Buyers face lacking out on profitable tax breaks as fashionable enterprise capital trusts reduce yearly fundraising ranges, warn wealth managers.
The most important VCTs — listed funds which spend money on early-stage companies — have slashed their annual fundraising ranges, disappointing buyers when demand is at a excessive.
A clutch of huge VCTs will now increase much less cash than in earlier tax years, reversing a gentle upward trajectory in fundraising from 2005.
Baronsmead Enterprise Belief and Baronsmead Second Enterprise Belief, two of the preferred generalist VCTs, stated in outcomes for the yr ending September 2016 they have been “unlikely” to boost new funds within the ultimate half of the yr.
Northern, which manages three VCT funds, has not carried out a “vital” fundraising because the yr ending April 2014, stated Matthew Woodbridge, director of wealth and funding administration at Barclays. One other outstanding fund — Maven Revenue and Progress 6 — raised £10m prior to now tax yr however will increase simply £6m on this one.
Jason Hollands, managing director at Tilney Bestinvest, stated there was an ongoing “provide crunch” across the funds, which supply buyers 30 per cent revenue tax aid so long as the shares are held for 5 years.
Mr Hollands stated the funds had “loads of money to take a position” and had acquired it at a quicker tempo than they might make investments.
VCTs loved one among their strongest years for fundraising within the tax yr ending April 2015, attracting greater than £457m from buyers and bringing the full funds underneath administration to £three.6bn.
Nevertheless, rule modifications which got here into impact final November have meant the pool of corporations eligible for VCT funding has shrunk.
In accordance with the brand new guidelines, corporations older than seven years have been dominated ineligible for VCT funding until they are often categorized as “information intensive”, administration buyouts and renewable power schemes have been banned, and a lifetime restrict of £12m funding was imposed.
Alongside these, the earlier guidelines stated qualifying corporations should have gross belongings of not more than £15m, fewer than 250 staff, and be unlisted on Purpose.
VCTs should make investments a minimum of 70 per cent of their money in qualifying investments inside three years, which means funds are cautious to not increase more money than they will make investments.
“The principles that got here in have slowed the speed of investments and managers are usually not getting via the money pile as shortly as they might,” stated Mr Woodbridge of Barclays.
The ban on administration buyouts was one of many key drivers of the shrinking VCT funding, he added. “[Management buyouts] tended to be bigger offers, however the VCTs at the moment are investing in smaller and youthful corporations.”
Mobeus Fairness Companions, whose VCTs beforehand invested in administration buyouts, has already introduced it won’t increase cash in any respect this yr.
John Glencross, chief government officer of Calculus Capital, stated the rule modifications had pressured VCTs to “re-engineer their groups and alter their funding technique to now concentrate on progress investments.”
“It’s troublesome for VCTs to justify additional fundraising to shareholders given a lot money on the stability sheet and restricted proof to point out they will make use of the funds they’re already holding,” he added.
Ben Yearsley, a wealth supervisor at Wealth Membership, described the rule modifications as “pretty draconian”.
“What it means is that the old-fashioned generalist VCTs like Northern, Baronsmead and Mobeus — who used to boost £40m a yr — will now solely look to return out for a fraction of that,” he stated, including: “Principally, if you need a VCT, you have to act shortly.”