Avoiding landmines: Tips to consider when choosing a VCT (Money Marketing)

by Eliot Kaye


With less than a month to go until the end of the tax year, this is probably the last chance for another year for your clients to select a venture capital trust.

There is a vast array of VCT options available so what should advisers look for and what does the sector offer to best meet specific client needs?

VCTs fall in to four main categories for investors: Generalist, Planned Exit, AIM, and Specialist. Each category has its particular characteristics, determined by the nature of the underlying investments the VCT manager makes.

Generalist VCTs invest into the equity of qualifying companies, which maximises the upside potential but the exit from each investment is determined by another party buying that equity - hopefully at a higher price than what the manager paid for it originally.

Planned Exit VCTs on the other hand typically make investments in the form of secured loans to qualifying companies. This limits the upside, but means that the manager has more control over the timing of exits from the fund’s investments, and hence has more ability to achieve cash distributions to investors on time. Often this suits investors choosing a VCT to access the tax relief rather than positively to select venture capital as a sector in which to invest. Advisers should be looking to match the VCT to the client’s objectives of risk versus reward.

Against a backdrop of an improving economy and a resurgent market, AIM VCTs seem to becoming more popular again. These VCTs can only invest in new AIM shares and short-term income is not always guaranteed.

Specialist VCTs are focussed on investing into particular sectors e.g. films or renewables. This may help or hinder deal flow. It may also mean that, when the Government changes the rules as it did for solar VCTs  two years ago, they come under pressure to invest too much too quickly.


Read the full article on the Money Marketing website.