January 21, 2025 • 21 mins
Correction One of our brilliant listeners wrote in to point out an inaccuracy in the original podcast. We've removed the inaccuracy, in which the guest said you can roll previous capital gains into a VCT. In fact, while gains made from a VCT can be CGT free, you CANNOT roll over capital gains on other assets you have sold into a VCT. We will also address in the next personal finance episode.
On this week’s personal finance edition of Merryn Talks Money, host Merryn Somerset Webb speaks with Tony Dalwood, Chief Executive Officer of Gresham House, a specialist alternative asset manager, about Venture Capital Trusts (VCTs)—what are their benefits and when they are best employed.
Note: Listeners should always take advice before investing.
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news. Welcome to Meron Talks
Your Money, the personal finance edion of Meron talks Money.
In these bonus podcasts, we talk about the best strategudes
we're making the most of your money. Meren, suset Web.
(00:26):
So this week we're talking about venture capital trust or VCTs.
A few of you've written in asking us about.
Speaker 2 (00:32):
VCTs, what do they do? How do I get them?
Speaker 1 (00:35):
So we thought it'd be a good time to bring
in an external voice to talk to us about exactly
what VCTs are and if it can offer some of
you a more tax efficient investment option, then maybe pensions,
particularly in light of the changes we saw in the
autumn budget, which of course increased some of the tax
penalties on pensions. So with me today Tony DAHLWOOD'SO Gresham House,
Gresham House and a specialist alternative asset manager managing a
(00:57):
variety of VCTs. Two barrels ME VCTs and two Mobius VCTs.
Welcome Tony, Thank you so much for joining us today
on what is a relatively complicated subject.
Speaker 3 (01:07):
Real pleasure to be here, Meren.
Speaker 1 (01:09):
Okay, I'm going to start with one of those big
questions that people find of putting. But you're so expert
that I know you're not going to find it off putting, Tony.
Speaker 2 (01:17):
What is a VCT?
Speaker 3 (01:19):
So VCT starts a venture capital trust. Venture capital trusts
are listed vehicles which are tax efficient ways of investing
in early stage growth companies, primarily private companies, small private companies.
But there are some AIM VCTs as well that invest
in AIM for those companies that are eligible to be vctable,
(01:40):
so to speak.
Speaker 1 (01:41):
I'm interrupting you already because we are super basic here.
Speaker 2 (01:44):
What is it aim?
Speaker 3 (01:46):
AIM is the alternative investment market of the London Stock Exchange,
typically early stage companies that are starting on their journey
for growth.
Speaker 1 (01:55):
Okay, so an AIM company is a listed company, but
not a fully listed company.
Speaker 3 (02:01):
Correct. It has certainly slightly different rules, but typically it's
an easier way of getting listed and access for the
public to buy and sell shares in that AIM listed company.
As I say, the primarily most VCTs are made up
of private companies, unlisted companies, small ones with growth ambitions.
Speaker 1 (02:20):
Okay, So what then, is the difference between a VCT
and a private equity trust?
Speaker 3 (02:25):
So that many private equity trusts listed ones three eyes
an example of that, and these are trusts that typically
hold private companies in a listed structure. Three three eyes
cases a London Stock Exchange the main list, and you
can access buying those shares on the London Stock Exchange
and you're getting exposure to the underlying companies like three I.
(02:47):
The biggest exposure you'll have on three I is a
Dutch supermarket business called Action. So you have many different
private equity trusts that give you underlying private equity exposure
through a listed vehicle.
Speaker 2 (02:59):
Okay, still it's the same idea.
Speaker 1 (03:01):
You've got private companies, unlitted companies wrapped up insider trust.
Speaker 3 (03:06):
Correct. And the difference between a VCT and they standard
private equity trust like three I or Htree Capital Trust
would be that the VCTs are tax efficients. The VCTs
offer thirty percent income tax relief when you buy new shares,
and they provide in some respects more more flexibility than
(03:28):
some of the pension tax changes that are happening at
the moment, So you have some tax relief by investing
in the new shares to then support the UK's ecosystem
of growth. Small companies.
Speaker 1 (03:41):
Okay, So tax release is offered by the government in
order to encourage us to put our money into smaller
companies to help them grow. Right, So let's talk about
how that tax relief works. So I buy new shares
in a new launch VCT, I put the money in,
and I can then apply to get the tax I've
(04:03):
already paid back the income tax I've already paid back.
Speaker 3 (04:07):
So you put one hundred pounds in to the new shares,
you'd get the shares worth one hundred pounds, and then
for your h MRC submission, you would then be able
to indicate that you've bought one hundred pounds worth and
you'll be able to claim back thirty pounds offset against
whatever income tax liability you were had in totality for
your own personal affairs, as.
Speaker 1 (04:28):
Long as I paid that much income tax over the
year obviously, right, Okay, correct, And there is also a
capital gains tax relief here as well.
Speaker 2 (04:37):
Right correct.
Speaker 3 (04:39):
So if and when you make money on the shares
in due course, you must hold them for five years.
It's an important point. So once you invested, you must
hold them for five years. Once you held them and
you make a capital game, there is that a zero
capital gains tax on that? As well? As these investment
VCTs do pay dividends, and you're also have income tax
(05:04):
free dividends.
