Fund firms could be shooting themselves in the foot by launching venture capital trusts on the back of generous new tax breaks aimed at boosting investment in the flagging sector, according to Hargreaves Lansdown.
Invesco Perpetual and Keydata are among a burgeoning number of groups launching VCTs which invest in Aim-listed companies as they seek to take advantage of the Government's decision to boost tax incentives. Others thought to be preparing launches include Framlington, Liontrust and M&G, none of which has previously been in the sector.
The management of most of these VCTs is expected – as with Keydata and Invesco – to be handed to smaller companies managers with experience of investing in the Aim. But Hargreaves Lansdown says they could come unstuck as, unlike the managers' funds – which allow them to choose when and how much to invest in Aim firms – the VCTs require them to be invested in the sector at all times.
HL also points out that if fewer firms float on the Aim, managers will be left scrabbling for decent companies for their investments. It says this could be a major problem as there would be too much money to invest in too few firms, causing prices to soar.
Investment manager Ben Yearsley says: “Many investors will be attracted to the new launches but I am not convinced. It is a bandwagon and I wonder if these groups, which need to protect their brands, should be launching into the market. It could be detrimental.”
Keydata head of communications Roddi Vaughan-Thomas says: “We have a genuine Aim manager who will be able to attract the deal flow and get good value.”