Downing Corporate Finance intends to raise up to £10m by issuing C shares in the Pennine Alternative investment market (Aim) venture capital trust (VCT), which is managed by Rathbones.
Rathbones manages the family of four Pennine Aim VCTs and this enables co-investment to take place among them. Under VCT rules, up to £1m may be invested in one company, but a co-investment policy allows investments above this level to be made across the Pennine family.
The C share issue will be used to diversify the Pennine Aim VCTs existing portfolio of 30 companies. The money will be initially invested in a portfolio of fixed-income securities managed by Rathbones. It will then gradually be invested in companies that are listed on the Aim or those that are seeking an Aim flotation.
This VCTs objective is growth and it is intended that within three years, 80 per cent of the proceeds from the C share issue will be invested in Aim companies. Up to 20 per cent may be invested in other unquoted companies. Start ups and early stage companies will be avoided if they are felt to have unacceptably high risks.
Statistics from the London Stock Exchange show that the FTSE Aim index fell to a record low of 605.13 points on September 30, 2002. This means that Aim stocks are cheap and the Downing VCT could find some bargains for investors.
However, the problem for this VCT and other issues is that it may be difficult to raise money as many investors are still feeling cautious and the tax incentives of VCTs may not be enough to encourage them into Aim companies.