VCT rush 'tough' for fund managers

INVESTORS have embarked on a multi-million pound investment spree on venture capital trusts (VCTs) but the early signs are some fund managers will be left disappointed.

City firms have attempted to cash in on a boom by launching their own trusts ? 40 are vying for investors' money this year compared to just 10 last year.

With fund managers looking to fill £800m-worth of trusts by 5 April, some are set to miss out. Financial advisers say annual sales for the tax year will now be around £400m, down from the £500m they had been expecting.

Some of the City's most respected fund managers, such as Framlington, Invesco Perpetual and First State, have risked their reputations in trying to cash in on the VCT market.

Success has been mixed. Figures from Bestinvest show First State has taken only £800,000 of the £20m needed to fill its Aim trust while Invesco Perpetual Aim has secured £10.5m with £29.5m left to fill, and Framlington Aim has attracted £10.6m with £19.4m unsold.

Even VCT specialists have been struggling. ProVen, which has been one of the best performing trusts, returning 20% over five years. It has sold only £1m of its new offering this year. It now looks likely it will pull the launch and offer applicants a chance to buy into its existing trust.

'With 40 trusts out there this year, it has been very tough,' said Stuart Veale, managing director of Beringea, the firm that runs ProVen trusts.

However, despite the gloom, sales for the VCT market are still £240m so far, according to financial adviser Bestinvest, much higher than the £60m raised during the full tax-year of 2003-2004.

The seeds for the boom were sown when Chancellor Gordon Brown stunned the investment industry last year by raising the tax break on VCTs from 20% to 40%, even for basic-rate taxpayers.

Venture capital trusts are funds listed on the stock market that invest in companies with assets of less than £15m. The trust managers often get involved in the running of the businesses they invest in.

The idea is to buy significant slices of promising firms, then help them grow to the stage where they can be sold or floated on the stock market.