Speaker 1 (05:06):
Okay, So I don't pay capital gains on any gains
and I don't pay any income tax on the dividends
that I get.
Speaker 2 (05:13):
Correct, quite big benefits.
Speaker 1 (05:16):
Let's say that I have bought shares in one of
your VCTs on launch. After five years, I want to
sell them. Who do I sell them to? Who is
going to buy the stuff? Without the tax relief?
Speaker 3 (05:28):
There is a liquid market to some degree, but as
you say, sometimes that isn't there. The company themselves have
a buyback mechanisms, so they often step into the market
and buy from their balance sheet from realized gains from
exited investments on their balance sheet, okay.
Speaker 1 (05:45):
Or perhaps do VCTs have a set life and that
will wind it up after five years or ten years
and you will get your money back.
Speaker 3 (05:53):
Some may do. Typically they are evergreen, which means they
carry on until the boards decide in consultation with shareholders
that something should change.
Speaker 2 (06:03):
Okay.
Speaker 1 (06:03):
So there could be situations where you buy into your
VCT at the beginning, you get your income tax relief,
and maybe you get your capital gains tax relief.
Speaker 2 (06:12):
You've had your tax free dividends, etc.
Speaker 1 (06:16):
All marvelous, but when you come to wanting to sell,
you may end up doing that at a discount to
the net as at value, which would make to a
degree of set your tax benefits that is possible.
Speaker 3 (06:27):
You know, typically the buybacks, if you look at happen
much closer to NAV than the average discount on investment trusts.
You know, five percent maybe a number that I have
in my head, but it's but you're right there that
you don't always get your money back at NAV. So
the important bit is one that the NAV has grown
over that five ten year period that you hold the shares.
(06:48):
And then two, what is the commitment by the board
and the company to buy back shares or provide a
secondary market in those shares to be brought by other people.
Speaker 1 (06:58):
Okay, And the other thing that we should talk about
is the fee structure, because it tends to be that
VCTs are very significantly more expensive than other types of
listed investment vehicle. So a big listed investment trust that
say invested in liquid UK equities or dividend paying equities
or something like that would tend to have a total
(07:19):
expense ratio of below one percent, but you would expect
vct to have a total expense ratio much much higher
than that.
Speaker 3 (07:26):
You're correct. There is the intensity and resourcing required to
invest in private equity companies and small ones is much
greater than buying and selling shares on the London Stock Exchange.
As a result of that, the fees tend to be higher.
Private equity fees as a whole tend to be higher.
If you look at the unlisted market as well, you'll
(07:47):
see them and they can range typically between one and
a half and two and a half percent, and they
will have some performance fees typically as.
Speaker 1 (07:53):
Well, so you'll get that management fee maybe two percent,
possibly a performance feel on top of that. And there
are other charges around the edge. I remember reading a
while bag that a lot of VCTs will also charge
the companies in which they invest a couple of percent
a year for the input that they give to them,
for example, and that's going to come back in the
end as a charge on the end investor.
Speaker 3 (08:14):
Effectively, well, it's a charge to the company typically that
the company underline company pays for could be board representation
or value creation plans, or advisory work or strategic work,
and that's charged typically to the company themselves.
Speaker 1 (08:30):
Yeah, but it's an expense, if an expense of the
company's an expense to the investor in the company, right,
So it all ends up in the same place.
Speaker 2 (08:36):
So there is but there is a degree of tolerance.
Speaker 1 (08:38):
Among investors too, higher fees to higher cost dignificounts, etc.
Because you're getting such a great tax rebate along the
way that It's not that fees are not quite the
issue with the VCT as they are with other types
of vehicle.
Speaker 3 (08:51):
I think fees are all always an issue for an investor,
so they're always under a scrutiny. They's certainly not be
dismissed by boar boards do their producer job and make
sure that the manager is held to account for its fees.
But the market price of the fees are pretty well transparent.
Private equity fees are pretty transparent, and they're all in
in that region.
Speaker 2 (09:11):
All right. So performance, how's it been?
Speaker 3 (09:14):
Well, it varies. I mean, it depends on the manager
and it depends on the type of it. As sectors
you're exposed to. Some the last few years may been
affected by COVID. You know, small companies with stretched balance
sheets that went through COVID in a tough time. So
I'd say the last few years, some companies, some VCTs
have done quite well, are m Mobius, VTTMI receptionally well
(09:38):
and some of the others have probably had a tough time,
but they're still doing what they say in the team.
And I think it's really important to remember these are
not short term investments. You must have a long term
horizon when investing in them.
Speaker 2 (09:52):
What do you mean by long term?
Speaker 1 (09:53):
Is that five years, well, at least five years for
a VCT.
Speaker 3 (09:56):
You can't get the tax benefits without that, But I
would say much longer. And you but or trusts typically
not trust but venture capital itself. You go for a
very diverse, fied portfolio because of the high risks associated
with the online companies, and you should look at it
typically at ten to fifteen year horizon.
