Doubts as to whether new VCTs will near critical mass

Since the announcement of enhanced income tax relief for VCTs in last year’s Budget, the number of entrants in the sector has grown hugely. However, few have raised much of their subscription targets and Spooner says groups have to decide quickly whether or not to close them down.

He says: “£10m is regarded by some as the figure you need for critical mass, but I would argue that to cover your cost spreads, you need £20m to be OK. As such, the main issue now is that investors don’t get stuck in a VCT that does not achieve this level.”

This, argues Spooner, means groups have to decide now as to whether to withdraw their VCT and return cash back to investors, to give them enough time to invest elsewhere before the tax year ends next month.

Funds that have achieved critical mass include Framlington’s Aim VCT, Artemis’ Aim VCT 2, Invesco Perpetual’s Aim VCT, Keydata’s Aim VCT and the Close Income & Growth VCT. The First State Investments Aim VCT, however, is not on course to achieve critical mass.

Quester manages five VCTs, all of which invest in high growth technology-related companies and are placed in the specialist sector. Its latest offering, Quester VCT 5, is currently seeking a top-up issue of £10m. As it is just looking for top-up money, the VCT has critical mass already; however, of the eight new entrants into the specialist sector, none have so far achieved critical mass.

Quester VCT 5 was originally launched three years ago. Spooner acknowledges that as a result of it having a strong weighting in the information and communication technologies, and the healthcare and life sciences sectors, its performance has suffered since launch.

However, he argues: “If you only look at short-term performance, you end up moving with the herd. Now is the time for investors to be looking at technology again, but investors have to do so before the herd catches on.”