NEWS // The credit crunch has sent shockwaves round the world’s financial markets... (continued)
At such a time, it is refreshing to see a report published by the Kaufman Institute in America – www.kaufman.org – which is the biggest ever piece of research into the returns made by Business Angels who typically invest in innovative young companies, some of which will turn into the principal engines of future economic growth.
The report looks at the returns achieved by approximately 1,800 Business Angels in 800 syndicates in a total of 600 transactions and looks at exits good and bad. The conclusion of the report is that if investments had been made on a “portfolio” basis with all investors participating in the returns in proportion to the amounts invested they would have received a return of 27% per annum over a 15 year period.
This type of investment is not without its risks but, if structured correctly, it benefits from generous tax breaks which are not available to conventional investors. It is now beginning to become recognised as an asset class in its own right and one which is capable of producing real returns for investors over the long term. However, while the financial engineers dream up new ways of “spinning the plates” with CDOs and CDSs or their successors, it represents our best hope of ensuring that Western economies continue to invest today in the innovative young companies upon which we will rely to provide our economic growth tomorrow.
To date the UK clearing banks have written off no less than £22 billion in respect of their CDO losses. Such a sum might have been sufficient to install a string of generators across the Pentland Firth which could provide the UK with its entire electricity requirement. It is worthwhile reflecting whether trading in financial instruments or investing in our future is likely to provide better returns over the long term.
For further information please contact Sandy Finlayson on 0131 226 8202
sandy.finlayson@mbmcommercial.co.uk