Shore Capital to target high income

The Puma High Income VCT will provide secured loans to companies which are having difficulty in raising finance on attractive terms from banks. It is looking to raise up to £30m; it has a five-year life span, after which it will wind up and return capital to investors.

The VCT aims to pay a 7p annual dividend offering a 10 per cent a year tax free running yield on the net investment – a higher level than on Shore Capital’s previous VCTs. The internal rate of return will be 8.5 per cent a year if after five years only the net investment of 70p is returned.

Shore Capital said this is equivalent to 14.2 per cent a year gross for a 40 per cent tax payer, and increases to 13.5 per cent a year if 100p is returned - equivalent to 22.5 per cent a year. In addition, 20 per cent of all cash distributions in excess of 100p per share will be returned to investors.

Graham Shore, managing director of Shore Capital said: "The aim is to meet the need of higher rate tax payers for an attractive income producing investment at a time when the top rate income tax is expected to rise and other tax reliefs such as pension contributions are being cut back. The investment strategy is substantially the same as for our existing VCTs, which has worked well for them."

Puma High Income will follow a similar strategy to the existing Puma VCT V. Shore Capital has 5 VCTs other than Puma High Income which have about £65m under management, and all are limited life vehicles.

Shore Capital favours limited life VCTs because investors do not have to rely on market liquidity to dispose of their shares, as at the end of the five year holding period to qualify for 30 per cent income tax relief the vehicle is wound up.

Shore Capital said Puma High Income has a lower risk investment remit because it is focused on capital preservation plus good risk adjusted returns from investments. Puma High Income will principally provide secured debt to well run companies which have found that banking terms have worsened since the banking crisis.

The investment banking and asset management group, said it is experienced in providing such credit and has specialised in investing for its VCTs in structures seeking to limit down side risk.

Some of Shore Capital’s earlier VCTs invested in a mixture of loans and AIM stocks, but following changes to the investment rules for VCTs, which since 2006 have not been able to invest in a company larger than £7m, the choice of AIM stocks a VCT can buy are more limited.

Puma High Income’s annual management fee is 2 per cent and other annual running costs are expected to reach 1 per cent. Shore Capital said there would be a cap on all annual fees and costs of 3.5 per cent.

Other limited life VCTs which have come to market, according to the Tax Efficient Review, are Downing Protected Opportunities VCT C share seeking £20m, Octopus Secure VCT seeking £50m, and Triple Point TP10 seeking £50m.

Downing Protected VCT II & III D share seeking £30m and Edge Performance VCT F share offer seeking £10m are set to come to market.