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Smaller VCTs caught in low-investment circle

IFAs say the VCT market is now polarised between those VCTs with the power to thrive, and those caught in a vicious circle of low investment.

Chelsea Financial Services VCT specialist Matthew Woodbridge says those trusts that have yet to attract sufficient funds to be viable are caught in a vicious circle. Investors are backing trusts which have already achieved what he calls critical mass, but this is reducing the chances of smaller funds achieving it.

Hargreaves Lansdown in-vestment manager Ben Years-ley thinks there are some VCTs which should have been withdrawn but look as if they will keep going as the end of the tax year is so near.

He says VCTs which have raised 5m are workable, but those with only 3m to 4m will struggle to pay their managers and meet administrative costs.

The MTM China, Caven-dish, ProVen 3 C-share and Univen VCTs have all recently been withdrawn from the market after failing to raise enough to go forward, and have returned investors’ money. At the other end of the market, Baronsmead VCT’s C share offer closed early this month, having allotted shares worth 20m. The Artemis VCT 2 has also just closed, achieving its target of 40m in less than six months.

Yearsley says: “Investors in the smaller VCTs are trapped. I would hate to be in a 2m VCT because there is little incentive for the managers to perform. The Teather and Greenwood Aim VCT was an example of a VCT which only raised 2m, then came back for a top-up. But no one wanted to go into it because at the end of the day you would rather go into a 20m VCT than a 1m one.

“It has cost some firms a lot to pull their VCTs this year but at least they will not end up winding people up by trapping them in unsuccessful investments.”

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