More than responsible: Our Knowledge-intensive Impact Fund

Jill Williams, Deputy Fund Principal & Head of ESG

16th May, 2022

Responsible investing is increasingly at the forefront of investors’ minds, and, while ESG provides the framework to support responsible investment, Mercia wanted to take this commitment further. Through a bespoke impact fund, Mercia is actively creating a strategy to support businesses that seek to create positive change and societal benefit. With this approach, Mercia is striving to build on its heritage of significant investment in businesses that are providing solutions to global issues at a local level.

Having raised this first fund in only a few weeks, the Knowledge-intensive Impact Fund will invest in businesses that generate positive impact – that is, businesses that provide solutions to social or environmental challenges. Equally, our existing portfolio businesses, such as Faradion and The Native Antigen Company, a leading supplier of antigens for antibody testing kits, have proven that being purpose-led can amplify commercial outcomes.

Our early investment focus and track record in sectors such as Medical Diagnostics and Devices, Clean Technologies and Enabling Technologies have provided Mercia with experience and expertise in identifying, investing in and supporting businesses that are effecting change and that are driven by purpose. With careful selection and hands-on management these businesses can be high reward, as was witnessed in the realisation of a number of EIS portfolio businesses during 2021.

Mercia will measure prospective impact portfolio investees against three of the UNs’ sustainable development goals. We will assess whether prospective businesses:

  • support sustainable economic growth
  • reduce inequality in our communities
  • promote health and wellbeing for all.

Through this specialist EIS fund, investors will contribute solutions to societal challenges as they benefit from strong returns and realise further tax advantages of knowledge-intensive impact investment. The three main tax advantages of this Fund are:

  1. Income tax relief. Claim up to 30% income tax relief on EIS investments in the tax year the fund closes or carry back the reliefs to the previous tax year 2020/2021
  2. Capital gains tax deferral. Defer capital gains for up to three years before and one year after each underlying investment. Investors can even defer the gain if they have already paid the tax
  3. Inheritance tax relief. The fund’s investments provide 100% relief from inheritance tax.

This fund will also help investors simplify their tax planning. By April 2023, Mercia will have deployed this Fund and invested in eight to 12 impactful businesses.

We were inspired to create this Fund because our goal as an asset manager is to be a sustainable, ever-evolving business that remains focused on our vision to be the first choice for investors, investees and employees. Impact investing provides our investors with an investment vehicle that is assessable, while also providing them with the opportunity to effect positive change that will benefit UK regions by providing funding to purpose-led SMEs that draw on local talent to provide solutions to pervasive challenges.

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