The majority (50 per cent) of UK independent financial advisers (IFAs) believe sophisticated investors are underweight in the venture capital sector, according to research by venture capital investor Albion Ventures.
IFAs estimate that less than a fifth (17 per cent) of their clients’ currently have direct exposure to venture capital, with most of those surveyed (48 per cent) believing that their clients’ exposure to venture capital will increase in the next five years.
Just three per cent expect a decrease. Only a handful of IFAs (2.2 per cent) 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 per cent 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 GBP370m of funds were raised by VCTs, GBP45m more than 2011-12.
Patrick Reeve, managing partner of Albion Ventures says: “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 GBP15m across its six venture capital trusts. The offers are targeting a monthly tax-free income of five per cent (should investors choose to invest equally across all offers), equivalent to 7.1 per cent on the net cost of investment after up-front tax relief at 30 per cent. 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.