ShareRAM Capital Partners/Goldfield Partners – Gaia Power Systems
Type: Enterprise investment scheme
Aim: Growth by investing in solar PV systems already installed in residential properties in and around Yorkshire
Minimum investment: Lump sum £10,000
Closing date: March 30, 2012
Charges: Initial 5.5%, annual 1.5%, performance fee 30%
Commission: Initial 2.25%, 0. 5% renewal for up to 25 years
Tel: 020 3006 7530
RAM Capital and Goldfield Partners have introduced the third product in a series of solar enterprise investment schemes, Gaia Power Systems. This follows the Goldfield Solar EIS– which closed in December having reached its £10m subscription target – and the recent Sunlight Technology EIS, which had a maximum capacity of £2m. When Gaia Power Systems reaches its maximum target of £2m, the final opportunity, Anchor Renewables, will become available.
Holden Partners managing partner Mark Hoskin sees the Goldfield offering as the most dependable in the market. "It is often difficult for IFAs to do something which is a bit different, but it is worth looking into this, because after March 31, the opportunity will most likely be closed. In the current economic climate, locking in to a 5 to 6 per cent inflation-linked yield for 25 years through this EIS looks very good value indeed. IFAs need to move fast to take advantage," he says.
Putting the EIS in to its market context, Hoskin says: "Solar as an investment theme has been the subject of much misunderstanding and rumour, brought on by the UK government who want to reduce the amount of money which benefits from the solar tariff at its current rate." He thinks the government is trying to reduce investor appetite for solar investment, but sees it as a great investment opportunity which is unlikely to be repeated after March 31.
Hoskin says: "For me, the key point about Sunlight Technology is that it provides an inflation linked 25 year income, with upfront income tax relief of 30 per cent by virtue of being an EIS. Making an investment in this EIS is similar to making a pension contribution and then purchasing an inflation linked income, only you don't lose your capital as you would with an annuity and you get a better rate of return."
Hoskin adds that Goldfield Partners has already raised £10m for the Goldfield Solar EIS fund, which was split across five EIS companies. "It was the new kid on the block, but now it has proved it can deliver, making Sunlight Technology and its successors more attractive to investors," he says.
Hoskin's says the risks and rewards promised from the feed in tariff in 2011 have not changed for Sunlight Technology, Gaia Power Systems and Anchor Renewables – they are the same as for the Goldfield Solar EIS fund. He points out that this is because Goldfield secured access to the solar panels before raising the money, in contrast to others who have raised money and then looked at how to spend it.
Goldfield has had an agreement in place with a company called A Shade Greener for over a year to buy solar panels subject to the old tariff rates for panels installed before December 12, 2011. Hoskin feels this is relationship is central to the success of the EIS.
"A Shade Greener has installed over 7000 'free' solar systems and each Goldfield Solar EIS company only needs to purchase around 145 solar panels. A shade Greener is one of the only panel installers with this kind of availability and Goldfield Partner's long term relationship provides their Solar EIS company's investors with a competitive advantage over other offerings as the 31st March 2012 deadline looms and cash burns a hole in asset manager's pockets.
"Almost as soon as an investment is made the Goldfield Solar EIS companies can invest it. These companies are not taking development risk and the tariff an investor will be getting is known now and the price of the panels set – this is unique in the market.
Hoskin points out that the government has been told that its feed in tariff cut was unlawful, but it continues to take the case to the Supreme Court. "This is most likely just to dissuade investors from filling their boots and to save political face. It is somewhat irrelevant to the Goldfield Solar EIS companies because the assets they will be buying are subject to the old tariff."
Hoskin adds that the product is a natural income producer providing income from inception, although due to the EIS structure income will not be paid out until after year four.
Discussing the tax planning element of the EIS, Hoskin says: An EIS provides an investor with the ability to claim 30 per cent of the investment back in income tax relief, which for some clients with planning can all but remove a client's tax bill in 2011/2012. This is because EIS relief is a reducer, so as long as you have paid income tax you can utilise EIS relief to reduce this bill to zero. It therefore plays well with pension contributions.
"A big planning opportunity is to transfer the shares after the three year holding period to the low earning spouse, providing a married couple with a tax free dividend stream. It is this income stream which sets this investment apart for me from anything else on the market. While you do not see this in dividends because of the EIS structure, the income rolls in from day one and goes on for 25 years. Many of my clients are 50 to 60 and the key income need will be from 60 to 65 to 85 to 90. It parallels with their retirement income need years. "
Hoskin says these clients are are also conscious of inheritance tax and after two years, as a trading company, this investment falls outside the estate for IHT purposes under the Business Property Relief rules. He says this product provides a good level of income and takes the capital outside of an investor's estate.
Turning to the potential drawbacks, Hoskin says: "The key concern for an investor in this type of scheme is liquidity. Investors looking to turn a product like this into cash after the holding period of three years through an exit need to be cautious. There may well be a second hand market for these type of assets, but given the government's intention to kill investor financing after March 31, the end market is not going to be as big as it might have been. This will reduce the likelihood of institutional pension funds being interested in the second hand market. But it does not mean that there will not be buyers interested in an inflation linked income. "
Hoskin says he has put investors into Goldfield who like the idea of a 25-year income stream. "This removes concerns over exit because I have bought a 25-year cash flow. This is an interesting play when an investor rolls in capital gains tax to the EIS because all the returns come back in the form of dividends, which means in 25 years the value of the shares will be zero and so the capital gains tax never will be paid."
He adds that Goldfield Partners is confident that it will be able to provide liquidity in four years to those who want out, firstly from the accumulated cash that will build up in the Goldfield Solar EIS companies over the four years and by introducing a level of gearing. "By then the cash flows will be well proven and the financial crisis will have moved into a different phase making this scenario much easier to manage.
"The second concern is around the strength of the covenant, which is in effect the working of the UK electricity market and political tinkering. This is where an investor needs to consider the main risk involved in the scheme, because it is unlikely that the sun will stop shining and the technology is well proven, as solar panels have been providing energy for satellites since the 1950s.
"In many ways the extreme government action and tariff cuts has done the job for the government and taken the wind out of the solar industry's sails. This has, at a time when investors could take fright, somewhat ironically reduced the political risk to existing tariff installations. What is scaring investors away is making Goldfield's asset stream, in my opinion, more valuable and more investable."
Hoskin adds that before the Goldfield Solar EIS, Goldfield Partners did not have experience of managing an EIS Scheme. "They are ex-property professionals who provided loan finance on commercial buildings up until the financial crisis. However, they brought in Prosper Capital as sponsor and operator to look after investor's interests and their property background does have direct relevance in dealing with the leases, which are so central to the business model. "
Discussing competitor products, Hoskin says: "The market has changed a lot in the last year, with most fund managers closing their offering before the tariff cuts. Goldfield Partners model continues just as it was because the offering has not changed.
"The most similar offering is the Oxford Capital Partners Solar EIS 2 which is offering pre-installed solar panel assets, but these have been installed after December 12, 2011, making the likely returns dependant on the government appeal to the Supreme Court."
Hoskin feels that others in the market do not have such a water tight proposition. "Investors may have missed the Octopus EIS but this invests in commercial projects, not residential, so is a very different proposition to Goldfield's. "
BROKER RATINGS
Suitability to market: Good
Investment strategy: Good
Charges: Good
Adviser remuneration: Good
Overall 9 /10
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