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FCA urged to act on VCT fee disclosure

By 29th June 2018 No Comments

Richard Hoskins, Co-founder, Kin Capital speaks to journalist David Thorpe at FT Adviser about the need for better VCT fee disclosure and improved transparency amongst managers

To see the full article on FT Adviser please click here

A quarter of investors are paying more in charges to the manager of their venture capital trust (VCT) than they receive in tax relief, it has been claimed, but this is not reflected in the key investor document (Kid).

Richard Hoskins, co-founder of Kin Capital, which provides fund raising and other services to companies in the VCT and enterprise investment sectors, made the claims to FTAdviser amid ongoing concerns about Kids, some of which regulators at the Financial Conduct Authority have now pledged to look into

Mr Hoskins has previously branded Kids for venture capital trusts “dangerous” due the requirement to include a measure of risk, because in his view the documents do not properly reflect the risks of putting money into what can be a complex investment.

But he is also asking the regulator to intervene to ensure VCT providers are more transparent on fees.

Mr Hoskins said: “To put the cost issue in context, in 2017/18 at least a quarter of VCT investors were signing up to paying more in fees and charges over the minimum commitment of five years, than they are getting in income tax relief.

“Whilst eye watering, high charges are easy for some managers to justify in a bull market. But, bulls quickly turn to bears.

“And let’s not forget the £1bn or more of un-invested cash in VCTs. High levels of cash and high running costs – not exactly the best recipe for success.

“Fees matter, particularly at this stage in the cycle when clients are effectively locking in for five years given the VCT minimum holding period.

“There needs to be more provider competition on fees in this part of the market – the VCT industry desperately needs new entrants – something the government identified in last autumn’s Patient Capital Review.”

According to Mr Hoskins, the vast majority of EIS and VCT funds charge portfolio companies arrangement, monitoring, and director fees.

While these are costs essentially paid by the shareholders of the investee companies, given the fund is a shareholder, the investors in that fund are paying at least a portion of these fees, in addition to the other fees above.

“Venture capital investing is hard work and it is not cheap to deploy capital,” Mr Hoskins said, “so higher fees in this market are completely justified. But there is no justifiable reason why managers can’t be transparent about all the charges.”

To see the full article on FT Adviser please click here