Speaker 1 (10:12):
Okay, I'm still I'm still wondering about how long a
VCT lasts, and that, let's say after fifty I say
fifteen years is the long term. Pretty much everyone who
might have invested when that VCT was launched might want
to be out by the end of fifteen years, So
who are the investors after that? Who holds a VCT
(10:34):
after fifteen years.
Speaker 3 (10:36):
Well, some people still retain them after fifteen years because
they could be investing, you know, in their thirties and forties,
and they can hold them well into pensions, so they
can hold them for you know, twenty to thirty years.
I mean, Baron's meeds been going since nineteen ninety five,
so you've got something that's approached you thirty years and
I think some people are still holding them from day one,
(10:56):
So I think there is a range of investor. I
think it's important this is this is an important point
that people need to recognize that this is a benefit
to both themselves from financial returns but also society in
the UK for ecosystems of early growth companies that contribute
to economic growth, and they are it's a very very
important part of UK society.
Speaker 1 (11:18):
Because there is that funding gap for smaller companies in
the UK.
Speaker 3 (11:22):
Yeah, because because over history of UK has been at
the forefront of finance, provision, healthcare, innovation, and VCTs are
there to catalyze some of that as well. And I
think you know, with the work we're competing in a
global marketplace. The US is now the default for technology
and early stage related growth companies, and we are we've
(11:43):
lost some of that market share and positioning. Yet we
have some phenomenal academic institutions and platforms and hubs in
the across the UK that have some very great specialisms
and we really should be you know, catalyzing and supporting them.
Speaker 1 (11:59):
M okay, tell me about the types of companies that
are in these said, the Moobius VCT had done very
well recently.
Speaker 2 (12:07):
What kind of companies are in.
Speaker 3 (12:08):
That fundamentally early stage companies, but they're things that like
so it is what I'm thinking of. An API platform
developed by a team that design called Ozone API is
developed by a team that designs open banking in the UK.
It's a global platform, so it's selling to global customers.
And these are for banking users. You know, when you
(12:28):
look at your using your app in order for security
of app and then to access your accounts and the
various different services you want from your own bank. This
is these are the types of things that are developed
within within that product of that company. There's another one
which is an Irish and UK based company called city Swift,
which is a data platform that increases the performance of
(12:48):
public transport networks, uses AI analytics and simulates and optimizes.
So again, lots of these are technology related. They're at
cutting edge of innovation, and they are you know, the
future of how the world is evolving, rather than historically,
you know, VCTs. Previously you could invest in a much
more traditional old style businesses and you might be able
(13:11):
to invest in asset backed business that have property like pubs.
Those things are no longer able to be invested in
within VCTs.
Speaker 1 (13:19):
Okay, So let's talk about most investors and their rappers
in their journeys. So I think a lot of listeners
to this podcast, they will have a pension, so they'll
have things inside their pension rapper, they'll have things inside
their ISA wrapper.
Speaker 2 (13:35):
Is this the next stage?
Speaker 1 (13:37):
So once you've pretty much maxed out your pension, it
was a lot easier to do than it used to
be maxed out your isold.
Speaker 2 (13:42):
Of course we're talking we had quite a lot of
money there.
Speaker 1 (13:44):
That's up to sixty grand a year put ahead, right
if you're using your maximum pension maximum iSER is a
VCT The thing that you would come to next when
you're looking for tax efficiency and you've filled your other rappers, it's.
Speaker 3 (13:55):
Definitely one that you would consider immediately. I mean, of course,
there are other private vehicles where you can get LHT
or a capital allowance, capital gains allowances, benefits, so there
are other things where they are they're for more sophisticating investors,
let's say, probably not the retail investor who's got who's
(14:18):
just just about maxed out on their ices and their pensions.
So I would definitely put them there as that next choice.
But if you are further up the quantum scale or
the sophistication or risk return scale, you can go into
some direct private deals.
Speaker 1 (14:33):
Direct private deals. How would an ordinary investor do that?
Speaker 3 (14:37):
Well, there's ei s's that's one way of doing it.
You can get similar type of tax rates on a
director single deal, single projects.
Speaker 2 (14:45):
Yeah, Enterprise investment scheme.
Speaker 3 (14:48):
Correct, yes, And that's another way of you know, identifying
a company that you have you think is good for
whatever reason for both management, valuation, sector, and you can
put money directly into that single company. Of course it
is much more high risk return, but that is another
option as well.
Speaker 2 (15:05):
And what are the tax benefits there? How does that work.
Speaker 3 (15:09):
So it's very similar. You get thirty percent back from
investing and you have a capital gains benefits, you have
to hold it for a certain period of time. There
is also something called SCIS where you can get up
to fifty percent back. I think that's the number fifty
percent now still, and so that's for a smaller company
at an earlier stage. So there are these other much
(15:31):
higher risk opportunities where you can go as well to
put into your portfolio.
Speaker 1 (15:36):
But by the time you get to that, you are
really into the world of very high risks, aren't you
with one individual small company?
Speaker 3 (15:42):
Yeah, I mean when you look at portfolio construction, a
single company does have a specific risk. However, if you
are you have an edge then you believe you're getting
a good valuation, you believe in something that can be
executed on, then you might have an edge that says
it's not as higher risk as some people perceive.
