Venture Capital Trusts  

VCTs becoming 'increasingly mainstream'

VCTs becoming 'increasingly mainstream'

Venture capital trusts are becoming increasingly mainstream, according to the chief executive of Wealth Club.

Alex Davies said the speedy fundraise by Amati AIM VCT this month was evidence of the growing interest in the funds.

Amati’s fund, the first to launch an offer in the current tax year, raised its £40m fundraising target in four working days, making it one of the quickest fund raises for a large VCT, according to Wealth Club.

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Just under two thirds of the funds raised came from existing investors, and the fundraise was done completely digitally.

The £255m trust has delivered a return of 276 per cent since 2010, against a 91 per cent return seen by the Numis Alternative Markets Total Return Index.

Davies said to raise this amount in four days was an “outstanding achievement”.

“VCTs are becoming increasingly mainstream and the drivers causing this are not going to go away,” he said.

Paul Jourdan, chief executive of Amati Global Investors, said the firm realised there would be strong appetite for the fundraise after a top-up offer earlier in the year reached double the amount they were aiming for after an hour and a half.

“We realised that we were going to have a lot of latent demand for shares in the VCT so we had to plan it quite carefully so that this time around we didn’t sell out so quickly,” he said.

“It’s great to sell out fast, but if you sell too fast you end up with a lot of unhappy potential investors and that’s not really a good thing.”

He added: “Conventional wisdom says don’t try and raise money in July - it’s too quiet. Actually, we thought it would be helpful for us to raise money when it was not traditionally a busy time of year, because it would take the edge off the speed at which things happened.”

The investment case for VCTs

VCTs have up to 30 per cent income tax relief, as well as tax-free dividends and a £200,000 allowance.

They are “one of the last relatively simple and tax efficient investment options left,” said Davies.

“If you are wary of potential tax increases on the way, then those tax benefits are all the more valuable,” he added.

These incentives have become even more alluring due to the tapering of the pension annual allowance for higher earners.

Davies said: “Restrictions on buy-to-let and pensions - the freeze in the lifetime allowance was the final nail in the coffin for many - combined with increased tax on dividends, mean it is now much harder for people to invest tax efficiently.”

Another of the benefits of VCTs is that they invest in unlisted firms, said Nick Bird, head of strategic growth at Octopus Investments. 

“Therefore they’re not at the whims of market moves,” he said, pointing to the turbulence seen in the public markets in the past 18 months.