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Baronsmead drinks up



Type: Venture capital trust

Aim: Growth by investing in unquoted companies in the business
services, media, healthcare and IT sectors

Minimum investment: Lump sum £1,000

Opening-closing date: November 24, 2003/January 30, 2004
Investment split: 80% unquoted companies, 20% fixed-interest

Charges: Initial 5%, annual 2%

Commission: Initial 3% or initial 2%, renewal 0.5%

Special offer: Extra 0.5% additional shares

Offer period: Until further notice

Tel: 08457 992299

Chase de Vere research manager Justine Fearns suggests some
investors might want to invest in a VCT before April 2004, when the
tax rules will change. She says: “Under current rules you get a 20 per
cent income tax rebate and can defer a CGT liability up to 40 per cent,
which is payable to the taxman once you cash in the shares. After
next April it is proposed that in addition to the 20 per cent income tax
rebate, the Government will top up investments by a further 20 per
cent for the next two years. It is also being proposed that enhanced
income tax relief will replace CGT deferral. However, after April, VCTs
will be even more attractive to income tax payers, therefore
broadening their appeal.”

Fearns regards baronsmead as a leading VCT brand and adds that
the baronsmead range accounts for around a quarter of all VCTs.
She says: “Isis is exceptionally experienced in the VCT market,
managing six VCTs. Unlike some VCTs, which focus on the volatile
AIM market or specialise in riskier earlier phase businesses or
specialist sectors such as technology, baronsmead VCT 4
concentrates on established companies with strong cash flow. For
example, in the past it has held the likes of Thomas Sanderson, a
well-known manufacturer of kitchen blinds. “

She also points out that a key strength of the Isis Equity Partners
team is its regional presence. She explains: “It has offices in London,
Birmingham and Manchester. It is generally considered very
important to be near the business a VCT invests in, as the holding
can&#39t easily be sold and often Isis will take seats on the board.”

Fearns says Chase de Vere likes VCTs and the baronsmead range
in particular. There is nothing particular that she dislikes about
baronsmead VCT 4 but there are three main areas that she is less
keen on in respect of VCTs in general. She says: “Liquidity can be an
issue on two counts. Firstly, there is a specific term of investment &#45
three years &#45, which must be adhered to in order to qualify for the tax
breaks. Secondly, at the end of the term there is no guarantee that
investors will be able to sell the investment.”

The second area Fearns mentions is that the risk profile of a VCT
must be carefully considered within a portfolio. She says: “They are
higher risk than the likes of a unit trust, Oeic or investment trust as
they can only invest in companies with a small market capitalisation.
As such they are not a suitable investment for every client. Only a
small percentage of our clients would have a VCT holding and this
would only represent a small proportion of their portfolio.”

Expanding on the third issue she dislikes about VCTs, Fearns says:
“Care must also be taken that the proverbial tax tail does not wag the
investment dog. There must be a clear and specific need for a client
to be invested in equities of any sort, let alone private equity, through
a VCT before an investment is placed.”


Suitability to market: Good
Investment strategy: Good
Charges: Average
Adviser remuneration: Good

Overall 8/10


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