VCT demand booms as fundraising hits second-highest on record

VCTs enjoyed another bumper year of investor activity, despite new rules being ushered in over the past couple of years that have arguably reduced their attractiveness.

Venture capital trusts (VCTs) raised £731 million in the 2018/19 tax year – the second-highest total on record in terms of overall fundraising after stripping out enhanced share buybacks. 

Earlier this year Money Observer reported that VCTs were set to have another bumper year of investor activity, despite new rules being ushered in over the past couple of years that have arguably reduced their attractiveness.

That prediction has played out; it appears the main driver underpinning demand continues to be pension changes such as the pension allowance taper for those earning £150,000 or more. 

Last year the VCT sector raised £728 million – a sum only bettered in 2005/06 when £779 million was invested into the funds, which offer attractive 30% initial tax relief for investments up to £200,000 a year.

Ian Sayers, chief executive of the Association of Investment Companies (AIC), says: “The 2018/19 fundraising figure reflects consistent high demand for the VCT sector and the growing recognition of the benefits VCTs provide to investors. It is the second-highest fundraising figure since VCTs were introduced, boosted by the pension changes and VCTs’ strong long-term record of delivering growth and income returns.”

Over the past couple of years VCTs have become riskier propositions as they are now required to invest in earlier-stage companies, mainly those that have been trading for less than seven years. In addition, the investable universe for VCTs has become more limited, with management buyouts excluded and investments in asset-backed firms restricted.

Keith Lassman, partner and head of capital markets at law firm Howard Kennedy, which advises on VCT fundraisings, says the high amount raised by VCTs was all the more surprising given that consumer confidence and consumer spending has fallen to low levels.

He adds: “It really points to the appetite of investors to put their money into stable investments with good returns to ride out the current uncertainty.  VCTs now have to invest 30% of funds raised in the first 12 months, so this is a big win for UK SMEs looking for funding.

“Under the current cloud of malaise where the UK economy sits, VCTs point to a win-win for both investors and smaller companies.”

Tax year

Fundraising (£millions)

2018/19

731

2017/18

728

2016/17

542

2015/16

457

2014/15

429

2013/14

420

2012/13

269

2011/12

267

2010/11

354

2009/10

338

2008/09

154

2007/08

220

2006/07

267

2005/06

779

2004/05

505

2003/04

50

2002/03

65

2001/02

125

2000/01

433

1999/2000

270

1998/99

165

1997/98

190

1996/97

170

1995/96

160

Source: Association of Investment Companies. 

 

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