Although only 20 years old, Venture Capital Trusts (VCTs) have already gone through a number of regulatory changes but have still managed to provide consistent returns, according to a feature in Money Management’s September issue.
According to the Association of Investment Companies (AIC), the total funds under management in VCTs increased from £3.2bn to £3.5bn over the year to 5 April 2015. A total £429m was raised at the end of tax year 2015, the fourth highest level of annual funds raised ever and the highest amount raised in over nine years.
With a total of £5.8bn raised since their inception, the scheme invests in small, private up-and-coming companies with high potential for growth that need some financial support.
“It would be fair to say as an investment vehicle the VCTs have raised a lot of money and there is still a lot being invested by VCT managers,” says Will Fraser-Allen, deputy managing partner at Albion Ventures. “It has been pretty successful. The Treasury is very supportive of what we do and that is extremely important. The scheme has invested in a lot of businesses and produced pretty well established fund managers.”
The recent Budget introduced a number of changes to VCT regulation. These include age requirements for qualifying companies and a reduction of the lifetime limit for tax-advantaged funding.
“The changes come about as part of the current discussions with the European Union about the state aid approval for the scheme,” says Guy Rainbird, public affairs director at the AIC. “It is very important that the scheme meets those requirements. The government’s commitment to getting this through is very positive and obviously the changes are going through in the current finance bill so we would hope that state aid approval should be forthcoming in the next few months.”
While the sector still battles with risks such as market volatility, focus on small and emerging companies and complying with tax rules, it is important to bear in mind that the sector came into existence only 20 years ago and has managed to deliver consistent returns despite the highs and lows of the market.