With the new venture capital trust (VCT) season already in full swing, investors need to act quickly if they want to get their hands on the best offers.

The past month has seen a flurry of new fundraisings being launched. The season has started earlier than previous years, which VCT providers say is due to the huge growth in demand for their products.

Live offers

Octopus Investments, the biggest player in the market, recently announced a fundraising of up to £200m for its Octopus Titan VCT, making it the biggest fundraise ever. The vehicle provides access to a portfolio of over 50 companies of varying sizes and ages, like holiday firm Secret Escapes and Chronext, a platform for trading high value watches.

Albion Capital has launched a £38m fundraising for its six VCTs, which target technology-driven companies in sectors like digital healthcare, automation and data analytics. Half of the portfolio is in more defensive, asset-backed investments like independent school Radnor House.

Mobeus intends to raise up to £80m across four of its VCTs. The existing investments are predominantly management buyouts of established, profitable companies like Virgin Wine.

Legislative changes mean further MBO investments are no longer allowed, so Mobeus’ new investments focus on younger, and hopefully higher growth, companies such as tutoring platform MyTutor.

There has also been a £20m offer from Downing ONE VCT, which has a portfolio of 78 existing investments in sectors like care homes, pubs and health clubs. It recently invested in pre-owned jewellery retailer Xupes.

Last year’s unprecedented demand

VCTs have historically been used as an end of tax year financial planning tool, but this is no longer the case.

There was unprecedented demand for VCTs last tax year. By March, 21 VCTs had closed fully subscribed, leaving just eight products for investors to choose from. Octopus Titan alone raised a record £120m, of which 55% came from new investors.

One of the main reasons for the surge in popularity is the curtailment of the pension lifetime allowance – the amount of money you can save into pensions without triggering extra tax charges. The cap has steadily declined over the years and is now £1m, which is surprisingly easy to breach.

Mark Wignall, managing partner at Mobeus, suggests another factor is the low interest rate environment, which makes it difficult to get any meaningful return from cash.

‘People who are looking for appealing places to house their cash have found that two historic sources have effectively been blocked off. VCTs are a natural alternative home. Although investors have to be choosy and cautious over which VCTs they invest in, the average performance of VCTs has been very good,’ he says.

The media focus on the lifetime allowance cuts has meant more investors are becoming educated about the benefits of VCTs. They offer 30% income tax credit on investments of up to £0.2m each year, and capital gains and income are tax-free.

Why you should invest now

VCT providers reckon demand for VCTs could be as high or even higher this tax year because awareness of the products is growing and the issues around low interest rates and the lifetime allowance remain.

Paul Latham, managing director at Octopus Investments, says if you spot a good product you should invest straightaway.

‘We fill up our offers each year and there will be people who miss out. Thinking that VCTs are a product to buy at the end of the tax year makes no sense,’ he adds.

The good news is that the supply of VCT offers looks set to be greater than last year. Some providers didn’t launch fundraisings last year because they were getting to grips with legislative changes and already had sufficient liquidity.

Wignall says Mobeus took time off fundraising so it could refocus its business towards investing in early stage businesses, in line with new legislation.

He thinks the majority of offers will have launched by the end of September.

‘Our ambition is to sell out before the end of November – we think demand will be that strong,’ Wignall adds.

‹ Previous2017-09-21Next ›