• Total returns vary depending on the strategy. Asset-backed strategies target similar returns to VCTs. Venture capital and private equity target a return of two to three times the value of the initial investment, similar to the returns achieved by the same businesses in their institutional private equity offerings (non retail).
*assuming sufficient tax paid already
Suitability
A VCT is by nature a higher-risk investment and should form part of an overall balanced portfolio. As a rule, they are only suitable for investors that meet the following criteria:
• High-net worth and sophisticated investors who are UK residents.
• Investors who have a sufficient income tax liability to reclaim income tax relief at 30 per cent of the amount subscribed.
• Investors who have realised a capital gain that would attract capital gains tax.
• Investors who will not need access to their capital for at least five years and are comfortable with higher-risk investments.
Timescale
Now is the time to plan for these investments. There are early-bird fee discounts for new investors, although the discount is greater for existing holders and most early bird offerings have now run their course and expired.
The number of offerings is less because the traditional management buyout funds are only serving up small offerings this year and they are to existing holders only.
In the VCT space, there are no more than 20 potential offerings across all categories of specialist, generalist, top-ups and AIM. In the EIS space, the figure is also less than 20.
Independent research
A quick search of the internet will give an investor the full list of offerings still available. From there, it is highly recommended that the investor looks in more detail at the individual websites for those offerings.
Most websites contain plenty of extra information. A VCT must have a prospectus that meets London Stock Exchange rules. There is also normally information on past performance numbers and future potential risks.
Most offerings also include reports written by an independent financial expert called Martin Churchill. This section of the literature is always called the Tax Efficient Review. The reviews give each investment a score out of 100 and this allows investors to look at the relative strength of each offering. They are well put together, independent and offer in-depth reading and analysis.
These independent overviews consider all areas of an offering, including a review of the institution and the main decision-makers of potential investments and the process followed. They are a good read and are unafraid of offering praise or criticism.
If these reviews are not included on the website of the institution seeking investors’ money, people need to ask themselves questions as to why not. They are an established part of the suite of literature usually provided with this type of investment.
