Golden age for venture capital trusts

It would be the second strong year in a row for the industry, which raised £340m last year, the fourth highest total since VCTs were launched in 1995 according to the Association of Investment Companies (AIC).

"This is the best time for all aspects of our business since the 2004-2006 period," enthuses Matrix CEO Mark Wignall.

Northern Venture Trust, one of the industry's oldest VCTs, launched in 1995, was the first to sell-out this year, raising its £15m target by mid-February. The manager has announced the launch of a £3.15m Northern 2 VCT and Northern 3 VCT linked top-up offer at the end of February, closing at the beginning of April. Northern had raised nearly 90% of its £15m top-up by the beginning of February - a real feat given most VCT fundraising is back-ended and so coffers are normally filled in the end of March. "The market is quite buoyant," says NVM's Alastair Conn. "It looks as if a higher target would have been achievable but we agreed with the independent directors at the outset that £15m was the right number. We're in this for the long term, and we want our shareholders to have confidence that we won't raise more cash than we can prudently invest."

The momentum driving VCT fundraising is three-fold: firstly, the long-awaited enlightenment of would-be vendors meant that deal flow was buoyed. "Business owners who had been considering a sale for 18 months finally decided to seriously consider parting with their companies and their price expectations became more realistic," Wignall says.

The taxman is the second motivation, and has a three-pronged attack. For sellers, the Entrepreneur's Relief is offering incentive to sell businesses, since they can now claim up to £5m relief, against just £1m before 2010. This amount increases to £10m if the vendors are a husband-and-wife team selling a business jointly. The taxman is also pushing higher-rate taxpayers to seek out ways to mitigate their newly increased tax burden. Not only their higher rate of income tax, but also their waning tax-efficient pension allowance: From this April, people will be able to save £50,000 per annum into a pension with tax relief, down from £255,000 owing to changes in the pension rules. This is likely to make VCTs more attractive to these investors.

The final driver of VCTs' heyday may be the state of banks: firstly, low interest rates mean that would-be savers are seeking out higher-return investments. Secondly, the banks simply aren't lending to the growing businesses that seek further funds to increase their investment.

A changing roster
The flurry of activity is seeing new entrants, with new newcomers launched at the end of January. Committed Capital launched seeking £3-25m and was set up by Peter Dicks, founder of life sciences firm Abingworth. The investor believes the UK's emergence from recession and pent-up demand for investment makes the backdrop "perhaps the most attractive for a generation". That same day, Future Capital Partners launched its first enterprise investment scheme and VCT, both to focus on renewable energy opportunities. FCP is an alternative investment boutique with £6bn assets under management.

But as newcomers enter, others bow out. Asset management company Acuity named Foresight Group as new manager of two of its VCTs. The news came following a difficult time for Acuity, with its NAV dropping 33% in the year to 30 September 2010, even as the FTSE rose 9% over the same period. Earlier in January, Albion Ventures was named the new manager of Spark VCTs.

Despite consolidation, industry players are optimistic that it should be a strong year for VCT fundraising, with April figures likely to total or surpass last year's £340m.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• Fundraising