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Venture scouts lose the track

As the 2000/01 tax year finally closed its doors three weeks ago, the venture capital trust industry was one of the few fund management sectors with something to boast about.

Record sales of £424m were up by more than 50 per cent on last year&#39s £270m, which was up by more than 10 per cent on the year before.

But while 2000/01 was a record year for VCTs, the grand total fails to tell the whole story. For many funds, the past year was nothing short of a nightmare – with more offerings withdrawn, more unfilled issues and less end of tax year excitement than ever.

Harvest and Seymour Pierce both axed their funds in March after they failed to reach their minimum subscription. Venture Technologies Academic Research Partners pulled their fund at the 11th hour after the cornerstone investor for their institutional fund withdrew.

As the new tax year began, 14 VCTs were still short of their target subscriptions, with more than £150m still being sought. LeggMason and Proven&#39s offerings were two trusts only marginally past their minimum levels and are still in search of more than £20m each.

Hargreaves Lansdown investment manager Ben Yearsley says: “Proven was quite a good story and it should have done more. But anything which was launched in February or March struggled, with the exception of Artemis. There were just far too many VCTs on offer this year.”

Following the previous year&#39s success, where all VCTs were oversubscribed, new VCTs were launched in almost every month of the last tax year. The summer offerings, e-ventures and iNet, both sold, while the barrage of autumn launches all sold well.

But as markets began to fall at the start of the new year, sales slowed and the new issues received only a lukewarm reception. Yearsley believes there is unlikely to be any movement in the market this year until September.

He says: “A couple of firms were going to launch funds this spring but they have decided to put it off until September. The majority of launches this year will be in the autumn and I do not think you will see any in January and February. I think the ones that are still open will only take another couple of million between now and June.”

At present, the top-up issue of the Northern 2 VCT will be the last of the current offerings to shut on June 28, with the rest due to close in the next few weeks.

Allenbridge Tax Shelter Report head of research Martin Churchill is more optimistic about the next few weeks. He says the open funds could take up to an extra£20m before they close while he believes the industry will also see two or three new launches over the summer.

But he stresses that people who have a capital gain which is set to pass its one-year threshold before December should look at what is on offer rather than wait. Capital gains cannot be sheltered from tax within a VCT more than a year after the gain was realised. He says: “You will not find the kind of choice you have out there now until much later in the year.”

Churchill also believes that some of the older trusts will offer new issues for existing shareholders only over the summer. For those in search of a strong alternative investment, he believes investors would do well to track down any available secondhand VCT shares, to be able to take advantage of the new issues.

Although part of the blame for the slow end to this year&#39s VCT season can be apportioned to poorly performing markets and weak investor sentiment, most of the misery has been suffered by the new names in the market. The likes of Baronsmead, Northern Venture Managers and Quester – which all have several years of experience in the VCT market – all achieved the bulk of their targets.

The losers have been the more innovative funds and the new entrants to the VCT market. LeggMason decided to move into VCTs on the back of the appointment of star smaller companies manager John Johnston from Murray Johnstone but the name did not prove enough to pull in investors.

The Sitka Health VCT, sponsored by Matrix, was the first healthcare fund to enter the VCT market at a time when biotech funds were sitting on triple figure returns for the year but it still has only mustered just over a quarter of its target £20m.

The funds which have only received a few million pounds are all likely to be back for second rounds of funding later in the year. Yearsley believes that prospective VCT providers will not be put off by this year&#39s poor responses to alternative VCTs. Instead, he believes there will be more pioneering funds, including the first ethical VCT.


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