Leading managers of venture capital trusts (VCTs) have predicted a lucrative year of fundraising for the tax-efficient vehicles, which invest in growing companies.

Leading managers of venture capital trusts (VCTs) have predicted a lucrative year of fundraising for the tax-efficient vehicles, which invest in growing companies.

Tim Levett, chairman of NVM Private Equity, believes that VCTs will raise £250 million this tax year. That would be only half of their total target, but an increase of 85 per cent on the £135 million raised in 2008/09.

Says Levett, ‘As the UK starts to emerge from the recession, those companies that have survived are in a stronger position to grow their business. And, with lack of bank funding in the SME sector, the opportunities for VCTs to find attractive growth deals have improved.’

Bernard Fairman, managing partner at Foresight Group, thinks that funds raised could soar higher. ‘Our planned exit VCTs take up half of the VCT market, [which] could well be up to £300 million. It wouldn’t surprise me if next year it was bigger, because tax opportunities are largely being shut down.’

Levett adds that fundraising for VCTs should receive a further boost from changes to the rules for self-invested personal pensions (SIPPs) which make them less attractive to top earners from a tax perspective.

While less than £100 million has been secured so far, VCTs typically raise the lion’s share of their cash in March, the final month of the tax year. According to Tony McGing, a director at Downing Corporate Finance, this explains last year’s lacklustre fundraising, since ‘in March last year everyone thought the world was coming to an end’. Like Foresight, Downing is forecasting a haul of £300 million this tax year.

Fundraising by VCTs peaked at some £790 million in 2005/06, but has dwindled since the Treasury pruned back the tax breaks the trusts offer investors (see chart).