Venture Capital Trusts are 'bad investments'

Tuesday, 11 May 2004 12:00

Bestinvest Brokers has criticised Venture Capital Trusts (VCTs) saying their charges are too high, they offer hardly any discount.

It believes that without adequate reforms VCTs could be yet another reason for investors to become disillusioned with the Financial Services Industry.

Income Tax relief to the tune of 40 per cent is now available for new subscription into VCTs and many commentators expect to see a dramatic increase in investor interest.

However, while tax relief might ay act as a powerful attraction for investors many may forget to exercise the normal assessment rules.

John Spiers, Bestinvest managing director, spearheaded his attack by saying: "I accept investing in private equity is a much more labour intensive task than investing in quoted companies, however in the case of AiM trusts I believe that the standard two per cent p.a. management fee for VCTs is excessive - these managers are quite happy to run AiM unit trusts for fees of half this level.

"We would like to see AiM VCT Total Expense Ratios capped at 2.5 per cent and at three per cent for generalist VCTs. After all, most managers also enjoy generous incentive arrangements in the event of good performance."

Hugh Rogers, Bestinvest VCT analyst, would also like to see a number of changes, including seeing "management fees linked to the lower of market capitalisation and net asset value", and "an automatic continuation vote at any AGM if the shares have traded on an average discount of more than tne per cent in the past year." It is felt both would provide a "disincentive for VCT managers to trade at a large discount."

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