Venture capital trusts could struggle to survive, says study

One in 10 venture capital trusts face not being able to pay managers a fee for their services because of the effects of the credit crisis, a study has shown.

Analysis by law firm Taylor Wessing shows an increasing number of trusts struggling to survive in the downturn, with one trust, Hygea VCT, needing to pay fees that equate to nearly 1,000 per cent of its liquid asset base.

Related articles

• City meltdown turns to a chill wind in the North
• The rate cut you won't see: Bank set to slash interest by up to 1%
• Lib Dems call for 'riot act' as RBS plans bonuses
• John Rentoul: Spend! Spend! Spend!
• Credit insurer warns UK firms to be more open about their difficulties
• A glimmer of light in the housing market gloom
• Rose to face flak as underperforming M&S results are unveiled
• Property boss: 'The PM's spending is long overdue'
• Germans freeze £21bn property funds
• Spowart’s last-ditch grab for HBOS ‘is not taken seriously’
• Search the news archive for more stories

VCTs were first established by the Tory government in the mid-1990s to encourage investment in vibrant smaller companies. They came with generous tax breaks, although these have been pared back in recent years.

Tim Stocks, a partner at Taylor Wessing, said it was likely that many trusts would have to restructure in the wake of the downturn. "One VCT we looked at invests heavily in other funds run by the same management – as much as 30 per cent," he said. "It very much has the feel of the spiral that appeared in the split capital investment trust sector, which suffered so badly in the past."

Mr Stocks added: "Given the range and number of investments in these funds, will the managers have the operating cash needed to fund the overheads, including the requisite number of executives to review the portfolio and manage investment value?"