X

About

Advertise

Contact

Linkedin
Twitter
Facebook-f
  • News
    • In the Press
    • Politics and Finance
  • Featured
    • Podcasts & Films
    • Interviews
    • Events
    • Finance on Social Media
    • Jobs
    • MPS Report
  • GBI
    • Tax Efficient Investments
    • Open Investment Opportunities
    • People Behind the Product
    • GBI Magazine Issues
    • About GBI
  • Business
    • Regulation and Compliance
  • Magazines
  • The M&G Adviser Hub
Menu
  • News
    • In the Press
    • Politics and Finance
  • Featured
    • Podcasts & Films
    • Interviews
    • Events
    • Finance on Social Media
    • Jobs
    • MPS Report
  • GBI
    • Tax Efficient Investments
    • Open Investment Opportunities
    • People Behind the Product
    • GBI Magazine Issues
    • About GBI
  • Business
    • Regulation and Compliance
  • Magazines
  • The M&G Adviser Hub
Search
Close

About

Advertise

Contact

Jobs

Tools for Advisers

Untitled-1
Linkedin
Twitter
Facebook-f
  • News
    • In the Press
    • Politics and Finance
  • Featured
    • Podcasts & Films
    • Interviews
    • Events
    • Finance on Social Media
    • Jobs
    • MPS Report
  • GBI
    • Tax Efficient Investments
    • Open Investment Opportunities
    • People Behind the Product
    • GBI Magazine Issues
    • About GBI
  • Business
    • Regulation and Compliance
  • Magazines
  • The M&G Adviser Hub
Menu
  • News
    • In the Press
    • Politics and Finance
  • Featured
    • Podcasts & Films
    • Interviews
    • Events
    • Finance on Social Media
    • Jobs
    • MPS Report
  • GBI
    • Tax Efficient Investments
    • Open Investment Opportunities
    • People Behind the Product
    • GBI Magazine Issues
    • About GBI
  • Business
    • Regulation and Compliance
  • Magazines
  • The M&G Adviser Hub
Untitled-1
Linkedin
Twitter
Facebook-f

VCT market going back to its roots

by Andrew Sullivan
November 7, 2019
in GBI, VCT
Share this story
VCT market going back to its roots
Share this story

Back in the summer, Darius McDermott, Managing Director of Chelsea Financial Services, told GBI Magazine how opportunities abound in the VCT market


 

 A spate of regulatory changes is slowly forcing the VCT market to return to its roots and re-affirm what the product is all about – backing small growth businesses with big futures.

The changes have been taking place over a number of years and are designed to bring VCTs back to their original guise – and for once, it’s government tinkering I agree with. VCTs had started to move away from their origins. It made them lower risk investments, but that wasn’t what they were designed to be. The very spirit of venture capitalism is risk-taking and the generous tax-relief of VCTs was the ‘pay-back’ for investors for taking said risk.

In 2015, then Chancellor George Osborne set the ball rolling and took the decision to stop VCT money being used to fund management buyouts and acquisitions. More recent changes have focused on cashflows, with VCTs now having to invest 80% – rather than 70% – of their funds in qualifying companies; while 30% of a raise must now be invested in the first full accounting year. Finally, they can no longer invest in a company which has been trading for more than seven years.

That’s a lot of changes and has raised challenges for many VCTs. But despite these changes and ongoing concerns over Brexit, VCTs have remained resilient, with the 2018/19 fundraising for the sector coming in at £731 million, edging the amount raised in the previous tax year to be the second highest annual raising since the products were launched in 1995.

The tax-free dividends and the 30% income tax relief on investments have both played big roles in this resilience. But another reason for the resilience is that flows are now coming from numerous directions: five or six years ago the market was execution-only led investors aged between 50 and 70 years old  placing reasonable sums of money each year and getting strong performance. Today the investor base is larger thanks to the cap on pension contributions: higher rate taxpayers who have maxed-out on their pensions are turning to VCTs as an alternative. This is one of the principle reasons I believe VCT fundraising will stay strong in the next couple of years.

What impact will the changes have?

With fundraising remaining robust, the challenge for many VCT players is what to do with those assets in a climate where tightening rules have shrunk the pool of investments available to them.

A smaller pool of companies means there is likely to be more competition from VCTs to invest – which could result in valuations increasing.

This is where existing providers offering top-ups have an advantage – for now. They can still hold existing investments in some of the less risky investments.

