Puma Capital Group

VCT’s evolving client profile: take another look at your client bank

VCT’s evolving client profile: take another look at your client bank

First published for Intelligent Partnership.

Those financial advisers not taking note of the changes could be seriously missing out; the diversification on offer from potentially high growth equities, uncorrelated with turbulent public markets, could be excellent for some client portfolios, for a start.

 

Risks are high, but so is interest

Once favoured by older, wealthier investors, recent data from the Venture Capital Trust Association showed the average age of the current VCT investor is down from 67 (2017) to 56 (2022) (FT Adviser, February 2022).

Puma Investments has reported a similar drop, particularly between 2018/19 to 2020/21 which saw a drop from 60.22 years to 55.93 years. But this average also masks a jump in investment from the under-40s who swelled to account for 10% of the VCT manager’s investor base in 2022/23, from just 2% in 2018/19. What’s more, the average amount this age-group has invested with Puma ticked up 74% between in the same period.

Not only does this give today’s investors more time for their VCT investments to grow and mature, but it also demonstrates the growing appeal of VCTs to a younger generation of clients.

 

Middle class money

These shifts have a lot to do with the rise of those in the middle classes with money to spend, but whose assets still require careful management heading towards retirement, otherwise known as the mass affluent. Definitions of their wealth vary, but Accenture has suggested they have between £100,000 and £1 million of investable assets, with around 6 million households in the U.K falling into this category. But only about 600,000 of them are HNWs. (Accenture, 2019)

Many are well-paid professionals who have a high enough salary and investable assets to meet the criteria for investment applied by VCT managers to ensure their clients can understand and afford what they are getting into. Large numbers of them are headteachers, doctors, accountants and lawyers. 

They are not limited to London and the South East geographically and another change in investor profile noted by Puma is a change in VCT investor location: 39% of VCT fundraising came from London in 2018/19 compared to 28% in 2021/22, with the biggest shift in more investors coming from South Central, as well as northern regions.

Unsurprisingly, the mass affluent can afford to invest and research has found that 70% of them are doing just that (RFI Global, August 2022). In the past, this group has been labelled as being ‘rich without realising it’, but Covid 19 has been credited with refocusing many on prioritising more considered spending and saving more.

 

Market trends shaping the future

Other factors contributing to the change in VCT investors include the drop in entry levels for VCTs, with some products, like Puma’s VCT 13, having minimum investments as low as £3,000. The rise of alternatives and their role as diversifiers in an increasingly correlated world, and the availability of investments to match investor priorities like sustainability and levelling up, are also making a difference. So are the recent extensions to frozen tax thresholds and upcoming drops in CGT and dividend allowances. They are driving up tax liabilities, both for those pushed into higher tax brackets by rising wages and those seeking tax-efficient growth and income. 

So, while client circumstances vary and individual suitability must be carefully scrutinised, it is no longer good enough to simply exclude all consideration of VCTs on a single basis, such as HNW status. With valuable rewards on offer for both clients and advisers, there is a danger of failing the standards of the Consumer Duty by excluding a potential route to the best client outcomes, not to mention, loss of fees. We'd suggest taking a look at Puma's VCT 13 as a starting point for your VCT research.