Type: Venture capital trust
Aim: Income and growth by investing in unquoted UK companies in the media sector
Minimum investment: Lump sum £5,000
Closing date: April 5, 2011 for 2010/11 tax year, June 30, 2011 for 2011/12 tax year
Charges: Initial 5%, annual 2.25%, performance fee 20%
Special offer: 2% of the amount invested in extra shares
Offer period: Until March 16, 2011
Commission: Initial 3% or initial 2.25% plus renewal 0.375%
This venture capital trust aims for income and growth by investing in unquoted companies in the media sector.
Arch Financial Planning managing director Arthur Childs says: “VCTs are one of those products, like structured products, that I refer to as ‘Marmite’ products in that IFAs love or hate them. They are either enthusiastic about them or they wouldn’t consider them for any of their clients. The fact is that as a result of the RDR all IFAs will at least have to show that they have considered them for their investment clients, and therefore make sure they understand them, even if they reject their use.”
Childs points out that IBIS is opening the existing £8m IBIS Media VCT 1 to new investors. “As the company’s VCT qualifying holdings represent some 76 per cent of its investments this will make this particular VCT attractive from a risk-reduction point of view. New investors can access the company’s established and diversified pool of investments.” New shares will rank on an equal footing with the existing shares and will qualify for 30 per cent tax relief subject to certain conditions.
“As its name suggests this is a specialist VCT. We all realise that investments in a specialist asset class raises the risk and the potential reward considerably. In this case we are dealing with managers who really know their stuff. The IBIS Media VCT has already invested in nine British media companies and since launch in 2006 there has already been one successful exit, which was sold for a 42 per cent uplift. The managers have stated that the pipeline of investment opportunities has remained strong. “
Childs highlights the fact that IBIS acts both as an adviser to the media industry and an investor in that industry. “This strategy enables IBIS to accelerate its plans by means of their advice and to provide the resources for growth. The IBIS Media VCT is also part of the bigger IBIS Capital group, which also manages the successful IBIS global media fund. This enables IBIS to operate a multi-platform approach and so attract opportunities and that smaller funds would find difficult. “
Childs feels the investment team is very strong in its chosen sector and has a wealth of contacts and experience across many different aspects of media. “The strength of the team is further shown by the fact that over £1.3m of the amount invested is from members of the VCT board and investment committee. Each member of the team will be investing in the current top-up.,” says Childs
VCTs have been forced by successive legislation to invest in smaller and smaller companies but this VCT seeks to thrive at the very smallest end of the market. Childs notes that the VCT will invest in unquoted companies within the media sector that have the potential to grow and to achieve capital appreciation on a subsequent exit.
“These will mainly be privately owned companies but can include smaller Aim and Plus stocks. The managers will be looking to benefit from some of the key trends that are driving the media industry’s development both in traditional and digital media. The intention is also to have a balanced portfolio of companies operating both in mature and high-growth areas of the market. The high risk from such companies is mitigated to a certain extent as a result of the strategy of subscribing for a mixture of ordinary shares and loan notes in a portfolio company,” says Childs
He points out that the VCT’s shares are trading at a 7.48 per cent discount but compared to many investment trusts, he says that is exceptionally good. “Dividends have been 1.5p per share for the last three years.,” he says.
Considering the less attractive features, Childs says: “VCTs are by nature illiquid investments because of the lack of a strong secondary market. Therefore one of the most important factors in any VCT is to have a clearly defined and fair share buy-back facility. Although this has been discussed in published annual reports. it is a negative feature of this VCT that the level of discount charged on any share buy-back is still at the Board’s discretion. “
Childs also takes issue with the performance fee. He says: “My general stance against performance fees is almost invariably negative as they can really hamper a good level of outperformance. In this case the performance fee is 20 per cent on all growth but is only paid once 60p of distributions per share have been paid and the total return per share is over 150p.
The main competition in Childs’ view is likely to come from the Ingenious entertainment VCTs. “Ingenious is the biggest VCT operator in the media and entertainment sector having raised over £100m of funds in this sector since 2004. It steals a march on IBIS by having a defined 5-year liquidity strategy. “
Summing up Childs says: “VCTs have made a strong start to 2011 with a number of firms launching new offerings, having been in the doldrums for two or three years. The structural changes in the media industry, not least through the influence of the internet, is creating significant challenges for both traditional and new media companies. This in turn presents an opportunity for investors if the VCT managers can get alongside the right companies. “
He feels that the reductions in maximum pension contributions for high earners from April must encourage IFAs to investigate VCTs as a second tier of pension funding. “The availability of 30 per cent tax relief, subject to the individual’s tax status, for investments of up to £200,000 and the absence of capital gains tax on the investment growth or additional tax on the dividends for higher-rate tax payers could look very attractive for investors who are more relaxed about risk,” he says
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Good