Kreis Consulting intends to raise up to £30m for the Cavendish Aim VCT, a venture capital trust that may be converted to an Oeic structure within five to seven years.
The VCT will aim for growth, some of which will be distributed as income, by investing in companies listed on the Alternative investment market. To qualify for VCTs, Aim stocks must be new issues investing in certain sectors and be valued at less than £15m.
According to Kreis Consulting, qualifying Aim stocks represent just 25 per cent of the market. Under VCT rules, 70 per cent of the funds raised by a VCT must be invested in qualifying Aim stocks within three years, enabling VCTs to benefit from investment opportunities within the wider Aim market in the first three years.
The Cavendish Aim VCT will initially hold 50 per cent in non-qualifying Aim stocks to generate profits which will gradually be reinvested in qualifying Aim stocks. The VCT will be managed by Cavendish Asset Management's Paul Mumford who currently runs the Cavendish opportunities fund. According to Standard & Poor's, this fund is ranked sixth out of 248 funds based on £1,000 invested on a bid-to-bid basis with net income reinvested over three years to October 4, 2004.
Investors looking for exposure to the Aim market via VCTs have many options to choose from as providers are keen to take advantage of the temporary enhancements to income tax relief. Some investors will be drawn to this VCT by the translation of Mumford's skills to the VCT market, although he will be competing against providers who are already established in this field.
A problem for Aim VCTs is that they may mature at a discount to the net asset value where the underlying stocks have been realised for cash. Cavendish proposes the conversion to an Oeic as a solution. However, investors would lose their VCT tax advantages if the conversion goes ahead.