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The number of VCT managers could fall by more than a third over the next year, as many firms struggle to raise assets, the chief executive of Octopus Investments said.

The company, one of the top-three venture capital trust operators by assets under management, said the industry is due for a bout of takeover activity, which could reduce the total number of managers from approximately 60 to fewer than 40.

Simon Rogerson, chief executive of Octopus Investments, said some parts of the industry are already in the early stages of takeover activity and far more are set to follow. “There is going to be a great deal of consolidation because the market has reached maturity,” he said.

Since 1995, when VCTs were first launched, roughly £3.5bn have been raised, he said. However, sales were low in the 2007-08 financial year, and Mr Rogerson said he expected similar figures for this year. He said VCTs have become less attractive to some investors after the government limited VCTs' investable universe to companies with fewer than 50 employees and imposed a cap on the amount that can be invested each year.

“There are only a handful of VCT firms with more than £200m in AUM," he said. "We will very soon begin to see those companies – us included – looking to take on individual funds or entire businesses to expand.”

Mr Rogerson said this will benefit investors in a number of ways. Consolidation of individual funds or entire businesses is likely to mean lower management charges for VCT shareholders. Also, larger and more affluent companies will be able to attract superior managers , he added.

“Many VCT suppliers have less than £20m in assets," Mr Rogerson said. "You can’t hire and retain the best managers if you don’t have critical scale.”

Octopus runs 12 VCTs, in addition to offering IHT and EIS products. It has also recently moved into Oeics. Its flagship £36.6m Eclipse VCT 1 has returned 134.2 per cent in net asset value terms over three years to 4 July 2008. It has outperformed the AIC’s Generalist PQ sector, which has an average NAV return of 118.8 per cent.

The firm recently announced it will f ollow up its lower-risk £30m Octopus Protected VCT. The new trust, like its predecessor, will invest in 20-25 smaller companies. Mr Rogerson said the credit crunch has created an opportunity for protected VCTs, because it has forced banks to cut back on investing in private equity deals .