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Albion Ventures VCT pitched as pension alternative

Albion Ventures is looking to raise £25m for a D share offer in the 10-year old Albion development venture capital trust, formerly the Close development VCT.

Albion Ventures runs seven venture capital trusts and was formed in January 2009 by the executive directors of Close Ventures, who bought the business from Close Brothers. The team, investment approach and the investment policy of the development VCT are unchanged.
 
The VCT aims for income with the potential for growth by investing in a portfolio of unquoted companies. Money will be held as cash on deposit, floating rate notes or similar instruments with financial institutions rated A or above by Moody’s while suitable investments are found.

The VCT will look at undervalued businesses in a range of sectors and D shares are expected to merge with ordinary shares after five years.
 
The bulk of the portfolio will be invested in lower-risk investments to provide income. These will often be backed by property or other assets and are likely to be in the leisure, business services and healthcare sectors.

There will be a smaller number of higher-risk companies with greater growth prospects in sectors such as information and medical technology or services. Many will be established businesses but some will be at an early stage of development

Up to two thirds of the VCT qualifying investments will be made through secured loan stock, so that the VCT has first charge over the company’s assets if it defaults. This is designed to reduce the risks associated with small companies. The VCT will not normally invest in companies that are financed by bank loans.

Albion Ventures believes VCT tax benefits will be attractive because the higher rate of income tax is set to increase to 50 per cent from April 2010. It says pensions will also be less attractive to high earners after the abolition of higher-rate tax relief for people earning over £150,000 a year, so VCTs could provide an alternative.

The steps that Albion Ventures is taking to reduce risk should position this VCT at the lower end of the risk spectrum. However, investors looking for an alternative to pensions will need to accept higher investment risks in return for the tax benefits.

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