Speaker 1 (15:57):
We tooked briefly Tony back of the beginning of this
about the funding gap in the UK.
Speaker 2 (16:03):
Are we really behind the curve technologically?
Speaker 1 (16:05):
Did you think when you look at kirs Darma, was
it yesterday the day before talking about I'm going to
go change back. This last week's is going to be
When you look at Kirs Darma last week talking about
AI as the driver of growth in the UK, etc.
Speaker 2 (16:16):
Is this possible?
Speaker 1 (16:17):
Are we genuinely too far behind the curve on some
of these things.
Speaker 3 (16:20):
This country has a culture historically of being innovative and
entrepreneurial and if you put an ecosystem around that, then
you will get good results. Therefore, people should be commended
to make money and be a success, and they should
be commended also if they take risk and they fail
and they get back up on their feet and go again.
And this is what entrepreneurism and startstup and growth companies
(16:44):
are all about. We are behind the curve when it
comes to some of that now. We used to be
at the forefront, but now we are behind. If you
look at the US, the money, the capital gravitates to
the US. When people think about listing, they think about
the US primarily and the London Stock Exchanges is in
the secondary field. That is not a good place to be.
Is not where we were when I started in the
nineties in investing. So how do we change? That? Is
(17:07):
a cultural change. VCTs are part of that, but venture
capital and is part of that. But in general, investing
and commending good managements to take risks and then to
be rewarded financially and otherwise should be commended and applauded,
not taxed. And that is an important point. The aim
market I've mentioned earlier, the growth market has gone from
about eighteen hundred companies fifteen years ago to about seven
(17:30):
hundred to day. And people talk about that, but they
don't then start addressing how do we solve that? And
there's many components that solution, and one of them is
the fact that it's the regulatory burdens, the transparency, the
constraints on making money and being successful. All of those
go to the best management team saying why do I
need to be listed? If I have an option, I'll
(17:51):
do the option.
Speaker 2 (17:52):
I'm going to put you in charge, Tony, completely in charge.
You can do whatever you like.
Speaker 1 (17:57):
It's the one policy change focus on to try and fix.
Speaker 2 (18:01):
Part of that.
Speaker 3 (18:02):
It would be the regulatory burden around transparency on being
listed and therefore capital access, getting the best management teams
to run quoted and unquoted companies. Those things are if
you've got the best management teams, the rest will.
Speaker 1 (18:20):
Flow is there anything we could do with the tax
system to encourage companies to list or encourage companies to
be more innovative. I mean, I always think it might
be useful if say, when a company a company listed,
it had a lower rate of corporation tax for five
years or something like that.
Speaker 3 (18:37):
Well you can see the benefits of having from a
societal point of view, in the Ireland lower corporation tax
twelve percent or recently. And look what's happened to Ireland
in the last ten years. It's phenomenal the amount of
the money that's gravitated there, but importantly the skills the companies,
the global companies that are now based there, They are
(18:58):
sitting pretty now thinking about what to do with the
surplus for society and island as a result. So you
can see that trickle down effect. Is it works?
Speaker 1 (19:08):
Yeah, Let's say Rachel Reaves is listening. Eh, now you've
got a new launch. I know you've got a new
launch coming out with Baron's Mead. Right, You've got a
share offer.
Speaker 3 (19:18):
Yes, so one of our brands, Baron's Meat, is coming
out on new VCT offering in the next week or so.
And you know they cap the amount that they raised
typically between up to fifty million, So hopefully, like last time,
we hit the cap. But we've you know, Gresham houses
many of these offerings for people, and we've always got
(19:38):
something on the go.
Speaker 2 (19:39):
Merry, I know you have.
Speaker 1 (19:40):
I know you have, and that's somewhere listeners for you
to go and look if you have filled up every
single other rapper and you're looking for something with some
tax benefits and possibly rather more risk. Tony, is there
anything that we haven't covered that we should cover?
Speaker 3 (19:54):
No? I think you know. Investing is a fundamental part
of economic growth. Taking risk, making returns and applauding people
for taking that risk is something which this country has
been good in history, and we really need to continue
to do that.
Speaker 2 (20:09):
Well.
Speaker 1 (20:09):
Well, hopefully we will get better at that over the
next decade or so, possibly than not the next couple
of years.
Speaker 2 (20:14):
Tony, thank you so much for being with us today.
Speaker 3 (20:16):
It's a real pleasure. Good to speak again.
Speaker 2 (20:24):
Thanks for listening to this week's meren Talk to Your Money.
Speaker 1 (20:26):
If you like our share a rate review and subscribe
wherever you listen to podcasts.
Speaker 2 (20:30):
Also, be sure to follow me and John on x
or Twitter. I'm at marinasw and John is John Underscore Stepic.
Speaker 1 (20:37):
This episode was produced by Somersidi and Moses and sound
designed by Blake. Maple's executive producer has been Brendan Francis Newnham.
Questions and comments on this show and all our shows
always welcome. Our show email is Meren Money at Bloomberg
dot net
Bloomberg Audio Studios, podcasts, radio news. Welcome to Meron Talks
Your Money, the personal finance edion of Meron talks Money.
In these bonus podcasts, we talk about the best strategudes
we're making the most of your money. Meren, suset Web.
