The financial crisis was a Darwinian moment for VCTs, says Jack Rose, and those that were able to demonstrate an investment philosophy and strategy robust enough to survive have flourished since.

Last year saw a record year of fundraising into venture capital trusts (VCTs), with approximately £540m being invested into the sector. While there was plenty of investor demand, a lack of capacity in available product limited the amount raised. Now, with a big increase in the capacity forecast for this year – consensus has it close to £900m – a much higher total fundraising figure is anticipated.

Since the 2012/13 tax year, VCT fundraising has increased by more than 120%. So why has there been this sudden increase in interest – what is driving this recent uptick in demand?

First, there are the investors in the asset-backed Enterprise Investment Scheme (EIS) sector who, following a number of rule changes to energy assets, have returned to the VCT sector. Depending on the type of investment, VCTs can have a more attractive risk profile than the EIS sector.

Second, the changes to pension legislation seen in recent years have had a significant impact. Now that investors are restricted on what they can contribute on an annual and a lifetime basis, an increasing number of people are looking for other investment options to complement their pension savings. This issue is only going to be exacerbated as people use up their carry-forward allowances.

VCTs offer an alternative to pension investment as a result of their tax-free income benefits.

Source: Professional Advisor

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