Late last week, the Association of Investment Companies, a trade organisation representing the investment trusts sector, urged the FSA to exempt Venture Capital Trusts from any proposed ban on marketing supposedly risky funds to retail investors.

VCTs are listed and have been around since 1995 under the old Conservative government of John Major; they are tax-deductible vehicles that are designed to put relatively small sums into fledging business start-ups and small firms. (A VCT must get approval to operate by HM Revenue & Customs, the UK’s tax authority, although that approval does not imply that there are any guarantees for investment performance.) The tax benefits to holding VCTs have fluctuated in recent years, but some advantages remain. For example, there is income tax relief at rate of 30 per cent, and no capital gains tax is paid when shares in a VCT are disposed of.

This sector has had its ups and downs; performance of VCTs can vary widely and investors should always be mindful that investing in relatively modest firms is a long-term business; investments are typically relatively illiquid – this is not like punting on the S&P 500 – and it pays to get a financial advisor to scrutinise the management firm of a VCT. But this is the sort of commonsense advice that any investor, sophisticated, institutional or retail, should be able to understand.

Venture capital is not a mysterious asset class. After all, the UK television programme “Dragon’s Den”, while it might be a bit gimmicky and have annoying judges has for example helped to put the idea of venture capital a bit more into the public’s mind. Investing in a spread of small firms that might develop into something much bigger is hardly any more difficult to understand than, say, holding a portfolio of bonds. And in a world of negative real interest rates, is the FSA really going to suggest that the only options open to retail investors are plain vanilla stocks, cash and bond funds?

The UK government has recently said that there needs to be a lot more focus on wealth creation. All governments say that. A test of how serious this administration is will be how it allows the broader investor public to tap into the process of seeding and encouraging small, fast-growing companies. The FSA’s determination to weed out crooks from the financial world is admirable; its determination to only allow retail investors to hold the most basic of assets is less so.