The fact VCTs must now invest 80% of the portfolio in qualifying investments, up from 70%, places them under more pressure, as does the decision that they now have to invest 30% of funds raised in the first 12 months. Dividend payments have been a popular way for providers to pay off excess cash in their portfolios in the past couple of years and this is likely to remain so in a bid to comply with the rules – there may even be some special dividend payments.

The new rules place stricter guidelines on cashflows in general within VCTs, and this is one of the reasons I expect a large number of issuers in the coming year as they will be keen to retain a strong hold of their liquidity levels by replenishing their cashflow. 

What should investors be looking for?

Past performance is something investors must keep a closer eye on as this transition continues to take place. Those VCTs which have not been as focused on growth companies in the past few years arguably have track records which will not be as relevant in the future.

When it comes to new issuers, the first thing I would look for is those with a unique deal flow. Groups with size like Octopus – who get their deal flow through their entrepreneur and high-net-worth networks. Investors must also look at what VCTs raise and decide how confident they are in those firms being able to invest that money under the new qualifying rules.

Much also depends on the quality of the VCT manager and their ability to invest into expansion capital deals – and whether they have the right personnel to do that given the changing strategies. Managers with a growth focus will naturally have an advantage.

NVM, the company behind the Northern VCTs, for example, was very good at management buy-outs. Their lower risk VCTs had done very well and they were known for good, regular dividends and decent returns for investors – ‘giving you your pound back’ after the required five year holding period.

Since the changes, the company has taken significant steps to adapt its skill set to the new VCT rule requirements. This includes a new nine-person strong investment team and investment partner. The wider investment team has been recruited from across the global investment industry and they are now looking in a strong position.

At this early stage of the season, there is only a handful of VCTs open. We currently like ProVen given it has a strategy that is well-aligned to the rule changes by focusing on growth rather than replacement capital deals – they also have an experienced management team.

The ProVen Growth and Income VCT is currently over 80% subscribed, so investors may need to move quickly. It’s a generalist VCT investing across a spectrum of sectors, from telecom and media, services, healthcare and artificial intelligence, and the companies have a global footprint, accessing markets spanning North America, Europe, Asia and Australia. ProVen targets companies with strong demand for the good or service they provide, and evidence for rapid growth potential in sales and profits is sought. Strong leadership is also critical, as is a management team aligned with the success of the company through substantial share holdings. ProVen typically look for the potential to sell a company after a four or five-year holding period.

This is the quiet point in the VCT calendar, but we expect issuance to pick up around September or October. Overall, 20 VCT share offers opened during the last tax year, raising funds for 33 VCTs in total – twelve of these offers were fully subscribed before tax year end. So I’d be waiting for the right companies to come out and drip-feed my money into the markets as and when they do. Diversification is more important than ever as a way to combat the move back to higher risk investing.

 

Previous Post

Planning in practice

Previous Post

The portfolio construction debate

Previous Post

Better Business – invest in your team

Next Post

Global growth: Slower but still healthy…

Next Post

BoE – Interest Rates Held

Next Post

Monetary Policy Report

Related Posts

EIS – looking to the future
Featured

EIS – looking to the future

January 21, 2021
Extending carry back – what is your view?
News

Extending carry back – what is your view?

January 11, 2021
Blackfinch Ventures: In the spotlight
Interviews

Blackfinch Ventures: In the spotlight

January 7, 2021
Making a positive difference at the cutting edge
Interviews

Making a positive difference at the cutting edge

January 7, 2021
Extending carry back – what is your view?
News

Extending carry back – what is your view?

January 6, 2021
The first Knowledge Intensive Fund approved by HMRC
News

The first Knowledge Intensive Fund approved by HMRC

December 21, 2020
Next Post
Global growth: Slower but still healthy…

Global growth: Slower but still healthy...

BoE – Interest Rates Held

BoE - Interest Rates Held

Monetary Policy Report

Monetary Policy Report

Podcasts & Films

  • Put an atomic clock in your car, phone and on your wrist
    January 13, 2021
  • The Nexus Scale-Up Fund walk through
    December 21, 2020
  • Net4 x ARIE Capital webinar, hosted by CoInvestor
    December 18, 2020
  • How does Nexus Communicate with clients?
    December 18, 2020
  • Nexus Investments – Reasons for Advisers to be positive in 2021
    December 17, 2020
  • The Nexus Story
    December 16, 2020

Today’s Most Read

  • TikTok Investors give financial advice, the industry reacts
    January 18, 2021

    @peter_IFAMAG reads Twitter so you don’t have to. Retail investing exploded in 2020, but along with that has come the proliferation of shoddy advice. Today

