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‘VCTs lower targets to pull in fees’

Hargreaves Lansdown investment manager Ben Yearsley claims a number of venture capital trusts are reducing the levels at which performance fees kick in to make them more achievable.

Yearsley believes the practice is particularly prevalent when a VCT changes manager. He says: “It is disappointing enough when these providers raise fees but when they adjust performance fees and effectively make life easier for themselves, you question whether the boards of these VCT providers are doing what is in the best interests of their clients.

“It is fair enough that they are motivated but if they have a contract for a £20m VCT, they are already getting an income of £400,000 a year. You have to question them when they take money like that and are getting more money from an easy-to-reach performance fee.

“Investors are already in these VCTs when the contracts change and the net asset value drops as a manager takes a pessimistic view.”

Downing Corporate Finance director Tony McGing says: “Performance incentive schemes should be explained clearly at the time of launch and only pay out if specified hurdles are met. We believe the best hurdles are those which link payouts to returning cash to investors.”

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