(00:26):
So this week we're talking about venture capital trust or VCTs.
A few of you've written in asking us about.
Speaker 2 (00:32):
VCTs, what do they do? How do I get them?
Speaker 1 (00:35):
So we thought it'd be a good time to bring
in an external voice to talk to us about exactly
what VCTs are and if it can offer some of
you a more tax efficient investment option, then maybe pensions,
particularly in light of the changes we saw in the
autumn budget, which of course increased some of the tax
penalties on pensions. So with me today Tony DAHLWOOD'SO Gresham House,
Gresham House and a specialist alternative asset manager managing a
(00:57):
variety of VCTs. Two barrels ME VCTs and two Mobius VCTs.
Welcome Tony, Thank you so much for joining us today
on what is a relatively complicated subject.
Speaker 3 (01:07):
Real pleasure to be here, Meren.
Speaker 1 (01:09):
Okay, I'm going to start with one of those big
questions that people find of putting. But you're so expert
that I know you're not going to find it off putting, Tony.
Speaker 2 (01:17):
What is a VCT?
Speaker 3 (01:19):
So VCT starts a venture capital trust. Venture capital trusts
are listed vehicles which are tax efficient ways of investing
in early stage growth companies, primarily private companies, small private companies.
But there are some AIM VCTs as well that invest
in AIM for those companies that are eligible to be vctable,
(01:40):
so to speak.
Speaker 1 (01:41):
I'm interrupting you already because we are super basic here.
Speaker 2 (01:44):
What is it aim?
Speaker 3 (01:46):
AIM is the alternative investment market of the London Stock Exchange,
typically early stage companies that are starting on their journey
for growth.
Speaker 1 (01:55):
Okay, so an AIM company is a listed company, but
not a fully listed company.
Speaker 3 (02:01):
Correct. It has certainly slightly different rules, but typically it's
an easier way of getting listed and access for the
public to buy and sell shares in that AIM listed company.
As I say, the primarily most VCTs are made up
of private companies, unlisted companies, small ones with growth ambitions.
Speaker 1 (02:20):
Okay, So what then, is the difference between a VCT
and a private equity trust?
Speaker 3 (02:25):
So that many private equity trusts listed ones three eyes
an example of that, and these are trusts that typically
hold private companies in a listed structure. Three three eyes
cases a London Stock Exchange the main list, and you
can access buying those shares on the London Stock Exchange
and you're getting exposure to the underlying companies like three I.
(02:47):
The biggest exposure you'll have on three I is a
Dutch supermarket business called Action. So you have many different
private equity trusts that give you underlying private equity exposure
through a listed vehicle.
Speaker 2 (02:59):
Okay, still it's the same idea.
Speaker 1 (03:01):
You've got private companies, unlitted companies wrapped up insider trust.
Speaker 3 (03:06):
Correct. And the difference between a VCT and they standard
private equity trust like three I or Htree Capital Trust
would be that the VCTs are tax efficients. The VCTs
offer thirty percent income tax relief when you buy new shares,
and they provide in some respects more more flexibility than
(03:28):
some of the pension tax changes that are happening at
the moment, So you have some tax relief by investing
in the new shares to then support the UK's ecosystem
of growth. Small companies.
Speaker 1 (03:41):
Okay, So tax release is offered by the government in
order to encourage us to put our money into smaller
companies to help them grow. Right, So let's talk about
how that tax relief works. So I buy new shares
in a new launch VCT, I put the money in,
and I can then apply to get the tax I've
(04:03):
already paid back the income tax I've already paid back.
Speaker 3 (04:07):
So you put one hundred pounds in to the new shares,
you'd get the shares worth one hundred pounds, and then
for your h MRC submission, you would then be able
to indicate that you've bought one hundred pounds worth and
you'll be able to claim back thirty pounds offset against
whatever income tax liability you were had in totality for
your own personal affairs, as.
Speaker 1 (04:28):
Long as I paid that much income tax over the
year obviously, right, Okay, correct, And there is also a
capital gains tax relief here as well.
Speaker 2 (04:37):
Right correct.
Speaker 3 (04:39):
So if and when you make money on the shares
in due course, you must hold them for five years.
It's an important point. So once you invested, you must
hold them for five years. Once you held them and
you make a capital game, there is that a zero
capital gains tax on that? As well? As these investment
VCTs do pay dividends, and you're also have income tax
(05:04):
free dividends.
Speaker 1 (05:06):
Okay, So I don't pay capital gains on any gains
and I don't pay any income tax on the dividends
that I get.
Speaker 2 (05:13):
Correct, quite big benefits.
Speaker 1 (05:16):
Let's say that I have bought shares in one of
your VCTs on launch. After five years, I want to
sell them. Who do I sell them to? Who is
going to buy the stuff? Without the tax relief?
Speaker 3 (05:28):
There is a liquid market to some degree, but as
you say, sometimes that isn't there. The company themselves have
a buyback mechanisms, so they often step into the market
and buy from their balance sheet from realized gains from
exited investments on their balance sheet, okay.
Speaker 1 (05:45):
Or perhaps do VCTs have a set life and that
will wind it up after five years or ten years
and you will get your money back.
