Octopus Titan VCT firms up latest fundraising round

VCT season gets into its swing as Octopus Titan becomes seventh provider to announce its fundraising round for this tax year, reports Holly Black.

The Titan offer follows hot on the heels of fundraising rounds by peers including Seneca, Pembroke, Foresight, Amati, Puma and Octopus AIM VCTs, making seven offers currently open to investors, with the VCTs seeking to raise a total of £385 million between them.

Further offers are due to open from Maven, Baronsmead, British Smaller Companies, Hazel, Triple Point, Elderstreet, Calculus VCT and Hargreave Hale. 

Alex Davies, chief executive of Wealth Club, says: "This year I expect high demand for VCTs. The savage attack on higher earners' ability to contribute to pensions, along with the ever-increasing dividend tax and changes to buy-to-let, mean VCTs are one of the last relatively simple and tax efficient places for wealthier individuals to invest for their future."

VCTs are investment trusts which invest in small or early-stage businesses that are either unquoted or listed on AIM. To qualify for investment from a VCT a firm must have gross assets of less than £15 million at the point of investment, less than 250 employees and be independent.

Investors in VCTs get 30% income tax credit on investments of up to £200,000 when they participate in a new share offer, and pay no tax on dividends or gains generated by the investment.

For this reason, the trusts have attracted investors looking for a tax-efficient way to invest, particularly as the annual and lifetime allowances for pensions have been cut.

But there are concerns that investors may choose the vehicles for their tax benefits without considering the risks involved in backing early-stage companies. 

Ben Yearsley, director at Shore Financial Planning, says: "A lot of money has piled into VCTs in recent years, but investors need to remember they are not a one-way bet and performance from some of these trusts has been very poor in recent years.

"The amount of money being raised makes me nervous; it needs to be invested, but a tightening of the rules means it’s harder to find suitable qualifying companies."

Octopus Titan launched in 2007 and invests in 20-25 unquoted companies with a focus on those in tech, environmental, media and wellbeing sectors. Businesses it has backed include snack company Graze.com and SwiftKey, a keyboard app for mobile phones. It also became the first VCT to spawn a billion-pound company with its investment in online property portal Zoopla. 

Davies says: "So far, Octopus Titan's performance has been excellent and the team has been extremely shrewd in picking tomorrow's winners which, at the time of investment, is always far from obvious. 

"There are caveats, however, and past performance is not a guide to the future. Because Titan is now so big, it will require frequent and significant successes to generate mega returns for investors."

Octopus Titan is the largest VCT on the market and this is its second fund-raise this year alone, having already set a new record when it raised £200 million in January. Assets under management could top £800 million if this latest fundraise is fully subscribed.

Jo Oliver, fund manager of the Octopus Titan VCT, says:

"The pipeline of investment opportunities is as strong as it's ever been. Whether in healthcare, retail, industry or financial services, there is absolutely no shortage of talented tech entrepreneurs who have the potential to completely transform their markets."

The trust has returned 4.5% over the past year, against a sector average of 4.8%. The trust currently sits on a discount of 5.6% and yields almost 5.7%. 

Yearsley adds:

"VCTs are a useful part of an investment portfolio but they need to be treated the same way as any other investment: on their own merit and not something you choose just because they have tax breaks."

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.