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Three choices from Downing VCT

Downing Corporate Finance is raising up to £40m through a venture capital trust that offers a choice of three share classes, each taking a different investment approach.

All share classes in the Downing planned exit VCT 2011 aim for income and growth while reducing the risks normally associated with VCTs. The annual target yield is 5p a share.

General shares will focus on companies that have substantial assets such aschildren’s nurseries, healthclubs, pubs, stock or work in progress., which the VCT can take a legal charge over to reduce risk. Firms will also have a restricted ability to borrow. Money awaiting investment in smaller companies will be held in cash deposits and secured loans. A small proportion will remain in these non-qualifying investments.

Structured shares are similar to general shares except the non-qualifying element will be held in a portfolio of institutional structured products selected by Brwein Dolphin. These products have defined returns dependent on the performance of market indices, and will also have some degree of protection. The target return from structured products and secured loans will be 5 to 10 per cent a year.

Low carbon shares, the final share class, focus on investment in wind and solar businesses that benefit from feed-in tariffs. FITs are Government incentives for individuals and companies to generate their own electricity using renewable energy such solar power. They provide a fixed payment for each unit of electricity generated for 20 to 25 years, which provides a predictable, long-term inflation-protected revenue stream for investors. Money awaiting investment will be held in deposits and secured loans.

Investments within the VCT will be sold after five years and the net proceeds will be distributed to shareholders.

The lower-risk strategy of this limited life VCT, along with the potential to diversify through different share classes through one VCT may appeal to some investors. Others may prefer top-ups to existing VCTs because these provide immediate access to a mature portfolio. Competition may also come from specialist VCTs such as Foresight solar VCT, Hazel renewable energy VCTs and Ingenious solar VCT, plus other limited life VCTs such as ProVen.

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