View from the Bridge
Looking at how VCTs managed the UK lockdown – June 2020
As lockdown measures ease across the UK, the impact on the economy is starting to become apparent. With a contraction of over 20% in the UK economy in April alone, according to some accounts, the economy is expected to shrink by 8% in 2020. Whatever the eventual outcome, it will be heavily dependent on the time it takes for economic activity to normalise, and whether the UK is able to avoid a “second peak”. Amidst this uncertain economic outlook, companies across the board, both large and small, have taken measures to shore up balance sheets and preserve cash. Some sectors have been harder hit than others, in particular the services sector, businesses exposed to discretionary spending and those which rely on customer footfall, such as pubs, cinemas, and high street retailers, although the impact has by no means been isolated to these areas. The effects of this have been apparent in public markets, borne out through significant market volatility; and although the immediate impact across private markets, including EIS and VCT portfolios is less evident, there are early signs that these markets have similarly come under strain.
MJ Hudson Allenbridge conducted a survey concerning the impact which COVID-19 and the associated government-imposed lockdown could have on managers within the tax-advantaged space and underlying portfolio companies. The overwhelming concern managers face is the prospect of reduced fundraising going forward, likely as subdued investor confidence gives rise to a preference for cash. Expanding on this, almost three-quarters of respondents felt that the travel restrictions brought on by the virus have had an impact on fundraising capabilities. In the face of subdued levels of fundraising, cash preservation and securing funding through less conventional routes, such as government support structures including the Coronavirus Business Interruption Loan Scheme (CBILS) Future Fund, is crucial.