Type: Venture capital trust
Aim: Growth by investing in unquoted and Aim listed companies in the business services, media, consumer, healthcare and IT sectors
Minimum investment: Lump sum 3,000
Charges: Initial 5%, annual up to 3%
Commission: Initial 3% or initial 2%, renewal 0.5% for four years
Closing date: January 31, 2006
Tel: 08457 9922999
Isis Equity Partners is raising up to 22m for the Baronsmead VCT 3 through a C share issue to expand the venture capital trust without diluting its existing portfolio.
Capital Trust Financial Management partner Bruce MacFarlane believes Baronsmead is one of the better VCT products with a good track record and thinks it is hard to fault against its peer group.
He also notes that VCTs provide a number of very attractive tax planning opportunities for IFAs and their clients. He says: “The changes in the budget in 2004 changed VCTs from providing primarily CGT tax relief and replaced this with a doubling of income tax relief to 40 per cent, which has made them very attractive to a new audience of investors. This change to the product has resulted in large inflows of money and new VCT product launches.”
According to MacFarlane, VCTs are complex products and he feels it is important that investors stick with well established providers with a strong track record such as Baronsmead. “It is important for investors and their advisors to remember that while the qualifying holding period for VCTs may only be three years, investors should look at the longer term to maximise their returns much of which will come from dividend distributions which are free from income tax and capital gains which are again CGT free,” he says.
MacFarlane believes these types of investments are for the more sophisticated investors. He says: “The shares tend to trade at a discount to net asset value. To this extent the directors have a number of options such as the ability to purchase shares in the market with the aim of reducing the discount. Although the shares are tradable there is still likely to be a high degree of illiquidity. To this end the Baronsmead VCT range incorporate an attractive buyback scheme ensuring better value for investors wishing to sell their shares.”
In MacFarlanes view the main competition will come from other VCT products with well established track records such as Close Aim VCT. He concludes: “Experience continues to be the key quality to look for when choosing a VCT provider. Investors and their advisers need to seek out managers with a proven track record in selecting smaller companies that can outperform.”
Suitability to market: Good
Investment strategy: Good