Speaker 3 (05:53):
Some may do. Typically they are evergreen, which means they
carry on until the boards decide in consultation with shareholders
that something should change.
Speaker 2 (06:03):
Okay.
Speaker 1 (06:03):
So there could be situations where you buy into your
VCT at the beginning, you get your income tax relief,
and maybe you get your capital gains tax relief.
Speaker 2 (06:12):
You've had your tax free dividends, etc.
Speaker 1 (06:16):
All marvelous, but when you come to wanting to sell,
you may end up doing that at a discount to
the net as at value, which would make to a
degree of set your tax benefits that is possible.
Speaker 3 (06:27):
You know, typically the buybacks, if you look at happen
much closer to NAV than the average discount on investment trusts.
You know, five percent maybe a number that I have
in my head, but it's but you're right there that
you don't always get your money back at NAV. So
the important bit is one that the NAV has grown
over that five ten year period that you hold the shares.
(06:48):
And then two, what is the commitment by the board
and the company to buy back shares or provide a
secondary market in those shares to be brought by other people.
Speaker 1 (06:58):
Okay, And the other thing that we should talk about
is the fee structure, because it tends to be that
VCTs are very significantly more expensive than other types of
listed investment vehicle. So a big listed investment trust that
say invested in liquid UK equities or dividend paying equities
or something like that would tend to have a total
(07:19):
expense ratio of below one percent, but you would expect
vct to have a total expense ratio much much higher
than that.
Speaker 3 (07:26):
You're correct. There is the intensity and resourcing required to
invest in private equity companies and small ones is much
greater than buying and selling shares on the London Stock Exchange.
As a result of that, the fees tend to be higher.
Private equity fees as a whole tend to be higher.
If you look at the unlisted market as well, you'll
(07:47):
see them and they can range typically between one and
a half and two and a half percent, and they
will have some performance fees typically as.
Speaker 1 (07:53):
Well, so you'll get that management fee maybe two percent,
possibly a performance feel on top of that. And there
are other charges around the edge. I remember reading a
while bag that a lot of VCTs will also charge
the companies in which they invest a couple of percent
a year for the input that they give to them,
for example, and that's going to come back in the
end as a charge on the end investor.
Speaker 3 (08:14):
Effectively, well, it's a charge to the company typically that
the company underline company pays for could be board representation
or value creation plans, or advisory work or strategic work,
and that's charged typically to the company themselves.
Speaker 1 (08:30):
Yeah, but it's an expense, if an expense of the
company's an expense to the investor in the company, right,
So it all ends up in the same place.
Speaker 2 (08:36):
So there is but there is a degree of tolerance.
Speaker 1 (08:38):
Among investors too, higher fees to higher cost dignificounts, etc.
Because you're getting such a great tax rebate along the
way that It's not that fees are not quite the
issue with the VCT as they are with other types
of vehicle.
Speaker 3 (08:51):
I think fees are all always an issue for an investor,
so they're always under a scrutiny. They's certainly not be
dismissed by boar boards do their producer job and make
sure that the manager is held to account for its fees.
But the market price of the fees are pretty well transparent.
Private equity fees are pretty transparent, and they're all in
in that region.
Speaker 2 (09:11):
All right. So performance, how's it been?
Speaker 3 (09:14):
Well, it varies. I mean, it depends on the manager
and it depends on the type of it. As sectors
you're exposed to. Some the last few years may been
affected by COVID. You know, small companies with stretched balance
sheets that went through COVID in a tough time. So
I'd say the last few years, some companies, some VCTs
have done quite well, are m Mobius, VTTMI receptionally well
(09:38):
and some of the others have probably had a tough time,
but they're still doing what they say in the team.
And I think it's really important to remember these are
not short term investments. You must have a long term
horizon when investing in them.
Speaker 2 (09:52):
What do you mean by long term?
Speaker 1 (09:53):
Is that five years, well, at least five years for
a VCT.
Speaker 3 (09:56):
You can't get the tax benefits without that, But I
would say much longer. And you but or trusts typically
not trust but venture capital itself. You go for a
very diverse, fied portfolio because of the high risks associated
with the online companies, and you should look at it
typically at ten to fifteen year horizon.
Speaker 1 (10:12):
Okay, I'm still I'm still wondering about how long a
VCT lasts, and that, let's say after fifty I say
fifteen years is the long term. Pretty much everyone who
might have invested when that VCT was launched might want
to be out by the end of fifteen years, So
who are the investors after that? Who holds a VCT
(10:34):
after fifteen years.
Speaker 3 (10:36):
Well, some people still retain them after fifteen years because
they could be investing, you know, in their thirties and forties,
and they can hold them well into pensions, so they
can hold them for you know, twenty to thirty years.
I mean, Baron's meeds been going since nineteen ninety five,
so you've got something that's approached you thirty years and
I think some people are still holding them from day one,
(10:56):
So I think there is a range of investor. I
think it's important this is this is an important point
that people need to recognize that this is a benefit
to both themselves from financial returns but also society in
the UK for ecosystems of early growth companies that contribute
to economic growth, and they are it's a very very
important part of UK society.
Speaker 1 (11:18):
Because there is that funding gap for smaller companies in
the UK.
