PE Tech Report

NEWSLETTER

Like this article?

Sign up to our free newsletter

Venture capital trusts face both challenges and opportunities in 2009, says AIC survey

Venture capital trust managers have anticipated opportunities being created by reduced bank lending, but as the economic situation deteriorates this optimism is being tempered, accordin

Venture capital trust managers have anticipated opportunities being created by reduced bank lending, but as the economic situation deteriorates this optimism is being tempered, according to a survey by the Association of Investment Companies.

Colin Corbally, investment director at Downing Corporate Finance, says that so far many potential investee businesses have preferred to wait and see what happens with the economy, rather than accept lower prices in a deteriorating economic climate.

However, Mark Wignall, chief executive of Matrix Private Equity Partners, believes that many small company owners will have to face facts as the economy continues to falter, and will need to turn to VCTs for investment.

‘Although the VCT sector shrank in 2008 the performance of the tried and tested Generalist VCTs held up well and showed resilience,’ says Wignall. ‘In 2009, Matrix sees the VCT sector shifting further in favour of traditional generalist VCTs with established track records. The Aim VCT sector will continue to be under great pressure and the new limited life segment will be looking to establish its performance credentials.’

Corbally believes that for VCTs that do not rely on banks there will continue to be excellent opportunities to invest in solid companies at historically low prices.

‘Managing the existing portfolio has been an important focus for most VCT managers in 2008, and a particular source of concern where investee companies are geared up with bank debt,’ he adds. ‘Downing Corporate Finance has no investments with external bank debt, and so we have had more flexibility to manage our investments effectively for the long-term.’

Andrew Garside, investment manager of the Baronsmead VCTs, says generalist VCTs are showing good resilience compared to most quoted markets in terms of their relative performance.

‘There was an active spurt of new investment in the first half of 2008 including the management buy out of Nexus, one of the UK’s largest car rental brokers in March 2008. Subsequently in October 2008, the Baronsmead VCTs provided additional investment to support the acquisition of the FMG support vehicle rental management arm to give Nexus a significant increase in critical mass,’ says Garside.

However, Andrew Buchanan, fund manager at Octopus Investments, invests in the Aim market which has suffered in the downturn.

‘As a result of a wholesale withdrawal of interest in and money from smaller company shares, the smaller company sector has been aggressively de-rated in the last year to 18 months,’ says Buchanan. ‘With investors growing more fearful and less confident of the economy, the historic norm is that small company shares are marked down. That has happened and as usual in advance of the evidence that the economy is suffering. Thus it has only been in the last week or so that official statistics have confirmed that the UK is in recession.’

Wignall says that it may not be until Autumn 2009 before demand for external capital intensifies, but he believes that by then those generalist VCTs that have the cash and experienced people will have an unprecedented opportunity to invest in superior companies on terms that will offer outstanding value.

Like this article? Sign up to our free newsletter

MOST POPULAR

FURTHER READING

Featured