ShareSoc VCT Webinar Report

I attended a webinar organised by the VCT Investors Group of ShareSoc last night, and spoke on the panel. This is a very brief report on what was certainly a useful event for anyone invested in Venture Capital Trusts. There should be a recording of the event available from the ShareSoc web site to Members in due course.

There were good presentations on some problematic VCTs – the Edge Performance VCTs and the Ventus VCTs. ShareSoc was involved in campaigns on those companies. The former, which have multiple share classes, showed poor performance on all but one share class, and poor corporate governance resulting in shareholders demanding some changes. There are two Ventus VCTs that specialise in renewable energy which no longer qualifies for VCT investment. The directors are now proposing to wind up the companies.

Another “problem” case I spoke about was Chrysalis VCT which was another company that got into a difficult situation. Assets declining making it look unviable with high fixed costs and the portfolio consisting of dubious holdings such as Coolabi (also a holding in the Edge VCTs). Shareholders decided to wind up the company on the recommendation of the directors in October 2020 even though there were some investors who claimed capital gains deferral on their investment way back in time, which will now mean they get a big tax bill.  I sold my holding in Chrysalis VCT in 2018 as I could see the way the wind was blowing and had been through a similar experience with Rensburg AIM VCT in 2015/16. In that case they did manage to merge with another VCT who took over management of the portfolio.

Both the Edge and Ventus VCTs were not likely to be attractive to merger partners or acquirers though. But an administration process is going to be long-winded, costly and in essence painful.

As I said in the webinar, if you are holding shares in a VCT that is getting into difficulties, or is unlikely to be able to raise new funds from investors, best to get out sooner rather than later. Regrettably the directors and fund managers of such companies seem keen to keep the companies alive, and postpone tough decisions for too long.

Or if you think the VCT is revivable, or can survive, then pursue a revolution such as changing the directors and/or fund manager.

The seminar included a good analysis of the performance of VCTs by Mark Lauber. He suggests they can give a good return if you take into account the tax relief you get from investing in them, and the tax-free dividends. They do provide an alternative asset class to most FTSE shares, being effectively private equity investment trusts investing in smaller companies.

Are they good investments at this point in time? This is uncertain given that the type of companies they can invest in has changed recently. No more asset backed companies for example. They can hold diversified portfolios, but the fund performance depends a great deal on the competence of the fund manager.

There are few alternatives on which you can obtain tax relief. EIS companies are even more risky. With stock markets being buoyant of late, my view is that there are fewer reasons to invest in VCTs at present where management costs are high and corporate governance often leaves a lot to be desired. You also have to keep a close eye on them and understand the complex tax rules. It might be best to wait and see how the new VCT rules work out in terms of investment returns.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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