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Downing doubles up with protected VCTs

Downing Corporate Finance is aiming to raise up to 40m through two lower-risk VCTs which will mirror each other.

The management team already runs the Downing Protected VCT I, which raised 9.8m in 1997. This initially focused n care homes but its investment policy has since been broadened to include property backed companies in other sectors.

The Downing Protected VCTs II and III will each raise up to 20m and will follow in the first VCTs footsteps by reducing the risks normally associated with VCTS primarily through the asset backing. Risk will also be minimised by making loans to the majority of companies within the portfolio and investing in the rest.

The management team will be looking for companies such as freehold pubs, childrens nurseries, garden centres and health clubs which have substantial assets such as freehold property. If the company defaults on its loan or fails as an investment, asset backing will enable the VCTs to recover their costs by selling those assets.

The portfolio split of the VCTs will be half in loans to qualifying companies, a quarter in ordinary shares in qualifying companies and a quarter in fixed interest. In keeping with the VCTs lower-risk investment strategies, the fixed interest element will comprise UK government bonds, major companies and institutions with a Standard & Poors credit rating of at least A- or a Moodys rating of A3.

The new VCTs have a planned life of six years and will wind up after this point subject to a shareholder vote. They can borrow up to 50 per cent of their assets, which was designed to give the managers greater flexibility.

With greater interest in VCTs as a result of the temporary enhanced income tax relief, there is a place for lower risk VCTs despite new launches and top-ups to existing trusts overcrowding the market.

However, the preference for loans rather than investments in companies is likely to lower potential returns at the same time as reducing the risks


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