Where should UK venture capital investors put their money?

Figures published by the Association of Investment Companies (AIC) last week revealed that the investment company industry’s assets have passed the £200 billion milestone for the first time, reaching a record £200.3 billion on 31 July 2019.

Notably, the AIC said that this increase – doubling over the past six and a half years – has been driven by investment in alternative assets.

“As investment companies are the natural home for illiquid assets, it is not surprising that a significant part of this growth has been in the alternative sectors, which are often invested in assets that are harder to sell such as property and infrastructure,” said AIC chief executive Ian Sayers.

“It reflects growth in mainstream investment companies which are investing in cutting-edge opportunities such as technology, healthcare, frontier markets and venture capital.”

This will come as no surprise to those who have been working in the alternative investment sector over recent years. Venture Capital Trusts (VCTs), for example, have been going from strength to strength and raised record levels for investment in small businesses in 2018/19.

Writing in our upcoming Adviser’s Guide to VCTs, Sayers had this to say: “There is clearly a need for VCTs which offer retail investors access to small unquoted companies, with generous tax reliefs to compensate them for the higher risks involved.”

He added: “Consistent high demand for VCTs reflects the growing recognition of the benefits they provide to investors.”

Indeed, the overall landscape for investing in small businesses has grown substantially in recent years, resulting in a much wider range of opportunities for businesses to find the investment they need.

For example, Marcus Stuttard, Head of UK Primary Markets & AIM at London Stock Exchange, points to government initiatives such as the British Business Bank, alongside AIM, meaning that a “vibrant equity funding market for growth companies” now exists for funding to be raised from a variety of different sources.

Speaking in our upcoming AIM Industry Report 2019, Stuttard explains: “As AIM has matured and the pool of capital continues to deepen, some of the larger investors that haven’t typically invested in growth companies are looking at AIM.”

So for all the uncertainties around Brexit and other macroeconomic concerns such a US-China trade wars, it seems that British businesses are in a strong position to take advantage of the different investment options that are out there. The growth in alternative assets shows no sign of abating and the AIC’s latest figures suggest that investment companies are working hard to keep up with demand.

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