Consolidated VCT sector sees investment boom

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Consolidated VCT sector sees investment boom

The venture capital trust sector underwent a consolidation last year, while managing to increase its total fundraising by 68 per cent.

Figures released by HMRC yesterday (January 26) showed that 52 VCTs managed funds in the 2021/22 tax year, down from 57 the year before.

However, there was a rise in the number of VCTs raising funds in the period, with six more in the market, taking the total to 46.

HMRC said the number of funds raised by VCTs and the number of VCTs raising money are normally closely linked, however in recent years this is less evident. 

These changes represent a tidying-up of the sectorNick Britton, AIC

“This trend has continued in 2021 to 2022, with a large increase in funds raised but a modest increase in the number of VCTs raising funds,” it said.

Nick Britton, head of intermediary communications for the Association of Investment Companies, said there are various reasons for this, with some VCTs merging together to save costs, while a number of limited-life VCTs have wound up.

A limited-life VCT is one that has a fixed life, and winds down when it reaches that.

Due to a change in rules in 2015 and 2017, all VCT managers run 'evergreen' strategies, which have no set time period for being active.

Britton added: "Generally speaking these changes represent a tidying-up of the sector, leaving a smaller number of larger, more cost-effective VCTs.

"The diminishing number of VCTs also reflects the popularity of ‘top-up’ offers, where investors subscribe for shares in established VCTs, and the relative difficulty of launching completely new VCTs with no track record.”

Number of VCTs raising and managing funds, 1995-96 to 2021-22

Source: HMRC

The sector saw a boom in investment during the 2021/22 tax year, with £1.2bn invested, a rise of 68 per cent on the year before.

Luke Barnett, head of tax-advantaged strategies at St. James’s Place, said the data is a reminder of the “growing attraction” VCTs present.

“Although demand in the current year has dampened somewhat - the impending recession, cost of living crisis and more subdued investor sentiment is having some effect - it is still likely to be a relatively strong year for fundraising once again,” he said.

A number of the original managers of the UK’s VCTs sold out and cashed in last year, resulting in a more narrow market.

Downing sold its technology venture division, including VCTs, in July, following Mobeus Equity Partners’ sale of its VCT business the year before.

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