.31, the S&P 500 gained 12.93 points, or 0.33%, to 3,926.9 and the Nasdaq Composite added 92.58 points, or 0.67%, to 13,957.93.

The S&P 500 technology and communication services sectors, housing high-value growth stocks, were among the smallest gainers in early trading, while financials, industrials, energy and materials rose more than 1%.

European shares edged higher on Friday as an upbeat earnings report from Hermes boosted confidence in a broader economic recovery. The pan-European STOXX 600 index was 0.64% higher.

U.S. Treasury yields on the longer end of the curve rose to new one-year highs on Friday as improved risk appetite boosted Wall Street, while the yield on 30-year inflation-protected securities (TIPS) turned positive for the first time since June.

Core bond yields have pushed higher globally, led by the so-called reflation trade, where investors wager on a pick-up in growth and inflation. Growing momentum for coronavirus vaccine programs and hopes of massive fiscal spending under U.S. President Joe Biden have spurred reflation trades.

The benchmark 10-year yield was last up 5.1 basis points at 1.338%, its highest level since Feb. 26, 2020.

Oil prices retreated from recent highs for a second day on Friday as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather.

Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude oil production and 21 billion cubic feet of natural gas, analysts estimated.

Brent crude futures were down 28 cents, or 0.44%, at $63.65 a barrel, while U.S. West Texas Intermediate (WTI) crude futures fell 66 cents, or 1.09%, to $59.86.

Copper jumped to its highest in more than nine years on Friday and towards a third straight weekly gain as tight supplies and bullish sentiment towards base metals continued after the Chinese New Year.

Spot gold XAU= was down 0.58% at $1,785.71 an ounce.

The dollar lost ground on Friday, extending Thursday’s decline as improved risk appetite sapped demand for the safe-haven currency and drew buyers to riskier, higher-yielding currencies. The dollar index was off 0.295%.

Bitcoin hit yet another record high on Friday, hitting a market capitalization of $1 trillion, blithely shrugging off analyst warnings that it is an “economic side show” and a poor hedge against a fall in stock prices.

(Reporting by Saqib Iqbal Ahmed; Editing by Nick Zieminski)

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Oil falls after surging past $65 on Texas freeze

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Oil falls after surging past $65 on Texas freeze 3

By Stephanie Kelly

NEW YORK (Reuters) – Oil prices fell on Thursday despite a sharp drop in U.S. crude inventories, as market participants took profits following days of buying spurred by a cold snap in the largest U.S. energy-producing state.

Brent crude fell 41 cents, or 0.6%, to settle at $63.93 a barrel. During the session it rose as high as $65.52, its highest since January 2020.

U.S. West Texas Intermediate (WTI) crude futures fell 62 cents, or 1%, to settle at $60.52 a barrel, after earlier reaching $62.26, the highest since January 2020.

Brent had gained for four straight sessions before Thursday, while WTI had risen for three.

“The market probably got a little bit ahead of itself,” said Phil Flynn, a senior analyst at Price Futures Group in Chicago. “But make no mistake, this selloff in oil doesn’t solve the problems. The problems are going to persist.”

Though some Texas households had power restored on Thursday, the state entered its sixth day of a cold freeze. It has grappled with refining outages and oil and gas shut-ins that rippled beyond its border into Mexico.

The weather has shut in about one-fifth of the nation’s refining capacity and closed oil and natural gas production across the state.

“The temporary outage will help to accelerate U.S. oil inventories down towards the five-year average quicker than expected,” SEB chief commodities analyst Bjarne Schieldrop said.

Prices dropped despite a decrease in U.S. oil inventories. Crude stockpiles fell by 7.3 million barrels in the week to Feb. 12, the Energy Information Administration said on Thursday, compared with analysts’ expectations for an decrease of 2.4 million barrels.

Crude exports rose to 3.9 million barrels per day, the highest since March, EIA said.

“The big nugget was the big jump in exports of crude oil,” said John Kilduff, partner at Again Capital in New York. “We’ll have to see what happens with that next week weather in Texas, but I have been looking for a pickup there for a while.”

Oil’s rally in recent months has also been supported by a tightening of global supplies, due largely to production cuts from the Organization of the Petroleum Exporting Countries (OPEC) and allied producers in the OPEC+ grouping, which includes Russia.

OPEC+ sources told Reuters the group’s producers are likely to ease curbs on supply after April given the recovery in prices.

(Additional reporting by Yuka Obayashi in Tokyo; editing by Emelia Sithole-Matarise, Steve Orlofsky, David Gregorio and Jonathan Oatis)

 

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