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VCTs performance bucks negative impact of Covid

10 February 2021

Venture Capital Trusts (VCTs) performed well in 2020, despite the challenges of the Covid-19 pandemic.

A new survey of VCT managers carried out by the Association of Investment Companies (AIC) revealed that 40% of managers said trading conditions for their investee companies had improved since January 2020, with a further 27% stating that conditions were unchanged.

The average VCT delivered a positive total return of 4% over the course of 2020, in contrast to a 10% loss for the FTSE All Share.

Of the VCT managers surveyed, 53% made at least the same number of new investments in 2020 as they did in 2019, while the same percentage said Covid-19 had either increased investment opportunities or had no impact. A third (33%) said it had adversely affected opportunities.

The findings also showed that four fifths (80%) of VCT managers are investing in businesses helping in the fight against the pandemic, from developing vaccines and testing kits to manufacturing antimicrobial curtains for hospitals.

Four fifths (80%) of VCT managers said the process of monitoring portfolio companies was either unchanged or had been made easier by the pandemic, while two thirds (67%) agreed that sourcing and evaluating potential investments was either unchanged or made easier.

James Livingston, partner, Foresight Group, said: “Setting aside the terrible impact on global health, the pandemic has provided the greatest economic challenge for generations, but we’ve been continuously impressed with how the entrepreneurs we work with have navigated through it. Our investees have contributed to the fight against COVID-19, both directly – manufacturing millions of diagnostics or supplying vital equipment to dozens of hospitals – and indirectly, supplying coffee to your door or adjusting software systems to facilitate donations of millions of pounds to arts organisations. After a brief hiatus we are now working through a record volume of investments to support small companies with their recovery into 2021 and beyond.”

David Hall, managing director, YFM Equity Partners, which manages the British Smaller Companies VCTs, commented: “In some ways the pandemic has accelerated trends that were already happening, the move to home working, thirst for data, and security and protection tools being just some examples. We are seeing demand for equity increasing from those parts of our portfolio and from new investment opportunities in these areas. When coupled with the equity need from those sectors that have been negatively impacted as they restart it’s hard not to see the demand for equity finance from the UK’s small businesses being pretty strong for the next few years.”

Looking ahead, all respondents said there had been unexpected positives to the pandemic, such as virtual meetings allowing more time to be spent with investee companies, increased demand for digital services or increased investment opportunities. However, Brexit posed a bigger issue, with two thirds of respondents (67%) believing Brexit will be negative for small, young UK companies compared to just 20% who believe it will be a positive.

Commenting on the findings, Annabel Brodie-Smith, communications director, Association of Investment Companies (left), says: “The human cost of the pandemic continues to climb and many businesses have struggled for survival. Nevertheless, our survey suggests that many of the UK’s most dynamic younger businesses have been able to adapt to the challenging environment. VCTs invest in businesses at the cutting edge of science, healthcare and technology, businesses which are helping drive forward the medical response to the virus and helping us to do more online while staying safe.

“VCT investing offers many important economic and social benefits and this is clear from the number of VCT managers backing innovative businesses that benefit the environment, help mitigate climate change or are working to find treatments for disease.”

Professional Paraplanner