Venture capital trust (VCT) managers are optimistic for the year ahead, with three quarters (76 per cent) believing that the economy is improving compared to just 45 per cent last year.
A further 24 per cent feel that the outlook is more mixed, according to the Association of Investment Companies’ (AIC) annual poll for 2014 of VCT managers, which elicited responses from 83 per cent of the VCT sector by assets.
Access to bank lending appears to have improved, whilst companies are increasingly recruiting. When it comes to fundraising, some 94 per cent of managers expect the 2013/14 VCT fundraising season to be up on the previous year.
Bill Nixon, managing partner of Maven Capital Partners, says: “The past six months have seen a very strong uptake in new transaction volumes, and I know from speaking to other generalist VCT managers this is being experienced right across the entire industry. With strong investor demand for new issues, the VCT sector has never been in better shape, continuing to support UK SMEs as they drive the economic recovery.”
Tim Levett, chairman, NVM Private Equity Limited (manager of the Northern VCTs), says: “The curbing of annual and lifetime contributions to pension schemes has led to an increasing focus on VCTs as a vehicle for long-term retirement saving.”
It also seems that investee companies are on a recruitment drive: 94 per cent of VCT managers expect their portfolio companies to be net recruiters next year, compared to 70 per cent last year.
But not everything is plain sailing, according to Bernard Fairman, chairman, Foresight Group who says: “The government needs to maintain a consistent policy framework with a bias toward boosting the supply side. Contrary to official wisdom, I do not believe that much productive slack exists in the economy, so increased demand when it comes will quickly lead to inflation. This comment particularly applies to the SME sector where surplus costs and capacity were long ago chopped to ensure survival.”
When it comes to favoured sectors for 2014, managers are most optimistic about prospects for the technology & IT sector, followed by healthcare and business services. London and the South East were the most popular regions from an investment perspective, followed by the North West, Scotland and South West. Eighty eight per cent of VCT managers expect exports/ overseas sales to increase next year, whilst 12 per cent anticipate no change. Europe and North America are the greatest sources of overseas growth (each 40 per cent), followed by Asia Pacific (16 per cent) and Japan (four per cent).
Whilst last year 44 per cent of managers reported that investee companies had experienced difficulty raising bank debt over the year, this year 41 per cent of VCT managers’ report that bank lending has got easier for their investee companies, a further 12 per cent say it has got worse, and 47 per cent report no change.
Mark Wignall, lead manager of the Mobeus VCTs, says: “Those of our investee companies that want bank lending in almost all cases can get it, but frequently they and we don’t choose to take it and instead we make available VCT capital.”
In terms of accessing bank lending in the future, some 39 per cent of VCT managers expect investee companies’ appetite for bank lending to increase over the next year, 11 per cent expect it to decrease, whilst 50 per cent expect it to stay the same.