Type: Venture capital trust
Aim: Growth and income by investing in unquoted UK companies and those listed on Aim and Ofex
Minimum investment: Lump sum 3,000
Closing date: April 5, 2006
Charges: Initial 5%, annual 2%, performance fee 20%
Commission: Initial 2.25%, renewal 0.375%
Tel: 0800 2792501
Octopus Asset Management is looking to raise up to 60m for its twin structure venture capital trusts, Eclipse 3 and 4 VCT.
Michael Philips proprietor Michael Both says: “As with all VCTs this tax year, Eclipse should qualify for 40 per cent income tax relief as well as tax free gains and income. By co-investing, Eclipse 3 & 4 will be able to invest 2 million per company, twice the amount possible for a single VCT and allowing the inclusion of later-stage, more developed companies which should lower the risk of the fund. Risk should always be uppermost in any investors mind, not only of a particular action, but of alternative actions such as pensions, or even inaction which would lead to the payment of avoidable income tax.”
Both explains the chancellor is only giving this attractive incentive to encourage young companies to develop very briefly, so the track record of the managers in spotting winners and avoiding losers is crucial.
“The track record of the more established Phoenix, also managed by Octopus, is very good but it is perhaps too early to judge Eclipse 1 &2. Eclipse 3&4 have exit strategies to give subscribers some flexibility if they want to sell their investment in the future, but they should be aware they may still need to wait quite a bit longer than the minimum qualifying three- year period,” says Both.
Both complains that the prospectus is rather vague when it comes to the market sectors the VCT will fund. He says: “It is unclear whether this is because it is intentionally generalist or simply unfocussed.”
Both feels the performance incentivc structure, while initially quite demanding, then becomes totally facile, at 20 per cent of any increase above the last high water mark. In other words, if the managers simply put the fund on deposit they could still qualify for 20 per cent of any gain. ” Im not suggesting that they would, but that I dont like the fact that they could,” says Both.
Assessing possible competitors Both says: “Close and Matrix have already announced some of their intentions, but it is just the start of the VCT season so we anticipate there will be plenty of other new issues and C share issues launched. Many managers are publicly predicting there will be a shortage of capacity, no doubt hoping to ensure theirs sell out fast. But some of the hype could be accurate and advisers should discourage clients from waiting until the last minute when, shall we say, it wont necessarily be the best funds left open.”
Summing up Both points out that scale is important, both in terms of finding candidates for investment and having a larger VCT across which to spread the not inconsiderable administration and management fees.
“Last season some apparently excellent VCTs were pulled for lack of support and a few which should probably have not proceeded went ahead. Octopus raised a lot of funds last year which, all other things being equal, is comforting. It is sometimes worth checking how the capital raising is progressing before committing to a particular launch,” he says.
Suitability to market: Good
Investment strategy: Average
Adviser remuneration: Average