VCTs - A Case of Supply and Demand
With new share offers in high demand but availability in short supply, Maven’s Marketing Manager Steven Ford looks at why venture capital trusts are proving so popular for investors this year.
Since the current VCT fundraising season kicked off investors have been urged by commentators, advisors and financial publications to act quickly or risk disappointment due to the combination of increased demand and limited VCT product in the market. Research published last week by the AIC shows that investors may have taken heed, as fundraising across the VCT market in 2016/17 is up 53% compared to the same period last year.
The key fundraising season seems to be getting earlier every year, with the bulk of investment well ahead of the tax year-end and avoiding the traditional late scramble. In order to invest in some of the UK’s most dynamic and innovative businesses, and take advantage of up to 30% tax relief, VCT investors are having to make their investment plans well before 5 April.
At the time of writing Maven’s new share offer has raised £6.3 million* and the VCT has had to exercise its over-allotment facility, raising an additional £2 million. This demand for good quality VCT opportunities is reflected across a number of the top managers, which are expected to fill-up well before their target closing dates.
*Please note that the new share offer in Maven Income and Growth VCT 6 PLC closed on 7 February 2017
This increase in demand for VCTs has two main drivers. The industry has matured and become more mainstream. As the market has consolidated, and the remaining VCT managers have established a proven track record of investing in this space and delivering consistent returns for investors, VCTs are no longer reliant mainly on tax breaks to attract new investors – the tax tail is no longer wagging the investment dog.
The coming of age of the VCT sector hasn’t gone unnoticed by savvy investors, and VCTs have increasingly become a viable option for tax and retirement planning. Coupled with extensive changes in pension rules, which have put further restrictions on the lifetime allowance, investors are on the lookout for credible alternatives for their savings. With the government continuing to reaffirm its commitment to VCTs and their ability to support and stimulate the UK SME sector, this is giving many investors the confidence to look more closely at this investment option.
Whilst new EU state aid rules came into effect in November 2015, which placed additional limits on the types of businesses a VCT could invest into, the VCT sector has again shown its resilience in responding to change. In the year following VCT managers have deployed over £100 million in a diverse range of dynamic UK businesses, showing that they are able to successfully deploy the cash that is being raised through new VCT offers. In fact Maven completed six VCT qualifying investments over that period in private businesses which typically are sector disruptive and offer innovative technologies or products, and which have the potential to drive genuine economic transformation by challenging an established market or creating a new market and product opportunity.
As well as sourcing exciting new investment opportunities for our managed VCTs, Maven’s UK-wide investment team has continued investing in larger, later-stage private businesses, albeit outwith the tax wrapper of a VCT. Over 200 Professional Clients have joined our ‘Investor Partners’ co-investment network in recent years, which provides access to a regular flow of income generating private company and property transactions, and in 2016 had the opportunity to invest in six established private companies offering the potential for strong investor returns.
The popularity of alternative, tax-efficient investments like VCTs is undeniable. However, with most of the established generalist managers limiting their fundraising levels in order to prudently manage cash levels, the big question many investors are asking is whether there will be enough capacity to go around? Evidence suggests that many investors aren’t hanging around to find out.