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Michael Both

The Epic venture capital trust is a generalist VCT that aims to raise up to 15m to invest initially in non-qualifying fixed-income and quoted mid-cap equity portfolios and then in qualifying unquoted companies.

Considering the positive features of this VCT, Michael Philips proprietor Michael Both says: “Epic’s strategy is well thought out with a clear eight-year timeframe. To quote Epic: ‘The intention is, under appropriate market conditions, to invest around 50 per cent in quoted mid-cap equities, 20 per cent in fixed-interest securities and hold 5 per cent in cash, leaving 25 per cent for qualifying assets.’

“The key word is obviously ‘appropriate’. With markets having recently returned to extreme volatility, investors must hope the managers have the skills and patience to add rather than destroy shareholder value.”

Both says the Epic VCT will follow three broad themes. “One is leveraged buyouts and management buyouts, in each case where there is an established business. Another theme is expanding established businesses with a significant use of convertible loans or preference shares intended to give investors greater security. The final theme is restructuring or turn-rounds using high-yielding coupon returns of 8 to15 per cent with acquisitions at or near asset value.”

Both notes that there is a dividend target of 3p to 4p in the first year, which is tax-free, and that there is a share buyback policy.

Turning to the less attractive features of the VCT, Both says: “If one accepts the inherent risks of VCTs – chiefly, illiquid markets and micro companies – there is little specifically to dislike in the three-pronged strategy other than the industry-standard, undemanding, cumulative 20 per cent incentive which applies for returns in excess of the target dividend. This is provided the NAV is above 100p and the previous highwater mark.”

He points out that this is not a top-up offer and the minimum subscription for the launch to proceed is 2m, which could result in a lot of management fees being loaded on an inappropriately small VCT. He adds: “The 5,000 minimum subscription could put off investors who would sensibly like to spread their VCT allocation across a few diverse issues.”

Both’s suggestions for potential competitors are Matrix income & growth VCT S share and Octopus Titan.

Summing up, Both says: “The Epic private equity team claim to have advised or arranged 18 deals which would have met the current qualifying rules. They claim to have achieved an average internal rate of return of 48 per cent which would be excellent if repeated in the VCT. We know this cannot be guaranteed and was achieved in possibly kinder market conditions. I note that Epic Reconstruction and Equity Partnership Investment Co, its two LSE-listed vehicles, both achieved well below that impressive headline.”


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