Speaker 3 (11:22):
Yeah, because because over history of UK has been at
the forefront of finance, provision, healthcare, innovation, and VCTs are
there to catalyze some of that as well. And I
think you know, with the work we're competing in a
global marketplace. The US is now the default for technology
and early stage related growth companies, and we are we've
(11:43):
lost some of that market share and positioning. Yet we
have some phenomenal academic institutions and platforms and hubs in
the across the UK that have some very great specialisms
and we really should be you know, catalyzing and supporting them.
Speaker 1 (11:59):
M okay, tell me about the types of companies that
are in these said, the Moobius VCT had done very
well recently.
Speaker 2 (12:07):
What kind of companies are in.
Speaker 3 (12:08):
That fundamentally early stage companies, but they're things that like
so it is what I'm thinking of. An API platform
developed by a team that design called Ozone API is
developed by a team that designs open banking in the UK.
It's a global platform, so it's selling to global customers.
And these are for banking users. You know, when you
(12:28):
look at your using your app in order for security
of app and then to access your accounts and the
various different services you want from your own bank. This
is these are the types of things that are developed
within within that product of that company. There's another one
which is an Irish and UK based company called city Swift,
which is a data platform that increases the performance of
(12:48):
public transport networks, uses AI analytics and simulates and optimizes.
So again, lots of these are technology related. They're at
cutting edge of innovation, and they are you know, the
future of how the world is evolving, rather than historically,
you know, VCTs. Previously you could invest in a much
more traditional old style businesses and you might be able
(13:11):
to invest in asset backed business that have property like pubs.
Those things are no longer able to be invested in
within VCTs.
Speaker 1 (13:19):
Okay, So let's talk about most investors and their rappers
in their journeys. So I think a lot of listeners
to this podcast, they will have a pension, so they'll
have things inside their pension rapper, they'll have things inside
their ISA wrapper.
Speaker 2 (13:35):
Is this the next stage?
Speaker 1 (13:37):
So once you've pretty much maxed out your pension, it
was a lot easier to do than it used to
be maxed out your isold.
Speaker 2 (13:42):
Of course we're talking we had quite a lot of
money there.
Speaker 1 (13:44):
That's up to sixty grand a year put ahead, right
if you're using your maximum pension maximum iSER is a
VCT The thing that you would come to next when
you're looking for tax efficiency and you've filled your other rappers, it's.
Speaker 3 (13:55):
Definitely one that you would consider immediately. I mean, of course,
there are other private vehicles where you can get LHT
or a capital allowance, capital gains allowances, benefits, so there
are other things where they are they're for more sophisticating investors,
let's say, probably not the retail investor who's got who's
(14:18):
just just about maxed out on their ices and their pensions.
So I would definitely put them there as that next choice.
But if you are further up the quantum scale or
the sophistication or risk return scale, you can go into
some direct private deals.
Speaker 1 (14:33):
Direct private deals. How would an ordinary investor do that?
Speaker 3 (14:37):
Well, there's ei s's that's one way of doing it.
You can get similar type of tax rates on a
director single deal, single projects.
Speaker 2 (14:45):
Yeah, Enterprise investment scheme.
Speaker 3 (14:48):
Correct, yes, And that's another way of you know, identifying
a company that you have you think is good for
whatever reason for both management, valuation, sector, and you can
put money directly into that single company. Of course it
is much more high risk return, but that is another
option as well.
Speaker 2 (15:05):
And what are the tax benefits there? How does that work.
Speaker 3 (15:09):
So it's very similar. You get thirty percent back from
investing and you have a capital gains benefits, you have
to hold it for a certain period of time. There
is also something called SCIS where you can get up
to fifty percent back. I think that's the number fifty
percent now still, and so that's for a smaller company
at an earlier stage. So there are these other much
(15:31):
higher risk opportunities where you can go as well to
put into your portfolio.
Speaker 1 (15:36):
But by the time you get to that, you are
really into the world of very high risks, aren't you
with one individual small company?
Speaker 3 (15:42):
Yeah, I mean when you look at portfolio construction, a
single company does have a specific risk. However, if you
are you have an edge then you believe you're getting
a good valuation, you believe in something that can be
executed on, then you might have an edge that says
it's not as higher risk as some people perceive.
Speaker 1 (15:57):
We tooked briefly Tony back of the beginning of this
about the funding gap in the UK.
Speaker 2 (16:03):
Are we really behind the curve technologically?
Speaker 1 (16:05):
Did you think when you look at kirs Darma, was
it yesterday the day before talking about I'm going to
go change back. This last week's is going to be
When you look at Kirs Darma last week talking about
AI as the driver of growth in the UK, etc.
Speaker 2 (16:16):
Is this possible?
Speaker 1 (16:17):
Are we genuinely too far behind the curve on some
of these things.
Speaker 3 (16:20):
This country has a culture historically of being innovative and
entrepreneurial and if you put an ecosystem around that, then
you will get good results. Therefore, people should be commended
to make money and be a success, and they should
be commended also if they take risk and they fail
and they get back up on their feet and go again.
