Venture capital trusts (VCTs) have so far attracted 40 per cent less capital from investors this year as Brexit fears take hold of investors.
Jason Hollands, who heads up the VCT business at Bestinvest, revealed VCT fund raising was down this year with the investment vehicles so far taking 40 per cent less cash than a year ago.
Mr Hollands said several VCTs that raised new money from investors last year, have not done so this year, while others have raised very little capital.
He attributed the sluggish market conditions to investors becoming risk averse over the past year as the UK heads towards Brexit, and a particular aversion to investing in UK assets.
Back in 2017, chancellor Philip Hammond made changes to VCT investinhg rules to make sure managers were now directing investors' cash to ventures where there was a risk of loss of capital.
Mr Hollands said: "There was a lot of fundraising in the last year, as people fear that the tax breaks were going to change, and that did not happen.
"I think in this environment, the big will get bigger, as investors will navigate to the VCTs with a track record, where you could have 70 per cent of the portfolio invested in already profitable businesses."
Francis Klonowski, an adviser at Klonowski and Co in Leeds, said he has tended not to invest in VCTs because he finds that the fees are relatively high and the investments return little when the tax breaks are excluded.
Donald Stark, head of investment tax at HM Treasury, said he appreciated VCT managers needed time to bed in the shake-up brought about following the Patient Capital Review but the government was closely monitoring whether risk to capital conditions were being met.
In 2017's Budget a new risk to capital condition to EIS, SEIS and VCT rules was introduced to exclude investments where the tax relief provided most of the return for an investor with limited risk.
The test meant companies would have to satisfy the Treasury they either had objectives to grow and develop over the long-term and that there was a significant risk there could be a loss of capital to the investor of an amount greater than the net return.
But Nick Britton, head of intermediary communications at the Association of Investment Companies (AIC), said Bestinvest's data wasn't surprising, and was in line with normal years in the VCT market.
He said: "Last year because of fears about potential rule changes, was an atypical year, and this year is much more normal."