View more on these topics

VCTs crash on the rocks of recession

Last week&#39s news that Gartmore was to withdraw its VCT from the market came as little surprise to the industry&#39s pundits. In better market conditions it would no doubt at least have passed its minimum, but in a season where less than £50m has so far been raised across the entire industry Gartmore had little chance.

Like Artemis and Legg-Mason Investors before it, Gartmore had made the assumption that the name and reputation of a reasonably well known small-cap manager – Gervais Williams – would ensure the fund&#39s success. But of these three groups only Artemis had any real success with such a plan.

Hargreaves Lansdown investment manager Ben Yearsley says managing small-cap funds is not the same as managing an Aim VCT. Of the Artemis, LMI and Gartmore offerings only the Artemis team had any real experience of the venture capital market.

He says: “Artemis had an excellent smaller companies team and good marketing, but more importantly they also had venture capital experience.

“The problem with Gartmore was that it was very difficult to see the story. You have got managers already running more than a £1bn in small-cap money, so why would they want to run a £20m VCT?”

Yearsley believes that one of the biggest problems for the VCT market this year has been a lack of foresight on the part of the marketeers. With much tougher market conditions than last year and a lot less capital gains to be sheltered, he believes VCT firms need to adjust their sales pitches – something most have not done.

He says: “If you go to any VCT presentation at the moment they go on about the tax advantages. But that is irrelevant – particularly at a time when people do not have any capital gains to shelter. They should be making more of the investment story.”

It would be unfair to label the whole VCT industry as unsuccessful this year, as one or two VCTs have already done very well. At the start of February, Matrix&#39s Unicorn VCT had taken almost £14m, accounting for more than 30 per cent of the £45m total industry sales for the current tax year. Downing&#39s Electra Kingsway is another which is well past its minimum, having taken some £6.2m.

However, we are likely to see more misery and more withdrawals from the market before this season is over. Isis technology is now widely tipped to be the next to pull its offering, having taken only £300,000 of its £25m target.

Specialist VCT website editor Martin Churchill, says: “I still believe Isis must be giving a lot of consideration to pulling their VCT.

“Basically, they have three options – pull it now, reduce the minimum subscription of £3m it need to launch to £2m or put in some of their own money. I think they are going to have real difficulties raising the £3m otherwise.”

Churchill urges Isis to be responsible and pull the fund sooner rather than later, so that its investors have a good chance to shop around for an alternative VCT. Last year, Seymour Pierce withdrew its VCT in the last few days of the tax year, leaving its investors in a difficult position of quickly trying to find an alternative.

Isis was unavailable for comment.

The only other VCT which Churchill believes could now be in danger this year is Teather & Greenwood&#39s offering. Like Gartmore&#39s, this is an Aim offering, betting on the name of a talented small-cap manager – John Sweet – to sell its shares.

So far it has taken £750,000 of its £1m minimum but looks as though it will probably scrape through. All the other issues have now passed their minimum levels.

Teather & Greenwood marketing executive Ben Wereik hopes his firm&#39s VCT will pick up some of the business from the recently pulled Gartmore fund. He says: “We are confident that we will exceed the minimum. We are very close to it now. We are expecting a late season this year.”

Churchill believes that VCT total sales for this year will not be a total disaster and expects a rush of business in the final weeks of the tax year. It is not in investors&#39 interests to be part of a very small fund and Churchill believes many investors are waiting to see where the money goes.

He says: “Unless you are sitting on a capital gain, my advice is to sit on your money. You do not want to end up in a small VCT – size is very important in this business. I think the minimum amount for a good VCT is around £8m – first, to keep the manager interested, and second, to give you a spread of investments.”

For those that end up in smaller funds, it is not the end of the world. Most will come back to the market for top-ups next year, while the industry is also lobbying for a change in legislation which will allow VCTs to merge.

The Government has indicated these requests are likely to be granted soon, allowing the houses that have several trusts to merge their smaller funds into their larger trusts.

From an investment perspective, the VCT market presents some good opportunities this year but their continued, often invalid, association with extreme risk turns many investors off.

For those with capital gains to shelter they continue to be a must-buy. But even for those without CGT liabilities to worry about the VCT market is worth a look. Whether or not the investment houses and IFAs will be able to convince their clients of this is a different matter.


Top tailors

Low-margin business, unsustainable, say IFAs, ran the headline in the February 7 issue of Money Marketing.The news story recounted how 75 per cent of the 280 independent advisers canvassed in the recent Money Marketing/Virgin One State of the IFA Nation poll did not see mass-market business as a viable option. Instead, they saw their future […]

GNI stages hedge play

GNI Fund Management has introduced an offshore fund of hedge funds called the GNI Universal fund.The fund aims for growth by investing in hedge funds and aims for a return of 10 per cent gross a year. It will invest in between 15 and 25 hedge funds from different managers, which in turn may invest […]

Nottingham Building Society five-year fixed rate

Nottingham Building Society five-year fixed rateFixed term: Three years (to May 31 2005)Fixed rate: Loans of up to 75% – 5.49%. Loan of up to 90% – 5.64%. Loans of up to 95% – 5.84%Minimum loan: £25,000Maximum loan: £500,000Income multiples: Three times principal income plus second or 2.5 times jointArrangement fee: £100Redemption fee: If the […]

&#39Low-charging funds not best performers&#39

Funds with the lowest charges are not always the best performers, according to new research conducted by Money Marketing Focus. The research, uncovered in the MM Focus Isa publication this week, reveals that cheaper tracker funds often do not perform as well as more expensive actively managed funds. The survey also warns investors to not […]

The FCA’s five fixes for retirement information

The Financial Conduct Authority (FCA) has started to change the way that people will be told about their pension options. In a recent market study paper, they lay out their final proposals on the information that should be delivered to people approaching retirement and how it should look and feel. During 2015, there will be […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and thought leadership.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm