Investment in Venture Capital Trusts might have suffered during the recession, but they are 'very much back on the news agenda', according to the Association of Investment Companies.
The AIC predicts that investment in VCTs will pick up now that the end of the 2009/2010 tax year is approaching, and has found that optimism is returning to the sector, with fundraising expected to see a 'marked improvement on last year.'
To seek out the current sentiment surrounding VCTs, the AIC asked VCT managers their views on the sector's prospects for the coming tax year and found them to be optimistic.
With reduced bank debt available to small companies, VCT managers are looking forward to a 'vintage year' in VCT investment, but are also mindful that investors should maintain a long-term view as the economy continues to recover.
Tony McGing, director at VCT provider Downing Corporate Finance Limited, said: "With banks more interested in repairing their balance sheets than providing funding for small businesses, VCTs have been filling the equity gap. During 2009, Downing's funds backed 20 businesses to the tune of £28 million. We expect deals completed in 2009-11 to be ‘vintage' because of lower entry prices and less competition for funding."
Matt Taylor, partner at Foresight Group, believes that VCTs are well-placed, "because they tend to spread their investing over a 3 year period. And that means that the VCTs of 2010 should catch the recovery and gather a rich harvest."
In light of the new tax and pensions rules, Mr Taylor said: "With the increased tax rates, low interest rates on savings and the restrictions placed on pension contributions, VCTs are being increasingly seen as an alternative source of tax-free income to run alongside traditional tax and investment planning products."
As a long-term investment opportunity, VCTs are coming into their own, the experts say. Tim Levett, chairman at NVM, said "As the UK starts to slowly emerge from the recession those companies that have survived are in a stronger position to grow their business and, with lack of bank funding in the SME sector, the opportunities for VCTs to find attractive growth deals has improved."
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