Providers of venture capital trusts have said it will take some time for the market to digest the radical changes made to the tax-efficient investment vehicle.
During a roundtable event hosted by the Association of Investment Companies (AIC), several providers gave their views on the raft of rule changes affecting VCTs.
The changes include limiting the amount a venture capital trust-qualifying company can receive over its lifetime, the age of the company, and restrictions on buyouts and acquisitions.
Paul Jourdan, manager of Amati VCTs, described the changes to the VCT market as an “earthquake”, and pointed towards two different currents:
• The UK government pushing for more targeted results by investing more in early-stage growth businesses.
• EU State Aid legislation, which HMRC needs to comply with.
“The severe complexity of the rules affects the managers,” Dr Jourdan said, suggesting managers are currently in an “uncomfortable position” where the rules have been passed but the detail of how they work is not clear.
“People will tread carefully for some time, but I expect by the end of the year all the wheels will be turning again and the deal pace will be back up to full speed.”
People will tread carefully for some time, but I expect by the end of the year all the wheels will be turning again. Paul JourdanDr Jourdan also pointed out that new rules introduced in 2014 mean an entire VCT could risk losing its status if a single investment fails to meet the new criteria.
However, he said he would be surprised if any of the VCTs end up falling foul of what he called “savage legislation”, adding: “It is not impossible but it would be surprising.”
From an investor’s point of view, Dr Jourdan said the VCT regime “remains pretty simple”, and so consumers should not be put off investing in VCTs because the new rules will not affect them.
Tom Thorpe, director of Foresight Group, echoed Dr Jourdan’s points, suggesting it is for the VCT managers to worry about the changes.
He said: “There is always a bit of a noise and we are always very happy to explain that to the invested companies, but actually to the outside world it doesn’t make a difference,” he said. “It has just created more of a focus in the growth capital market.”
Stuart Veale, manager of ProVen VCTs, said he thought it was very unlikely further restrictions on what VCTs can invest in will be introduced any time soon.
“The most recent round of changes have brought the scheme in line with the European rules, and the UK government wouldn’t have gone as far as they’ve been forced to go if it wasn’t for the EU.
“Now that the rules are aligned with the EU legislation on State Aid, there shouldn’t be any more restrictive changes.”
Mr Veale said there might even be some rolling back on some of the changes as the government looks to negotiate with the European Commission on the rule preventing buyouts and acquisitions.
“I’m hoping this will be the last significant change we will see for some time,” he added.
Last month, industry figures urged investors to act early if they want to invest in venture capital trusts because the changes reduced fundraising targets.
katherine.denham@ft.com
