VCTs put on a good show

Five-year cash returns from the first nine VCTs of 1995-1996 have put in an impressive performance, outperforming equivalent yields of the FTSE All-share Index, according to statistics from the British Venture Capital Association (BVCA).

BVCA figures reveal that cash paid out by this group of VCTs to higher rate shareholders, who have benefited from the full VCT tax reliefs, has been equivalent to 16.6 per cent per annum over five years.

The annual cash payouts to private investors over this period were four pence for every 100 pence subscribed, according to Teather & Greenwood, and are made up both of dividend and the capital distributions that VCTs are able to pay out of capital gains generated from selling profits at a profit.

The investment focus of the majority of VCTs is to build a portfolio of around 30 fast growth companies. The first nine VCTs that have produced these cash returns have invested primarily in unquoted companies. Given the lower valuations expected in the current environment and the increasing maturity of VCT fund management, 2002 should be a promising year for investors, according to the BVCA.

The VCT segment is a growing niche with over GBP1.4 billion raised since 1995 and some 70 vehicles in existence. The last couple of months in particular have seen a frenzy of launch activity. VCT veteran Quester is in the process of raising for its fifth fund and further offerings include Aberdeen Murray Johnstone Private Equity’s GBP30 million fund, Gartmore Premier VCT (GBP25 million), Electra Kingsway (GBP25 million), Bioscience VCT, a GBP20 million joint venture between Medical Marketing International Group and Octopus Asset Management and NVM’s third GBP25 million generalist VCT fund.