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By Nick Britton, Head of Intermediary Communications at The Association of Investment Companies (AIC).

Venture capital trusts (VCTs) had a good year in 2021, delivering an average total return of 24%. While this included an element of post-pandemic bounce-back, it’s worth bearing in mind that 2020 was far from disastrous, with VCTs eking out a positive 4% return in that year.

To generalise a bit, VCTs found themselves on the right side of the pandemic. They had exposure to the kind of sectors and companies that did well (tech, e-commerce, healthcare, video games) and less exposure to the bricks-and-mortar businesses that suffered.

Many of VCTs’ underlying companies reported excellent results. Octopus Titan VCT calculates that its portfolio companies saw revenue growth of 126% in 2020, and forecasts 90% growth in 2021.


Performance, excluding tax reliefs, has to be the most important criterion against which VCTs are judged. So it’s reassuring to see that the last year of negative returns for the sector as a whole was 2008 – with the obvious caveat that this is just a sector average and there is a fair degree of dispersion.

Increasingly, however, investors are interested in the ESG aspects of VCTs, and their wider economic and societal benefits. This is something that VCTs are getting better at measuring and reporting on.

For example, the Baronsmead VCTs saw a 41% rise in jobs created and filled by their portfolio companies between December 2020 (1,273) and December 2021 (1,749). The VCTs’ managers work with companies on being better employers, not just because it’s the right thing to do but because the labour market is competitive and attracting and retaining talent is crucial to success.


Funding the future

The companies that VCTs back often have other ESG benefits. For example, Guru Systems, a portfolio company of the Maven VCTs, has developed monitoring technology to help energy companies, housebuilders and developers reduce their carbon footprint. In a survey of VCT investors we conducted last year, two-thirds of them appreciated that VCT investment supports green technologies.

On the social side, VCT managers are considering the representation of women and people from ethnic minority backgrounds among their portfolio companies. TriplePoint calculates that a quarter of its portfolio is led by women or men from ethnic minorities. Calculus VCT has an all-female board of directors. Octopus reports that 19% of its new investments have a co-founder from an ethnic minority background.


The ”G” of ESG has always been important to VCT managers. A large part of what they do is getting companies ready for growth by putting better processes in place for driving strategy and decision-making. As investors with significant minority stakes in the companies they back, VCTs have a strong interest in improving their governance.

In short, VCTs are well aligned with investor interest in ESG and the government’s “build back better” and “levelling up” agendas. They have performed well with many providing attractive tax-free income. Of course, there are always risks. Several VCT managers have highlighted that they are keeping a keen eye on valuations, in a year that is likely to set new records for fundraising. But they have experience on their side, with most managers having been active since the late 1990s or early 2000s.

Of course, VCTs are not the only way to get exposure to some of the exciting opportunities in the unquoted space. In an article for Spotlight this month, Hannah Smith looks at different ways to access private companies through investment companies, and the potential benefits of doing so.


Also this month, investment company managers comment on the outlook for China, we look at “platinum” investment companies that have been around as long as the Queen has been on the throne, and a new report from the Pensions Policy Institute about the role of alternative assets in DC pensions provides food for thought.

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