Britain’s Venture Capital Trust scene is all set for a massive boost this year, according to a new provider poll organised by the Association of Investment Companies. A ‘Perfect storm’ is brewing, driven by a combination of new investor appetite and a need from small businesses for new funding that arises either because of frustrating bank lending conditions or because retiring business owners are seeking exits and/or buyouts.

All this, of course, has come on top of last year’s FCA decision to exclude VCT and EIS schemes from the restrictions on UCIS and UCIS-like instruments. And it’s meant that the potential pool for VCT sales has exploded.

That’s not just hyperbole, either. “Not only are funds under management in VCTs at their highest ever level,” said Alex Macpherson, head of the Ventures team at Octopus and fund manager of the Octopus Titan VCTs.  “VCT fundraising is up by 69% compared with this time last year.” And, he added, Octopus’s own VCT inflows to date are “over ten times what they were this time a year ago”. Phew.

 

Investor Demand

Some of the new demand is being driven by wealthier investors seeking ways round pension caps. But “investors in the squeezed middle, particularly 35-55 year olds, are [also] hunting for good returns and are particularly attracted to the dividend yield from VCTs,” added David Hall, Managing Director of YFM Equity Partners and fund manager for British Smaller Companies VCT. “Meanwhile, those nearing retirement are choosing to reinvest their dividends compared to six years ago. We are seeing a surge in wealth managers and advisers wanting to understand how VCTs could potentially shore up the retirement pot shortfall for some of their clients.”

The returns aren’t bad either. An average VCT has returned 53.11% over the last five years, and 88.62% over ten years. AIM-type trusts have made a rather startling 94.92% over five years, the AIC says.

Share price total return on £100
less 3.5% for costs. Data to Dec 31 2013

 

1 year

3 years

5 years

 

10 years

VCT Weighted Average

108.48

 

124.46

153.11

188.62

 

VCT Generalist

108.73

129.83

 

155.18

225.04

VCT AIM Quoted

128.4

136.6

194.92

93.1

 

 

 

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