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26 November 2009

AIC warns of dangers of neglecting VCTs as push for growth of smaller companies pursued

AIC comment on Rowlands Growth Capital Review

The Association of Investment Companies (AIC) expressed its disappointment with the conclusions of the Rowlands Growth Capital Review, which failed to consider Venture Capital Trusts’ (VCTs) role in supporting the UK’s small business sector.  The Report correctly identified that smaller companies face difficulties in securing growth capital but the proposal for a new fund to bridge the funding gap is fraught with difficulties which have already been resolved for the VCT scheme.

Ian Sayers, Acting Director General, AIC, said: “The Review team were asked to examine new mechanisms to support small and medium enterprises and it is easy to see the political attractions of novel policy initiatives.  The danger is that novelty is favoured at the expense of existing mechanisms, such as VCTs, which have inbuilt advantages when it comes to quickly channelling funds to support smaller UK businesses.

“Unlike the ‘newfund’ proposed in the Rowlands Report, VCTs are an established network with a track record of meeting companies’ funding needs.  It will take years to establish an alternative with the same reach and expertise.  Critical questions, such as who will staff the new entity remain unanswered.

“VCTs are a unique private/public partnership which draw upon private investors’ savings to create funds targeted on entrepreneurial, innovative companies.  Without VCTs pooling these funds, these resources would lie completely untapped.    

“Finally, VCTs operate in a competitive market involving individual funds vying with each other to attract capital and secure the best investments.  This weeds out lame-duck propositions, helps identify the companies most likely to provide future growth and employment and ensures that public funds are utilised as effectively as possible.  It is not clear how the proposed ‘newfund’ will benefit from the same competitive disciplines.

“As policymakers from all parties consider the Review’s conclusions, they should bear in mind the value already provided by VCTs and the public policy benefits of continued support for the sector.

“VCTs are active right now and already channelling support to companies in need at a time when they are desperate for funds which in the past might have been provided by banks or other traditional sources of capital, but which are now increasingly unavailable. 

“Support for enterprise should be a top priority from all parties and forgetting how VCTs could be used to sustain a thriving small business sector would be an error.  There is room for VCTs alongside other mechanisms and it will be important to resist the temptation to prioritise novelty over experience where long term support for the UK’s economic growth is concerned.”

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Note to Editors   
The Association of Investment Companies was founded in 1932 to represent the interests of the investment trust industry – the oldest form of collective investment. Today, the AIC represents a broad range of closed ended investment companies, incorporating investment trusts and other closed ended investment companies and VCTs.  The AIC’s members believe that the industry is best served if it is united and speaks with one voice. The AIC’s mission statement is to help Members add value for shareholders over the longer term. The AIC has 350 members and the industry has total assets of approximately £82.1 billion.
     

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