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The manager of the Baronsmead VCTs has claimed a range of new approaches could prevent the industry's setbacks from damaging it in the future.

David Thorp, managing director at Isis Equity Partners, said there were already a number of initiatives to combat the impact of rule changes and performance difficulties, particularly in the quoted market.

The Baronsmead range had long formed holding companies on top of its trading companies. This counteracted the fact that from April 2007, a VCT could only invest in firms with fewer than 50 employees.

From April 2006, other restrictions came into effect - for instance, the amount of new money that VCTs could invest in each of their companies decreased considerably. But Mr Thorp has fought the status quo by investing Baronsmead's pre-April 2006 capital and selling new shares to pay the VCTs' dividends.

Baronsmead raised £10m between September 2007 and February 2008 and intends to seek further capital later this year, although VCT sector performance has dipped over the last 12 months.

Mr Thorp says it was still hard to persuade clients to invest when valuations are low but have the greatest potential for improvement.

"If you'd have been investing in 2003 in unquoted and private equity markets, you'd have pretty much doubled your money almost with your eyes shut."

But whereas a smaller companies fund is almost fully invested on day one, Mr Thorp observed, VCTs can buy into their holdings as upturns emerge in specific areas.

"There are clues in the smaller companies area when you start to see takeover activity. We have seen some in the IT sector, but little else."

Mr Thorp also pointed out VCT investors in quoted companies were getting more involved in managing their performance, which had proved more challenging to achieve than in the unquoted sectors. To 9 June, the VCT Generalist sector outperformed the VCT Aim Quoted sector by 1990 basis points over one year and 3040 basis points over three.

"You can't have as much influence unless you are on the board," Mr Thorp maintained. But he said there was now a trend towards large investors congregating in the same companies and campaigning for broadly similar strategies.

"You have to assume the institutional investors have a fairly common agenda," he said. "The last thing we want is for management to go lifestyle."