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Product matters

One of the most successful fund-raisers of venture capital trusts over the last two years has been Octopus Asset Management, raising more than 100m for its Eclipse VCTs. However, being successful at fundraising does not necessarily equate to success at investment – just look at the Murray VCTs of the late 1990’s for example.

Rather than raising further funds, I think Octopus should be concentrating on profitably investing the money raised so far.

They have been fantastic at raising the profile of VCTs and bringing new investors into the VCT market and although we have not backed Octopus, the last thing I want is for them to fail. Not only would that be bad for their own investors, it would also be bad for the VCT industry.

Its new VCTs, Apollo 1 and 2, will focus on maximising the income payments to investors in the first five years by structuring the majority of the investment as higher-yielding loan stock rather than in equity investments.

Most of the investments made will be in companies with more secure income streams. After five years, Octopus proposes to convert the VCT into a normal investment trust. According to them, this is to increase liquidity and investment flexibility. Being perfectly honest, I cannot see liquidity being increased massively. Even if it does, investors have given up the tax-free status of the VCT for the liquidity of an investment trust. Personally, I would rather stick with the VCT rules.

This year there will be different styles and types of VCTs. If you are looking for a VCT this year, I would wait a while longer before committing to see what else may be on offer. I do not think I will be recommending Apollo this tax year.

Ben Yearsley is investment manager at Hargreaves Lansdown


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