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Characteristics of VCT management

This article is part of
Guide to Venture Capital Trusts

As a closed-ended investment company, a VCT is effectively a listed company that is subject to all of the same corporate governance requirements as any company quoted on a stock exchange.

VCTs also have to comply with HM Revenue & Custom’s rules around VCT qualifying investments (see previous question) and maintaining a prudent spread of risk for retail investors across a diversified portfolio of investments.

Michael Piddock, business line manager for VCTs at Octopus Investments, says there are a wide range of VCTs that invest in different sorts of companies at different stages in their growth, some listed and some unquoted, so to generalise about how they are managed would be doing them a disservice.

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However, he states the one consistent feature across VCTs is that they invest in small companies.

As a result of this, Mr Piddock argues VCT managers have “exceptional” access to an investee company’s management team and senior people and can really “get under the bonnet” of the companies they invest in.

In some cases, especially really early-stage businesses, Mr Piddock suggests the VCT manager will even have a seat on the board of the company, or at least a monitoring role at the board meetings.

Jemma Jackson, PR manager of the AIC, says VCTs are professionally managed, either by large financial organisations, but more typically by small, specialist, private businesses with a focus on venture capital and all of the active management behaviours this entails.

Of course, here lies the key consideration for investors. Though recent changes have opened the opportunity to invest in more established businesses, as a ‘venture’ investment there are more inherent risks with VCTs that other collective investment vehicles.

These risks, and the illiquidity inherent in a necessary five-year hold period to enjoy the tax breaks, must be weighed against the potential benefits of early-stage investment and the potential boost of tax relief.