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Financial Innovation: Investment company introduces unique fee changes for 2024

ByVanessa Lima

Jan 31, 2024
Kowit_Lanchu_shutterstock.com

With a track record of investing in over 100 early stage enterprises dedicated to pioneering solutions for commercial, technological, and scientific challenges, Oxford Capital are passionate about investing in innovative early-stage companies with strong growth potential.

Oxford Capital has been at the forefront of groundbreaking initiatives, including pioneering fund investing through their Enterprise Investment Scheme (EIS) work since 1999. The company is once again embracing innovation, staying attuned to market dynamics and seeking closer alignment with investors. In a bold move designed to enhance investor value, Oxford Capital are introducing a fee structure for 2024 to significantly reduce the lifetime cost of investment.

Oxford Capital’s fee structure change:

Following the success of their recent second 10x exit within the past two years, Oxford Capital takes pride in unveiling their unique fee tariff for 2024. This comprehensive framework addresses longstanding concerns expressed by both Venture Capital (VC) and Enterprise Investment Scheme (EIS) investors across the market. The result is an overall enhanced investor experience, reflecting Oxford Capital’s commitment to providing solutions aligned with the critical needs of the investment community. 

The changes provide their investors with:

  • Complete transparency by clearly outlining the maximum lifetime cost from the outset
  • A tiered initial fee structure that recognizes the principle that investors subscribing a larger amount should not bear the same initial fee percentage as those subscribing a smaller amount
  • Streamlining the initial fee and custodian purchase/sale fees, eliminating the VAT requirement to reduce overall costs
  • Enhanced investment potential with an increased subscription percentage available for investment, ranging from a minimum of 91.8% to a maximum of 95.8%, allowing for greater capital deployment and minimising retained cash
  • Optimised cost efficiency with a reduced Annual Management Charge (AMC), capped at 7 years in alignment with the upper end of the anticipated investment holding timeline
  • Elevated performance standards by raising the performance fee hurdle from 100% to 120%, calculated on a portfolio-wide basis

An example of a £100,000 investment In January 2024

Type of Fee 2023 2024 Notes
Initial 

Fee

3% Incl. VAT 4% No Vat For 2024 Oxford Capital have restructured the way their fees are taken, meaning VAT is no longer chargeable on the Initial Fee. Oxford Capital have also introduced a tiered initial fee tariff, ranging from 5% to 1%.

 

This example paid a 4% initial fee in this example, which is higher than the previous fee tariff. However, this increase is offset by removing the requirement to pay VAT, along with us retaining only two years AMC rather than the previous three years.

Custodian Share Purchase

Fee

0.24% Incl. VAT 0.20% For 2024 Oxford Capital have restructured the way their fees are taken, meaning VAT is no longer chargeable on the Custodian Share Purchase Fee. This is taken at the same time as the Initial Fee. 

 

This example  paid a fee of £200 to Apex, their Custodian, a saving of £40.

Annual Management Charge 2.5% p.a Incl. VAT 1.50% pa Incl.

VAT

Oxford Capital have reduced their AMC significantly, and have also introduced a 7 year cap, meaning AMCs will only be payable for a maximum of 7 years.

 

The example will pay his AMC for a maximum of 7 years, with a maximum of 5 years AMCs being accrued on his account, as the first two years are retained in cash at outset. This is a saving for him of £1,000 per year, and he knows that he will stop having these fees applied after 7 years.

Annual Administration Fee £80, plus £15 per EIS3 Certificate £100 Oxford Capital has introduced a flat rate admin fee which covers all other charges, including legal fees, audit fees and EIS3 fees. 

 

Although the headline figure is an increase of £20, the reality is that it now covers ALL additional fees, which previously would have been charged separately, and would have cost significantly more than £80 per year.

Amount available for Investment 90% 92.80% The cash retention figure now moves on the same sliding scale as the initial fee, so the larger the investment, the more of an investor’s subscription is available for investment. For a 5% initial fee the percentage available for investment would be 91.8%. For a 1% initial fee the percentage would increase to 95.8%. 

 

The example’s initial charge is 4%, so he has 92.8% or £92,800 available for investment, an increase of £2,800 which can be used to purchase shares in high potential, early-stage businesses within his portfolio.

Maximum Lifetime Cost of Investment No Limit. 

7 years would be 20.04%, 

10 years would be 27.24%

14.70% The new capped AMC for 2024 provides investors with absolute clarity from outset what the maximum cost of their investment will be. For an investor paying the 5% initial fee, the maximum lifetime cost will be 15.7%. For someone paying a 1% initial fee the lifetime cost will be 11.7%. 

 

As the example paid a 4% initial fee, his maximum lifetime cost of investment will be 14.7%, or £14,700, a significant decrease on the previous fee tariff.

Performance Fee 20% at 100% Hurdle 20% at 120% Hurdle For 2024 Oxford Capital have increased their Performance Fee Hurdle, meaning they now have to return 120% of an investor’s net subscription before the Performance Fee becomes payable, an increase of 20%. 

 

This means that Oxford Capital now needs to return £120,000 back before they start charging their performance fee.

Mark Bower-Easton, Head of Distribution at Oxford Capital, has provided commentary on their new fee structure:

“Oxford Capital has a history of innovation over the years – from creating the first EIS fund structures in 1999, to now, where we are excited to be launching an innovative fee tariff for 2024 and beyond. It’s another good news story coming out of Oxford Capital, following closely off the back of our second 10x exit in the past two years.

The changes are aimed at disrupting the industry, and providing investors with fully transparent and cost-effective fees, which further align ourselves to our investors and our portfolio companies.

Following on from the FCAs new Consumer Duty rules, consumer feedback and extensive market research, we established that the key issues investors have in the venture capital and EIS industry include fee opacity, uncertainty around lifetime cost, lack of alignment between investors, VCs and portfolio companies, and an overall excessively expensive proposition – particularly for investors who are minded to write larger cheque sizes.

The changes we have made will provide investors with the clarity they desire around charging, whilst also providing them with one of the most cost-effective EIS solutions available in the UK today.”

Photo credit: KowitLanchu/Shutterstock.com