Type: Portfolio of Maven venture capital trusts
Aim: Income & growth by investing in a portfolio of four Maven VCTs comprising Maven income & growth VCT, Maven income & growth VCT 2, Maven income & growth VCT 3, Maven income & growth VCT 4
Minimum investment: Lump sum £5,000
Closing date: April 5, 2011 for 2010/11 tax year, April 29, 2011 for 2011/12 year
Charges: Initial 5%, performance fee 27.5% for the Maven income & growth VCT, annual 2.5% for the Maven income & growth VCTs 2 and 3, performance fee 20% for Maven income & growth VCT 2, annual 2% and performance fee 20% for the Maven income & growth VCT 4, Commission: Initial 3%, renewal 0.5% for four years
This is the second linked VCT offer from Maven Capital Partners, enabling investment in a portfolio of four Maven VCTs weighted according to the size of each VCT.
Arch Financial Planning managing director Arthur Childs points out that Maven was formed in June 2009 following a management buyout by the investment and portfolio team at Aberdeen Asset Management’s equity division. The team had run VCTs at Aberdeen since 2004.
“This linked offer enables investment in four existing VCTs run by Maven and is limited to 10 per cent of the existing funds, which means a further investment of £6.4m, to avoid the expense of having to issue a full prospectus.
“The VCTs are generalist, so this is a well spread investment. Maven has particular expertise in sectors such as support services, food producers/processers, and energy services and these themes will feature strongly. Some VCTs invest in fifteen companies or less, but Maven prefers to create a bigger, more diversified portfolio. “
Childs says the advantage is that investors can access a number of diverse mature VCT portfolios which have already established a history of regular dividends. “The weighted yield on the four VCTs is 6.54 per cent, ignoring the initial tax relief. Investing in four linked VCTs has the potential to provide eight dividend payments a year starting as early as May 2011. “
Most new VCTs take a year or two to start investing in private businesses and several years to become fairly ully invested, says Childs. He feels the linked offer is an opportunity to obtain the 30 per cent tax relief that goes with new VCT investments while taking immediate advantage of the existing investments. He also says investors will have access to the quality deals that Maven comes across through its UK office network.
“Maven targets later stage private businesses with substantial revenues and profits,” says Childs. “The literature is clear and well produced. It exudes something of the enthusiasm that is obviously present in this team. It is encouraging to see that Bill Nixon , the managing partner, has just increased his shareholding in the Maven Income & Growth VCT 3 plc to over 145,000 shares,” says Childs.
He points out that renewal commission is only paid to IFA firms which place applications totalling at least £199,000. “This will not be attractive to the majority of smaller IFA firms at a time when there is something of a scramble to obtain fund based income,” he says.
Discussing the potential drawbacks of the offer Childs says: “I appreciate that a lot more work goes into building a portfolio of private businesses that in a typical UK equity fund but I do think that a wholesale review of VCT charges is necessary. Two of the VCTs have performance fees of 20 per cent and another at 27.5 per cent. At this level it is debatable whether the VCTs provide any real benefit to the average investor over a well-run smaller company unit trust. “
Identifying the main competition Childs says: “There are 14 VCTs with better growth in NAV than the best Maven VCT over the last five years and 17 VCTs with better growth in share value over the same period. Names like Northern, Foresight and Baronsmead feature in this list. Because of their performance and recognisable names, they will provide strong competition.”
Summing up Childs says: “The VCT market has been working hard to improve its image, knowing that once the economy starts to grow again, small companies could well lead the way. There has been an emphasis on good dividend levels and clarity in respect of share buy-backs. There are those who predict a surge in VCT business during the next twelve months because the 30 per cent initial tax relief now has less competition from the tax relief on pensions.
“However, we need to be cautious and not carried away by the prospect of tax relief without a serious study of the underlying investment. The Maven offer illustrates this well. It seems to me that there is little point investing in this offer to obtain 30 per cent tax relief and be locked in for five years when you can buy the shares of three of these VCTs in the market for a discount of at least 27 per cent without any restrictions on how long you have to hold them.”
Suitability to market: Average
Investment strategy: Good
Adviser remuneration: Average