As lower valuations hit the returns of venture capital trusts over the past two years, the tax-efficient investments are still important to investors, according to the Association of Investment Companies.
Higher interest rates led to valuations in many trusts having to be adjusted, said the trade body’s director of research, Nick Britton.
He said: “The last couple of years have been challenging for VCTs.
“After a 13-year run of positive annual returns, both 2022 and 2023 saw the average VCT lose money.
“The relentless logic of higher interest rates has meant that expectations around valuations have had to be adjusted. And as life often teaches us, adjusting your expectations is rarely a pain-free process.”
Britton added with tax thresholds frozen, VCTs remain important.
He said: “Certainly the need for tax-efficient investing seems as great as ever, with the freeze on personal tax thresholds drawing an increasing haul into the Treasury’s net.
“Meanwhile, the chancellor’s recent commitment to extend the sunset clause for VCTs puts the scheme on a firm footing for the foreseeable future and allows advisers and managers to plan with more certainty.”
Britton questioned whether threats of a recession could be putting investors off VCTs.
He added: “VCTs and their portfolio companies are certainly not immune from recession, but surely if you invested at the height of the market in 2021 it also makes sense to do so now, at lower valuations.”
Last week, AIC data showed the average VCT was down 5 per cent in 2023. However, over the longer term VCTs have performed better, with total returns of 22 per cent and 85 per cent over the past five and 10 years respectively.
tara.o'connor@ft.com
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