Downing has launched its latest VCT offer, Downing Planned Exit 2. As with many of Downing's previous offers, this is a 'limited life' VCT designed to wind up and distribute proceeds after five to six years.
Downing specialise in 'asset backed' deals involving companies with tangible assets such as property. This helps limit the downside for the VCT in the event the business underperforms or fails. Areas such as health clubs, hotels, public houses and childcare nurseries are commonplace across Downing's portfolios, and in recent years some renewable energy businesses have been included. The focus is on businesses with stable cash flows, which helps pay for dividends to VCT shareholders.
Although Downing's approach places emphasis on providing dividends and controlling risk, it should be noted that all VCTs are higher risk long-term investments not suitable for mainstream investors, or those who need access to their money in the short term. As such we believe that they are only suitable for sophisticated investors. The FSA suggest advisers only recommend them to investors with an annual income of more than £100,000 or investable assets of more than £250,000. However, as we offer an execution only service, we allow clients to make their own decision if they accept full responsibility for the suitability of the investment; if you have any doubts please contact us for advice.
The structure of this VCT means much of investors' return is likely to come from the tax break. It should therefore appeal to VCT investors who would prefer a more predictable but lower return. Based on the issue price of £1 annual dividends of 5p per year are targeted, though cannot be guaranteed.
Downing has a successful track record in managing this type of fund, though recently timely exits of investments have proved more difficult than in earlier years. This is due to a scarcity of lending and refinancing from banks, even to companies with a track record of growing profits. I believe this situation is likely to moderate as banks return to the market, and for investors looking for an asset backed, limited life VCT structure they remain a good choice.
For more information on VCTs, the risks, and the tax reliefs available, please refer to the VCT section of our website. The risks of this VCT are described in more detail in the prospectus.
Remember, VCTs invest in smaller, usually unquoted companies, some of which could struggle and even fail altogether, so you could get back less than you invest. They also have higher charges than most types of funds. There might only be one market maker for VCT shares which means they can be harder to sell than main-stream equities, and they are exposed to substantially higher risks. Please remember tax rules can change, the benefits will depend on your circumstances and that to retain the 30% income tax relief investors must hold the shares for at least five years and the VCT must retain qualifying status.
If you're interested in this VCT offer please refer to the VCT section of our website for further details and the prospectus, which should be read before investing. If you proceed with an application we'll assume that you regard yourself as a suitably sophisticated investor. If you have any doubts you should seek expert advice.