However, low liquidity is now becoming less of an issue. The more established Generalist VCTs have reached critical mass in terms of size and diversification of investments held such that they enjoy sufficient liquidity for active share buy-back programmes. The target discounts applied to share buy-backs have tightened with maturity and many target a range of between 5 and 10 per cent.
Clearly VCTs are not suitable for everybody and many investors with a cautious outlook will prefer to steer clear of backing smaller, often privately owned, young companies, which are inherently riskier.
VCTs are a higher risk investment due to the category of asset invested in and should only be considered by those wealthy enough to make them part of a wider investment portfolio and invest for a minimum of five years. Thus for those in that position, VCTs are becoming increasingly attractive as the industry comes of age.
Will Fraser-Allen is deputy managing partner, Albion Ventures
