Bank debt used
British Smaller Companies VCT has become the first venture capital trust to take on bank debt in an effort to boost the funds under its management and spread investment risks.
The trust said it would raise a further #10.55m, on top of the #8.2m already invested, and #3.75m of the total would be drawn from a commercial bank credit line.
Phil Cammerman, MD of Yorkshire Fund Managers which manages VCT’s portfolio, said: ‘Leveraging will significantly enhance the resources available for investment. For a gross investment of #1 – which will be 80p after income tax relief – investors will actually have #1.25 invested on their behalf, once the fund is topped up by funds from the bank.’
He expects to use the extra funds to spread the portfolio in established companies with a turnover below #2.5m, leading to a cut in the risk of failure.
VCTs have found it difficult to raise funds from investors since Chancellor Kenneth Clarke launched the scheme in 1995. But by March, according to a Coopers & Lybrand survey, trusts will have raised #500m.
Coopers tax partner David Cartwright said the plan to take on bank debt would benefit VCT shareholders ‘as long as the investments pay more than the bank interest’.
Cartwright’s review showed a total of 225 investments have been made in 152 companies, with an average VCT investment of #495,000.