Key features of the new investment vehicle will be a performance focus, targeting annual dividends of at least four pence per share (equivalent to a tax-free income of 9.5% for higher rate taxpayers, taking into account the 30% income tax relief) together with the planned return of capital to investors in year eight.
Giles Brand, EPE Ltd CEO, commented: “When the VCT rules changed to focus new investment into smaller companies, it played to our strengths as specialist smaller company private equity fund managers. Our expertise at this end of the market means that private investors will now be able to access some exciting private equity deals, whilst also benefiting from the VCT tax breaks.”
In recent years, the EPE team has advised or arranged 18 deals that would have met the current VCT qualifying rules, with an average valuation or realisation of 270% on the original investment – equivalent to an average IRR of 48%.
Brand added: “In the course of developing our VCT we found that IFAs were clearly disgruntled that the level of return shown by many VCTs was not commensurate with the risks.” He explains that too much emphasis appears to have been placed on the tax breaks with too little focus on the coherence of the investment strategy. Investing in VCTs marketed as low risk purely for the tax breaks seems to have backfired for some investors, who could have achieved better post-tax returns from lower risk investments.
The EPIC VCT will have a clear focus on performance. This will be achieved through an asset allocation model that will see the early deployment of funds into non-qualifying fixed income and quoted mid-cap equity portfolios. Funds will then be phased into three types of qualifying private equity opportunities, each with its own distinct investment characteristics: development capital; buyouts; and turnaround situations.