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Aberdeen ponders sweet equity deal

The Aberdeen VCTs are looking at introducing a sweet equity co-investment scheme as industry commentators predict a deluge of such deals.

Aberdeen manager Bill Nixon is talking to the VCTs’ boards about the issue and an announcement is expected by the end of November.

Meanwhile, Beringea, which runs the Pro Ven VCTs, is understood to have considered introducing a scheme but changed its mind following controversy over sweet equity. Beringea was unavailable for comment.

On top of an annual management charge, performance fees, monitoring fees and arrangement fees, co-investment schemes allow VCT managers to gain from the sweet equity portion of the deals they finance.

Hargreaves Lansdown investment manager Ben Yearsley describes such deals as allowing managers to “have their cake, eat it, have another cake, then another cake, then another cake”.

Aberdeen says such a deal needs to be placed in context, with over 20 staff likely to share 5 per cent of the co-investment on every deal, rather than four or five staff sharing 7 per cent.

Nixon says: ” If we were introducing a co-investment scheme, it would be very much at the bottom end of the scale and will be an all-deals scheme to avoid cherry-picking. In principle, we believe co-investment is a good idea for motivating managers in the interests of shareholders.”

Editor of the Tax Efficient Review Martin Churchill says: “Once this becomes the standard, then everybody will do it and who is to blame the VCT managers? This is why I am focused on the issue, to try to stop the deluge.”

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