The Association of Investment Companies (AIC) has warned venture capital trust (VCT) fundraising will halve next year, if the vehicles are not granted an exemption from the Financial Services Authority's (FSA's) sales ban on unregulated collective investment schemes (UCIS) to 'ordinary' retail investors.
An FSA consultation paper on UCIS schemes, published in August, granted investment trusts an exemption to the ban.
However, other closed-ended products, such as VCTs, were not specifically mentioned in the proposals, leaving providers unsure if their products were included.
Ian Sayers, director general of the AIC, said the proposed ruling will have a detrimental effect on new flows into VCTs if only ‘sophisticated’ investors are allowed to invest in the products.
VCT providers raised £330m during the 2011/12 tax year, but Sayers warned this could fall by 50% during next year’s fundraising season in 2013/14.
Sayers does not anticipate the current uncertainty surrounding the sector will have a major impact on fundraising efforts this year, but said the impact could be felt during the next 12 months.
“The proposed UCIS ban will have a massive impact on the VCT sector, and the fact the FSA did not even mention the VCT sector in the paper was pretty unimpressive,” said Sayers.
Last September, a survey of leading VCT managers, carried out by wealth manager Bestinvest, concluded fundraising could collapse by 75% if VCTs are caught by the ban.
Dan Tubb, head of VCTs at Bestinvest, said the VCT managers surveyed, including Octopus Investments and Albion Ventures, fear the proposals will have a devastating impact on sales.
Ben Thompson, marketing director at VCT provider Foresight, said he expects fundraising to fall between 50%-75% next year, if most retail investors are excluded from the market.
He added the uncertainty over the UCIS rules has also had an impact on this year’s fundraising efforts.
“Intermediaries like and need to have clarity on the UCIS issue and this is why a number of VCT providers have been slow to come forward this year with their fundraising plans,” said Thompson.
“We take the view the AIC’s prediction is on the lighter end of how severe the impact will be, and we think it could reduce new flows anywhere between 50%-75%.”
As reported in Investment Week, the AIC has cautioned offshore trusts and REITs could also be affected by the UCIS ban.
The FSA is due to announce the results of its consultation on UCIS at the end of Q1.
Historic VCT fundraising figures:
Follows McVey's resignation
Schroders and Aviva Investors
LightTower Partners, Seneca Partners and Unicorn AM
Integration with Money Dashboard
View from the front row