ISIS EQUITY PARTNERS
Aim: Growth by investing in established but unquoted UK companies
Minimum investment: Lump sum £3,000
Opening-closing date: October 25, 2002-April 3, 2003 for 2002/2003 tax year, May 23, 2004 for 2003/2004 tax year
Charges: Initial 5%, annual 3.5%
Commission: Initial 3% or initial 2%, renewal 0.5% for five years
Tel: 0845 6006166
The panel: Graeme Currie, Director, Alan Steel Asset Management,
Scott Clayson, Director, Professional Financial Services,
Arthur Childs, Proprietor, Arthur Childs Financial Services.
Investment philosophy 9.0
Past performance 9.0
Company's reputation 8.6
Product literature 8.3
Isis Equity Partners is seeking a £14m top-up investment for its Baronsmead venture capital trust (VCT), allowing it to make between 10 and 20 additional investments.
Looking at how the VCT fits into the market Childs says: “There are currently nine VCT offerings available if we ignore those seeking less than £2m. Baronsmead is seeking to raise a further £14m for the VCT, first launched in 1995, which has an existing fund of around £18m.” Clayson says: “A higher-risk investment for people looking for an alternative to the lack-lustre performance of the FTSE 100-based collective investments.” Currie says: “It fits very well. Private equity is often ignored as an asset class as it is difficult to ascertain which of the small companies is a good bet for performance returns. The VCT is an excellent way to invest in this growth area.”
Identifying the type of client the fund could attract Clayson says: “High-net-worth with an established portfolio of medium and lower risk investment.” Childs says: “The obvious clients are those with capital gains tax (CGT) liabilities that can be deferred by investing in a VCT. But we do a disservice to VCTs if we simply treat them as a way of reducing tax bills. Any client thinking of investing into the UK small cap sector should throw away his Isa application forms and invest into a VCT instead. The Baronsmead VCT is particularly suitable for clients approaching retirement who want to build up an additional source of tax-free retirement income. I would also use it for clients who are prepared to risk a few thousand to make their investments more interesting.'
Highlighting the types of marketing opportunities the VCT could provide Currie says: “For those who want to have a tax-efficient holding in small entrepreneurial companies or have CGT gains or high additional income tax relief.” Childs says: “I believe the VCT is an excellent product to use alongside traditional pension plans. I can certainly envisage a situation where clients will invest the minimum into a VCT each year, thereby building up a portfolio of VCTs over a period of years so that they can enjoy the income from them during their retirement, without any tax charge.” Clayson says: “People who want to move out of poorly performing shares without paying the capital gains tax which could apply.”
Discussing the main useful features and strong points of the product Childs says: “Many clients will appreciate the fact that it is a top-up issue, with no risk of the VCT not meeting its minimum investment target. In Baronmead's case this also means the client's money will tend to be invested in relatively large, established companies because of its ability to combine investments from its four VCTs into the same company. Experienced VCT investors will be attracted by the Baronsmead name and its chairman David Thorp. As clients are very conscious of investment risk at present, the fact that this is a generalist VCT rather than one focused on one sector of the market will certainly have appeal.” Clayson says: “The performance of the previous Baronsmead VCTs has been better than the FTSE 100 index. CGT deferral and income tax rebate on the investment.”
Currie says: “Deferral of CGT, income tax relief of up to 20 per cent. All capital gains within VCTs are tax-free and all dividends paid are income tax free. No CGT payable on gains made on the sale of the VCT. Spread of risk through diversification.”
Analysing the VCT's investment philosophy Childs says: “It might encourage clients to consider investing who would otherwise be slightly nervous of the term venture capital. The emphasis on achieving a good level of income rather than shoot the lights out growth could also prove attractive to retired clients.” Currie says: “Baronsmead has an excellent track record in the VCT market. I like the fact that it invests in ordinary shares an loan stock of unquoted companies, meaning that 20 per cent of the portfolio is held in fixed interest and cash.” Clayson says: “Isis has a gift for finding the better opportunities within the small companies sector.”
Considering the trust's disadvantages Currie says: “As with all VCTs, it is often difficult to sell as there is very little market for second hand VCTs.” Clayson says; “It must be held for three years or investors will lose the CGT and income tax advantages.”
Assessing the company's reputation Childs says: “Baronsmead has an unrivalled reputation in the world of private equity. The names on the brochure are Baronsmead and ISIS, the new name for Friends Ivory & Sime. As ISIS is a new name to the public it may take a while before it gains any real acceptance. In terms of less experienced investors, therefore, it will be our reputation as IFAs that will be the more important factor.” Clayson thinks it is impressive and Currie regards it as excellent.
Looking at the past performance of Isis Childs says: “There are four existing Baronsmead VCTs and the two that have a three or five year performance record show top quartile performance over 3 years plus. Although it has to be said that the volatility of the funds compared to their peers over that period has been at the high end of the spectrum. Over shorter terms the performance of all four funds has been bottom quartile. The bottom line for me is the excellence of the management team and the fact that their sheer size in this market gives them the pick of the deal flow.”
Clayson says it is one of he top performers among VCTs. Currie says: “It has a good track record of outperformance against the FTSE All Share index. An annual tax-free cash return of 7.5 per cent since launch in 1995 is an excellent return.”
Suggesting possible competitors to the trust Childs says: “The main competition from another 'C' share issue is the Close Brothers Development VCT which also has a generalist approach. Previous Close Brothers VCTs have been, without doubt, among the most successful VCTs to date. Octopus Asset Management Phoenix VCT is another competitor, a new VCT which has already raised £2.7m in just a few weeks in a difficult market. Clayson goes for Aberdeen while Currie suggests enterprise investment schemes.
Discussing the charges Childs says: “The initial charge is fair, but the annual management charge is on the high side.” Currie and Clayson think the charges are fair.
Looking at commission, Childs likes the flexibility, which he says was not available on previous Baronsmead issues. Clayson and Currie think the commission is reasonable.
Casting an eye over the product literature Childs says: “I like the picture of the humming bird on the cover but the rest looks like a FSA consultation document. The accompanying booklets will prove extremely useful as an aid to introducing clients to the world of private equity and VCTs.” Currie says: “It is very straightforward, some of the best I've seen.” Clayson says: “It is good quality. The explanation of the tax benefits is an improvement on the previous brochure.”