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Matrix goes after MBOs

Matrix Money Management

Income & Growth VCT

Type: Venture capital trust

Aim: Income and growth by investing in established unquoted companies with a focus on management buy-outs

Minimum investment: Lump sum 5,000

Closing date: April 3. 2006

Charges: Initial 5.5%, annual 2%

Commission: Initial 2.25%, renewal 0.375%

Tel:020 7925 3377

The Matrix income & growth VCT is a generalist venture capital trust investing in a portfolio of established unquoted companies that make or supply everyday products.

Arch Financial Planning managing director Arthur Childs predicts this will be a bumper year for VCTs as the 40 per cent income tax relief is expected to end in April 2006.

This new offer is one of a number of offers that I would expect to see oversubscribed. Matrix has a team of eight experienced managers specialising in private equity investment, which is one of the largest teams in this field, he says.

Drawing out the useful features Childs highlights the structuring of up to 70 per cent of each investment as preference shares or loan stock, with the balance being ordinary shares. This strategy is designed to maximise twice-yearly dividend payments. The manager will only receive its performance related incentive fee once it generates returns that enable the fund to pay out at least 6p per share per annum in dividends, he says. He thinks this will attract higher-rate tax payers as there is no further tax to pay on the dividends.

Childs notes that the VCT will focus on management buy-outs where the incumbent management team invests alongside at the same time as the VCT and has its interests aligned with the VCT. He explains: As the majority of private equity investment comes from MBOs this will not restrict the deal flow.

The maximum size of a VCT investment is 1m but Childs points out that with 5 VCTs under management, the Matrix team can invest 1m from each to make combined investments of up to 5m in larger, more developed companies that would otherwise be beyond the scope of a VCT.

Discussing the possible drawbacks Childs says: The directors will enhance liquidity by buying back shares from those who want to sell. Any such sales within the first three years will forfeit the investors initial tax relief. This is fine, but some competitors have a more formalised buy back policy and one has an annual tender offer from year four onwards at no more than 5 per cent discount to net asset value. Matrix would no doubt argue that their lower risk approach makes this unnecessary.

Childs believes competition will come from C share issues from F&Cs Baronsmead and Close Brothers. The main competition from another new issue is likely to come from the twin Eclipse VCTs from Octopus, he says.

BROKER RATINGS

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

Overall 9/10

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