Six of the VCT (Venture Capital Trust) maket’s most prominent investment managers battled it out to showcase their offers at the London Stock Exchange on 24 January.
The demand for this investment vehicle is clearly strong. A recent FTAdviser article revealed that VCT fundraising was up 245% on last year, with VCTs raising £91.3m since the start of January.
Will VCT dividends continue?
One of the key features of VCTs (and one of the differentiators from EIS), is that they can pay out tax-free dividends to investors. However, now that VCTs have to be focused on growth capital, the question arises over whether early-stage companies should be expected to pay out a dividend.
The consensus from the VCT managers was that current dividend payouts are based around companies that were invested in before the 2017 Budget rule changes. New companies held within a VCT are unlikely to pay out a dividend, and the focus will be more orientated around company exits.
John Davies, investment director at Seneca, said that some dividends will be paid out to investors via the non-qualifying portion of Seneca’s VCT, which could even be from cash reserves.
Generalist vs. specialist
Matt Dickens, senior business development director at Ingenious, argued the advantages of a specialist VCT manger. Ingenious’ VCT focuses on the film, tv, and computer games industries. Dickens suggested that specialist managers could have a far more granular view of the underlying investments.
However, Madeleine Ingram, head of investor relations at Calculus Capital, suggested that a generalist approach was more beneficial for its diversification benefits, albeit as long as rigorous due diligence is put in place.
Laurence Callcut, partner at Downing, said that his firm’s VCT offering incorporated a generalist strategy alongside a healthcare focused share class. He said:
“The healthcare share class is proving to be immensely popular, especially among healthcare professionals.”
After Philip Hammond’s 2017 Budget, VCT and EIS investments were subject to more stringent risk requirements via the “risk-to-capital” condition.
Will Fraser-Allen, deputy managing partner at Albion Capital, said that his firm had allocated approximately half of its VCT investments into asset-backed investments before the announcement of the rule changes. Fraser-Allen added that Albion are now focusing on growth-capital investments in sectors such as technology.
Belinda Thomas, head of sales and marketing at Triple Point, commented on how VCTs now compare with EIS:
“With VCTs, you’ve got a far greater level of regulatory oversight, and you have maximum concentration limits, which if you’re doing a tick box approach, means VCTs become slightly lower risk than EIS, which can be more concentrated on companies.”
Meet with Alt Fi providers
Our next set of investment showcases, taking place in February, is on Alternative Finance. You can meet a selection of Alternative Finance providers in one morning, including Downing, Octopus Investments, Triple Point, Goji, and RateSetter.
The events will go into detail on the investment objective of these providers, as well as details of the underlying investments, how they differentiate themselves, and the details of all their charges.
Our Alt Fi Showcase events are taking place at four locations across the UK:
- London 5 February
- Exeter 6 February
- Bristol 12 February
- Cheshire 13 February
Find out here how you can book your free place.