VCTs face fundraising struggle, says survey

Managers of UK venture capital trusts (VCTs) hoping to capitalise on a perceived rush of demand following the introduction of tax relief may find their ambitions thwarted, according to a new report.

Data solutions company Matrix-Data, which canvassed 154 independent financial advisers (IFAs), found that 84 percent of respondents said UK VCTs were unlikely to raise more than £300 million (€437 million; $582 million) in total by the end of the current tax year in April 2005. This compares with an aggregate fundraising target of £800 million for funds launched in the tax year to date. So far, only £114.6 million of that target has been raised.

Eighty percent of respondents said they would recommend no more than five VCTs to their clients. They also opined that there were too many VCTs chasing too few investment opportunities. “Hopefully investors won’t be encouraged to invest in companies jumping on the bandwagon with no track record in managing much smaller companies,” said Alan Cotton of Park Row, a Leeds-based IFA. He described the choice of VCTs currently in the market as between “the good, the bad and the ugly”.  

In March this year, the UK government increased income tax relief for VCT investors from 20 percent to 40 percent. This was designed to stimulate the sector, which had seen total fundraising peak at £450 million in the 2000/01 tax year and then fall back to £50 million in 2003/04 amid widespread investor disillusion.

However, despite this apparent shot in the arm, the survey found that only 14 percent of IFAs had received a “significant” increase in enquiries as a result of the change to income tax relief.

Recent VCT launches have included Core Growth Capital VCTs I and II, which are aiming to raise a combined £30 million, and Electra Kingsway VCT 2, which is targeting £40 million.