And this is what entrepreneurism and startstup and growth companies
(16:44):
are all about. We are behind the curve when it
comes to some of that now. We used to be
at the forefront, but now we are behind. If you
look at the US, the money, the capital gravitates to
the US. When people think about listing, they think about
the US primarily and the London Stock Exchanges is in
the secondary field. That is not a good place to be.
Is not where we were when I started in the
nineties in investing. So how do we change? That? Is
(17:07):
a cultural change. VCTs are part of that, but venture
capital and is part of that. But in general, investing
and commending good managements to take risks and then to
be rewarded financially and otherwise should be commended and applauded,
not taxed. And that is an important point. The aim
market I've mentioned earlier, the growth market has gone from
about eighteen hundred companies fifteen years ago to about seven
(17:30):
hundred to day. And people talk about that, but they
don't then start addressing how do we solve that? And
there's many components that solution, and one of them is
the fact that it's the regulatory burdens, the transparency, the
constraints on making money and being successful. All of those
go to the best management team saying why do I
need to be listed? If I have an option, I'll
(17:51):
do the option.
Speaker 2 (17:52):
I'm going to put you in charge, Tony, completely in charge.
You can do whatever you like.
Speaker 1 (17:57):
It's the one policy change focus on to try and fix.
Speaker 2 (18:01):
Part of that.
Speaker 3 (18:02):
It would be the regulatory burden around transparency on being
listed and therefore capital access, getting the best management teams
to run quoted and unquoted companies. Those things are if
you've got the best management teams, the rest will.
Speaker 1 (18:20):
Flow is there anything we could do with the tax
system to encourage companies to list or encourage companies to
be more innovative. I mean, I always think it might
be useful if say, when a company a company listed,
it had a lower rate of corporation tax for five
years or something like that.
Speaker 3 (18:37):
Well you can see the benefits of having from a
societal point of view, in the Ireland lower corporation tax
twelve percent or recently. And look what's happened to Ireland
in the last ten years. It's phenomenal the amount of
the money that's gravitated there, but importantly the skills the companies,
the global companies that are now based there, They are
(18:58):
sitting pretty now thinking about what to do with the
surplus for society and island as a result. So you
can see that trickle down effect. Is it works?
Speaker 1 (19:08):
Yeah, Let's say Rachel Reaves is listening. Eh, now you've
got a new launch. I know you've got a new
launch coming out with Baron's Mead. Right, You've got a
share offer.
Speaker 3 (19:18):
Yes, so one of our brands, Baron's Meat, is coming
out on new VCT offering in the next week or so.
And you know they cap the amount that they raised
typically between up to fifty million, So hopefully, like last time,
we hit the cap. But we've you know, Gresham houses
many of these offerings for people, and we've always got
(19:38):
something on the go.
Speaker 2 (19:39):
Merry, I know you have.
Speaker 1 (19:40):
I know you have, and that's somewhere listeners for you
to go and look if you have filled up every
single other rapper and you're looking for something with some
tax benefits and possibly rather more risk. Tony, is there
anything that we haven't covered that we should cover?
Speaker 3 (19:54):
No? I think you know. Investing is a fundamental part
of economic growth. Taking risk, making returns and applauding people
for taking that risk is something which this country has
been good in history, and we really need to continue
to do that.
Speaker 2 (20:09):
Well.
Speaker 1 (20:09):
Well, hopefully we will get better at that over the
next decade or so, possibly than not the next couple
of years.
Speaker 2 (20:14):
Tony, thank you so much for being with us today.
Speaker 3 (20:16):
It's a real pleasure. Good to speak again.
Speaker 2 (20:24):
Thanks for listening to this week's meren Talk to Your Money.
Speaker 1 (20:26):
If you like our share a rate review and subscribe
wherever you listen to podcasts.
Speaker 2 (20:30):
Also, be sure to follow me and John on x
or Twitter. I'm at marinasw and John is John Underscore Stepic.
Speaker 1 (20:37):
This episode was produced by Somersidi and Moses and sound
designed by Blake. Maple's executive producer has been Brendan Francis Newnham.
Questions and comments on this show and all our shows
always welcome. Our show email is Meren Money at Bloomberg
dot net
Host
Merryn Somerset Webb
Popular Podcasts
The Breakfast Club
The World's Most Dangerous Morning Show, The Breakfast Club, With DJ Envy And Charlamagne Tha God!
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
Decisions, Decisions
Welcome to "Decisions, Decisions," the podcast where boundaries are pushed, and conversations get candid! Join your favorite hosts, Mandii B and WeezyWTF, as they dive deep into the world of non-traditional relationships and explore the often-taboo topics surrounding dating, sex, and love. Every Monday, Mandii and Weezy invite you to unlearn the outdated narratives dictated by traditional patriarchal norms. With a blend of humor, vulnerability, and authenticity, they share their personal journeys navigating their 30s, tackling the complexities of modern relationships, and engaging in thought-provoking discussions that challenge societal expectations. From groundbreaking interviews with diverse guests to relatable stories that resonate with your experiences, "Decisions, Decisions" is your go-to source for open dialogue about what it truly means to love and connect in today's world. Get ready to reshape your understanding of relationships and embrace the freedom of authentic connections—tune in and join the conversation!