Matrix Private Equity, the London-based asset manager owned by the Matrix Group, has launched Matrix Enterprise Fund II (MEF II), a tax efficient special purpose private equity fund based on Equity Investment Scheme (EIS) legislation and aimed at sophisticated private investors in the UK with sufficient assets to invest at least £25,000.
The firm, which intends to launch a new MEF every year, is looking to raise up to £5m for the new vehicle.
Matrix’ first based fund, MEF I, held a final close in October 2002, raising less than £2m despite a £5m target. To date MEF I has invested in FSG Security Group, a security service provider, and Signature Brands, a fashion retailer, in a £7m transaction jointly led by Matrix and Electra Partners Europe. MEF I is expected to be fully invested by 5 April 2003, the end of the UK tax year.
Helena Sinclair, a director at Matrix Private Equity, said she was confident to be pressing on with the firm’s MEF fundraising schedule despite difficult conditions for private equity fundraising. “This is as tough a fundraising environment as I have seen, partly because the downturn in the public market has meant private investors have incurred big losses, partly because their fiscal situation isn’t necessarily such that a tax efficient product appeals; if they haven’t had significant capital gains, tax relief will be of limited appeal to them.”
Matrix is nevertheless optimistic that MEF II’s low risk investment approach and tax-related incentives will prove attractive to investors, and more so than Venture Capital Trusts for instance. “The significant advantages of this fund over VCTs include 100 per cent inheritance tax relief after two years, unlimited capital gains deferral relief for gains made in the previous three years, and the return of capital and profits once the successful investments have been sold, whereas VCTs only return dividends and the aftermarket for their shares is illiquid”, said Sinclair.
Matrix runs its own VCT, a £13m raised in 2000 which is currently over 50 per cent invested.
MEF II, in order to reduce investment risk, will be investing in at least four EIS qualifying companies across market sectors. Target companies have to be profitable and well run to match the fund's investment criteria.
EIS was established by the 1994 Finance Act to stimulate investment in unquoted companies, whereby the tax relief is intended to offer some compensation for the risk affiliated with such investment.