‘All the original VCT players are selling out and cashing in’

Ben Yearsley, investment consultant at Fairview Investing, said over the four to five years, the VCT market has consolidated significantly.

“A lot of the original players have all got out, they are all selling out and cashing in," he said.

“It is turning into a much narrower market where scale is vitally important.”

Earlier this month, investment manager Downing sold its technology venture division to Foresight Group in a deal worth £17.8mn.

EIS is not a scalable market.Ben Yearsley, Fairview Investing

The sale includes the management of Downing’s VCTs and ventures enterprise investment scheme (EIS), across the Downing ONE and Downing FOUR VCTs, and the Downing Ventures EIS.

Last September, Mobeus Equity Partners sold its venture capital trust business to Gresham House for £36.1mn.

In late 2019, the three Northern VCTs were sold to Mercia Asset Management for an unspecified amount.

Yearsley opined that the age of the founders along with the offered prices of the buy-outs are the reasons for the sales.

"Many have been doing it for 20 years or so, and with assets at an all-time high and good performance, it is an ideal time to cash in", he said.

The VCT market has grown considerably over recent years, with investors plugging £1.13bn into the vehicles in the 2021/22 tax year, an increase of 63 per cent compared with the previous year.

The rising popularity of the vehicles, which offer tax relief investing and dividends, has been tipped to continue as the tax burden on wealthier individuals rises and the impact of the freeze on personal allowances until 2026 starts to bite.

Downing sale

Chief executive of Downing, Tony McGing acknowledged the sale of the group’s tech VCTs might have come as a surprise for some people.

The group has £1.6bn under management, and the VCT and EIS make up about £275mn.

He said as part of the company’s strategic plan that 20 per cent share was forecast to drop down to 10 per cent within the next three years.

“We're building a really good track record in healthcare, and it’s a growing sector with a lot more interest in it since the pandemic,” he said.

“[Although] people know us for VCTs, it was not the area in which we’ve grown.”

He added part of the company’s strategy is to grow its non-tax base money, and it is looking to grow its AUM from £1.6bn to £3bn within three years.

“We’re not going to be able to do that in VCTs,” Tony said.

Darius McDermott, managing director of Chelsea Financial Services said Downing was not giving up on VCTs in general, but it was just concentrating on the healthcare area where they think there is bigger growth.

“Quietly what they’ve been doing is growing an asset management business in the past five years,” he said.

Notable hires in recent years include Rosemary Banyard, who runs the Downing Unique Opportunities Fund.

Yearsley added that EIS also does not fit into Downing’s future plans. “They are realigning the business, they’re looking for [a] scalable [business model]," he said.

“EIS is not a scalable market; it is time-consuming and despite the high fees, it is not that profitable.

“They have some interesting products and they seem to want to focus on products they can scale, which makes perfect sense,” he said.

sally.hickey@ft.com