LightTower's Rose: 'The effects of recent rule changes yet to feed through to VCTs'
Partner Insight: The government's emphasis on VCTs has also subtly changed in recent years with the ending of asset-backed investment and as with EIS, the emphasis being very much more focused on growth capital opportunities.
This hasn't impacted the number of investors turning to the sector, with statistics from HMRC showing in the 2017/18 tax year a total of £745m was raised from investors across all the funds in the sector. This is the second-highest total since VCTs were first launched in 1995 and represents a 30% increase on the figure for the year previous of £570m.
Jack Rose, head of tax-efficient products at LightTower Partners, believes the effects of the recent changes are yet to feed through to the products: "This is because the majority of VCT offers are top-ups to existing portfolios and most of those existing portfolios are in companies that pre-date the rule changes.
"As these old investee companies are sold off over time, the portfolios will increase their weighting to the new style of deals and away from the old MBO deals. How this plays out will be difficult to say but one possible impact will be in the dividend profile of some VCTs. I would expect dividends to be less consistent as they will increasingly be reliant on successful realisations."
He also notes that while there are less VCT managers in total, there is evidence of newer funds emerging with interesting propositions.
"We have seen a number of new entrants to the market this year (for example Seneca and Draper) as well as a few managers returning who didn't raise last year like TriplePoint.
To read the full interview and more about the impact of new rule changes on the VCT sector, click here for the exclusive Spotlight on Tax Efficient Investing.