The total size of the venture capital trust sector is just less than £3bn. That is dwarfed by several single open-ended investment companies on the market. So I think it is fair to say that this is very much a niche area.
You need the resources of the National Security Agency or GCHQ to carry out proper due diligence. Try looking for information on the companies in which they invest and often you are stymied. What often does become apparent is the nepotism. VCT directors seem to pop up as directors in the companies in which they invest and no doubt earn fees as well as the income from the VCT management company. So that is no doubt an element of double charging.
The investments anyway seem more intent on circumventing the spirit than actually doing what was intended in the first place. As I understand it, the idea of these is to encourage new businesses to get on their feet, employ people to produce things and ideally export like mad. I do not see a lot of that.
As far as clients are concerned, an adviser takes on a much higher risk advising on these – with possible ramifications for his professional indemnity insurance. It takes a good couple of pages to set out satisfactory details in a client report, whereas a unit trust needs a couple of paragraphs.
I do concede that there are VCTs that may do a half-decent job, but it does not detract that many are inflexible and illiquid. The size of the sector is such that I really do wonder why we bother at all – or more relevantly why the government bothers? Why not just increase the Isa limit and allow somewhat more adventurous funds?
Harry Katz
Principal
Norwest Consultants
Middlesex
