Developing secondary VCT market is important, say managers
Article Date: Oct 17 2007Some 95 per cent of VCT managers consider it important to develop a secondary market for VCT shares, according to research from the Association of Investment Companies (AIC). However, less than half (48 per cent) think this is a feasible goal within the next five years.
According to the study, the chief obstacle to the success of such a market is the fact that income tax relief at 30 per cent is only available to the original purchasers of VCT shares, making the investments much more attractive at launch than afterwards.
However, the managers questioned in the survey suggest that tax-free dividends, which can be higher in established VCTs, and the ability to invest in a mature portfolio, could stimulate demand for second-hand shares.
Patrick Reeve, manager of the Close Ventures VCTs, comments: ‘A successful and healthy market needs to provide liquidity for buyers and sellers alike.
‘Currently the market is largely limited to one source of supply (new issues) and one source of demand (VCT buy-backs). This sadly ignores the considerable investment potential attractions for shareholders buying in the secondary market.’
Simon Rogerson, chief executive of Octopus Investments, agrees that developing an active secondary market is important in order to narrow VCT discounts and provide existing investors with the ability to cash in their investments.
Rogerson adds: ‘To reach this goal, the industry will need to adopt a flexible and creative approach to identifying and targeting new types of investors.’
The AIC survey collected responses from VCT providers representing 93 per cent of the sector.