Investors have not been deterred from investing in VCTs, figures show.
Neil Woodford’s spectacular fall from grace has not negatively impacted Venture Capital Trust (VCT) fundraising, figures from Wealth Club show.
According to Alex Davies, chief executive officer and founder of Wealth Club, a tax-efficient investment service that facilitates VCT applications, the appeal of backing small-sized entrepreneurial businesses has not been dampened, despite Woodford’s heavily documented problems with unlisted businesses. VCTs typically back unlisted early-stage companies.
The Wealth Club notes that to date (in early February) overall VCT investment is down 7.5% this tax year, compared with last year.
But this is not down to Woodford having a negative impact on sentiment, according to Davies. Instead he points to December’s general election as the key driver, with investors opting to sit on the sidelines and adopt a wait-and-see approach until the election was concluded.
Davies adds that immediately after the election there was a big bounce in VCT investment, with £33.8 million raised in the period following the result and Christmas. The amount invested was 78% higher than the same two weeks in 2018, and up 275% on 2017.
“VCTs attract sophisticated investors, so therefore they know what they are getting into and the risks involved. On the whole, the mindset investors have is that VCTs are riskier than they actually are once the tax relief is factored in. For these reasons, events that occurred at Woodford Investment Management have not had any impact on fundraising,” he says.
“The fact that VCT investment is currently below where it was last year is down to two things, I believe – weaker investment sentiment before the election and also timing of deals. January saw some big launches from big names.
“I expect there to be a big pick up in VCT investment for the end of the tax year, and for inflows to beat last year’s £731 million which was the second highest year on record.”
Some commentators, including Peter Ewins, lead manager of the BMO Global Smaller Companies investment trust, feared the “Woodford effect” could deter investment into smaller companies.
Speaking at an event in November organised by FundCalibre, the fund research ratings agency, Ewins said: “There’s certainly a negative vibe around smaller companies as a whole at the moment, due to the Woodford effect, which as a smaller company fund manager myself I am not happy about.
“The whole Woodford affair is unfortunate for the whole fund management industry, and I do hope it starts to die down a bit. Retail investors should not panic and abandon smaller companies.”