Last month we looked at how we categorise the various VCT offerings and this month we cover two further aspects: what is the structure of the offer and if there are multiple VCTs involved then what choice does the investor face?
Structure of the offer
Offers come in three basic flavours.
- New VCTs. This is common for planned exit VCTs but rather rare for other types of VCTs (generalist and AIM based) as new VCTs have to adhere to new rules which are rather more onerous than the old rules. Currently planned are two new VCTs – Puma VCT 10, which is a planned exit, and generalist TIME:REBOOT. Also there is new fund risk that if it does not raise enough it will not go ahead or it does go ahead having only raised a small amount and the fund will be sub optimal from a charging perspective and with a small spread of investments.
- New share class in existing VCT. This is the more typical route for planned exit VCTs but rather rare for generalists (eg Ventus VCT & 2 VCT joint D share).
- Existing VCT share class raising further funds. This is the most common route for generalist VCTs and is attractive for new shareholders because they gain exposure to a ready-made unquoted portfolio that they can examine and take a view on and probably also receive dividends from an early stage if not immediately. For current shareholders the attractions include increasing the size of the VCT share class which should help liquidity on sale and the new funds raised can be used to pay fees, dividends and buyback shares. The downside is that they are allowing new shareholders in and there may be some dilution of dividend payments. Current examples include Maven, Mobeus, Northern, Octopus Titan and ProVen. This route doesn’t work for planned exit VCTs because it would delay the exit for existing shareholders.
There are two sub-divisions here:
1. Non prospectus top-up offer – raising less than equivalent of 5 million euros does not require a prospectus.
2. Further prospectus fund raising – raising more than equivalent of 5 million euros through a prospectus.
Fund raising through multiple VCTs
There are two methods used by VCTs raising funds across a number of VCTs.
First, a classical linked offer involving multiple VCTs where investors have to invest in a fixed ratio between all VCTs (eg Mobeus, Octopus Titan and Maven). Some investors may subscribe to the belief that this allows managers to raise funds for less well performing VCTs by not allowing investors a choice. Managers would probably reply that this method allows all VCTs to maintain a reasonable size by including them in a linked fund raising. It also allows an easier fund raising process as the application form does not need to cover situations where choices might be fully subscribed.
Second, a joint offer involving multiple VCTs where investors have complete choice with no requirement to invest across all VCTs involved (eg Northern, Albion).
Martin Churchill is editor of Tax Efficient Review