The VCT Market Comes of Age

  • On November 18, 2021
  • By Chris Gosling

The VCT Market Turns Digital – at last – and looks set to break the £1 billion mark.  

David Lovell has a look at the drivers behind an extraordinary VCT fundraising season, and how technology has enabled the sector to come of age.

It is ironic that for a sector that invests in so many technology businesses Venture Capital Trusts had been very slow to embrace the kind of digital dealing and processing which open-ended funds have been using through platforms for decades.

The pandemic has changed that and as a result VCTs looks set to go through the £1 billion mark of new money raised long before the end of the current tax year.

Annual fundraising figures look set to smash through the previous high of £731 million (in tax year 2018/19), and, in all probability, will go well beyond the £1 billion mark in the 2021/22 tax season.

There is a combination of factors at play here, including post pandemic pent-up demand, the increased ease of access and application, and the growing understanding amongst advisers of the potential of VCTs to help their clients.

The attractiveness and reliability of regular tax free dividends,  a longer term investment track record for many of the managers and the need for advisers to look for solutions to the Life Time Pension Allowances have all helped contribute to great interest in VCTs.

One key story of the pandemic for advisers and their clients has been the digitisation of the market place:  fund providers that had sat on their haunches for years were suddenly able to accept digital signatures in March 2020, and importantly advisers and their clients began to expect this as a minimum requirement.

Within the VCT market, the changes had been coming, but the variation in progress towards digitisation between providers, receiving agents and custodians made life difficult for advisers and their clients, and meant that many were understandably sinking to the lowest common denominator – paper-based.

If we fast forward 18 months, we are now experiencing VCTs filling up in only a few weeks, days or even hours, and the only way to ensure a client’s proper allocation is with a fully integrated solution that is entirely digitised.

From online application and same day transfer of funds, through to the allocation of dematerialised stock into CREST,  and digital tax certificates, and beyond this, into a reporting and access to a consolidated and diversified VCT portfolio, including  daily price updates, automated dividends and downloadable tax year specific portfolio reports.

Providing access to this solution through a single platform for all new VCT investments, alongside the ability to consolidate existing client VCT portfolios, has understandably proved a hit with advisers and their clients.

The last few weeks alone have seen considerable amounts of funds raised in VCTs, notably Octopus Titan VCT, which raised £200M in less than a month.   This followed on from sizeable  Apollo and AIM VCT raises from the same Octopus stable that has dominated the VCT market in the last decade or so.

It has not been just Octopus that has been attracting attention, with the Amati AIM VCT closing in record time in the summer, and British Smaller Companies VCTs, and Hargreave Hale VCT already full.

There is still capacity in the market with the likes of Pembroke and Baronsmead still open and available.

In addition to those currently open for investment, all of which are available via digital application on platforms like GrowthInvest and WealthClub, there are a number of long established funds that have announced raises in January notably the Albion VCTs, the Northern VCTs, and Unicorn AIM VCT.

The expectation is that these well -established names will fill very quickly indeed advisers need to get their client accounts set up and funded well in advance, to take advantage of the huge steps forward that the VCT industry has taken over the last two years.

Now in a single day adviser can book in their clients into a VCT on platform, transfer funds and get confirmation back from receiving agents; a far cry from piles of paper application forms and cheques taking days to clear.

This year looks like exceeding £1BN, next year could be even more, but  the vast majority will be raised entirely through digital processes meaning after more than 25 years he VCT market has come of age.

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