  • Columbia Threadneedle appoints Michaela Collet Jackson as head of distribution
    January 21, 2021

    Columbia Threadneedle Investments, a leading global asset management group, announces the appointment of Michaela Collet Jackson as Head of Distribution EMEA. In this role, Michaela

  • Asset Intelligence launches two investment funds in partnership with T. Rowe Price
    January 19, 2021

      Asset Intelligence Portfolio Management (AIPM), the Midlands based discretionary fund manager, today announces the launch of two new investment funds: The VT Asset Intelligence

  • Advisers turn to UK equities in Q4 – Square Mile MI report
    January 18, 2021

    The quarterly Market Intelligence Report released today by Square Mile Investment Consulting and Research (Square Mile) suggests a renewed adviser interest in UK equities in

  • Inauguration Day 2021 – What is the outlook for US Equities and markets?
    January 18, 2021

      On Tuesday January 20th at noon eastern, as prescribed by the Constitution of the United States, Joseph Robinette Biden Jr, having been certified as

  • EIS – looking to the future
    January 21, 2021

    EIS has been part of an adviser’s tax efficient tool kit for the last 26 years and now, more than £2 billion is invested annually

  • Financial services and forced labour in the UK
    January 18, 2021

    A groundbreaking report into the UK’s financial sector has found worryingly low levels of awareness of forced labour and exploitation of workers. The study, led

  • Nucleus launches low-cost outcomes-based managed portfolio service 
    January 21, 2021

    Nucleus, the adviser built wrap platform, has launched a fully integrated, low-cost, outcomes-based managed portfolio service which has been designed to align client goals directly with their investments. 

  • Artemis strengthens its distribution team
    January 18, 2021

    Artemis Investment Management LLP has announced that in March 2021 Iain MacPherson will be joining their distribution team in London as a sales director, reporting

  • Defaqto launches market-leading Income Drawdown tool 
    January 20, 2021

    Defaqto, the independent financial information and technology business has launched its hotly anticipated Income Drawdown workflow within its financial planning software, Defaqto Engage. Defaqto’s unique

More Articles

Blackfinch Ventures: In the spotlight
Interviews

Blackfinch Ventures: In the spotlight

January 7, 2021
Making a positive difference at the cutting edge
Interviews

Making a positive difference at the cutting edge

January 7, 2021
Meet the manager of the M&G Global Listed Infrastructure Fund
Interviews

Meet the manager of the M&G Global Listed Infrastructure Fund

December 15, 2020
Par Equity is the bright EIS star of the North 
Interviews

Par Equity is the bright EIS star of the North 

November 23, 2020
What’s next for Mercia?
Interviews

What’s next for Mercia?

November 2, 2020
M&G Positive Impact Fund: Q&A with Ben Constable-Maxwell
Interviews

M&G Positive Impact Fund: Q&A with Ben Constable-Maxwell

October 21, 2020
People Behind the Product: Pippa Gawley, Zero Carbon Capital
GBI

People Behind the Product: Pippa Gawley, Zero Carbon Capital

October 7, 2020
People Behind the Product: Matthew Steiner, Stellar Asset Management
GBI

People Behind the Product: Matthew Steiner, Stellar Asset Management

October 6, 2020
People Behind the Product: Ewan Lloyd-Baker, Seismic Venture Partners
GBI

People Behind the Product: Ewan Lloyd-Baker, Seismic Venture Partners

October 5, 2020

About Us

​IFA Magazine – for today’s discerning financial and investment professional.

Published ten times a year, IFA Magazine has been winning a keen and enthusiastic following among Britain’s premier financial advisers, planners and paraplanners.

Newsletter

    Follow Us

    Linkedin
    Twitter
    Facebook-f

    © 2021 All rights reserved​ to IFA Magazine | Website by: Nivo Digital | Terms and Conditions

    Do NOT follow this link or you will be banned from the site!

    Adblock Blocker

    We have detected that you are using

    adblocking plugin in your browser. 

    Keep updated on the most important financial events 

    Make sure you are an informed

    wealth professional..

    IFA Magazine
    • News
      • In the Press
      • Politics and Finance
    • Featured
      • Podcasts & Films
      • Interviews
      • Events
      • Finance on Social Media
      • Jobs
      • MPS Report
    • GBI
      • Tax Efficient Investments
      • Open Investment Opportunities
      • People Behind the Product
      • GBI Magazine Issues
      • About GBI
    • Business
      • Regulation and Compliance
    • Magazines
    • The M&G Adviser Hub