The majority (50%) of UK independent financial advisers (IFAs) believe sophisticated investors are underweight in the venture capital sector according to new research commissioned by leading venture capital investor Albion Ventures.
IFAs estimate that less than a fifth (17%) of their clients’ currently have direct exposure to venture capital, with most of those surveyed (48%) believing that their clients’ exposure to venture capital will increase in the next five years. Just 3% expect a decrease. Only a handful of IFAs (2.2%) believe their clients are overweight in the sector.
Sophisticated investors can access the venture capital sector through venture capital trusts (VCTs), investment companies listed on the London Stock Exchange. VCTs provide investment for smaller companies and offer investors a range of incentives including: 30% income tax relief, tax free dividends and no tax on capital gains. VCTs have continued to grow in popularity in recent years. In 2012-13 £370m of funds were raised by VCTs, £45m more than 2011-12.3
Patrick Reeve, Managing Partner of Albion Ventures said, “IFAs recognise there is currently an investment gap in the UK venture capital sector. Most investors are not realising the potential benefits of investing through VCTs.
“Financial advisers need to explore alternative tax efficient methods to help their clients build up a suitably sized nest egg. VCTs are a great option offering investors significant tax incentives and long-term capital growth.
Investors in VCTs also benefit in the knowledge they are helping small firms grow and are supporting the wider UK economy.”
The research follows the launch of Albion VCTs Top Up Offers, which are seeking to raise up to £15 million across its six venture capital trusts. The Offers are targeting a monthly tax-free income of 5% (should investors choose to invest equally across all Offers), equivalent to 7.1% on the net cost of investment after up-front tax relief at 30%. Investors in the Offers also have the option to boost their capital growth by participating in the dividend reinvestment scheme (“DRIS”), under which dividends are reinvested in the form of new shares in Albion VCTs.