Type: Venture capital trust
Aim: Income and growth by investing in a portfolio of music companies
Minimum investment: Lump sump 3,000
Closing date: March 31, 2005 for 2004/2005 tax year, June 30, 2005 for 2005/2006 tax year
Charges: Initial 5%, annual 1.5% in year one, 2% in year two, 2.5% in year three
Commission: Initial 3%
Tel: 020 7024 3674
The Ingenious VCT is a music venture capital trust which has Simon Fuller the brains behind the Spice Girls and Pop Idol on its board of directors.
Michael Philips proprietor Michael Both explains that this is an example of investment diversification into the entertainment industry. He says: “Unlike wine, jewellery or paintings, royalties have a measurable income stream and can therefore be more readily be valued. They can also be enhanced by good promotion, and Ingenious appears to have an excellent track record in that.”
According to Both, this VCT might appeal to experienced investors who already have substantial and well diversified portfolios, or younger, aggressive ones who are comfortable with a gamble. But he feels it is unlikely to have widespread appeal.
Looking at the potential risks, Both says: “While there is no doubt that top recording artists and even some one hit wonders can generate a substantial ongoing royalty income, it is far from clear to industry outsiders just what the value might be of the far greater number of also rans. This is the risk which investors and their advisers are taking with the Ingenious VCT.”
Both also complains that although the prospectus gives plenty of general background on the recording industry, there are few specifics on how Ingenious will select its investments. “For example, having made the link with Pop Idol, will any of the future contestants be in the VCT?”, he asks.
Both also takes issue with the proposed exit for investors. He says: “The prospectus indicates that it expects to be able to repurchase shares in the market to give investors an exit route, or issue further shares for that purpose, but the market may still be rather illiquid.”
In Boths view, the main competition will come from Stocksearch, the Mike Stock recording artist development fund.
Both concludes: “It is not clear if Ingenious promotes and manages the Artist as distinct from their recordings. There is the potential to manipulate which of the various links in the chain earn the profits and it was not clear from the prospectus how that central conflict of interest is addressed.”
Suitability to market: Good
Investment strategy: Average
Adviser remuneration: Poor