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Octopus swims with the Titans

Octopus Investments

Titan VCT 1 and 2

Type: Venture capital trust

Aim: Growth by investing in companies in the environmental, technology, media, telecoms and consumer lifestyle and wellbeing sectors

Minimum investment: Lump sum £3,000

Closing date: April 4, 2008

Charges: Initial 5.5%, annual 2%, performance fee 20%

Commission: Initial up to 2.5%, renewal 0.5%

Tel: 0800 316 2499

This product, managed by Octopus Ventures, is structured as a twin venture capital trust to enable it to make equity investments of up to £2m in each company – twice the amount possible for single VCTs.

Michael Philips proprietor Michael Both observes that this generalist VCT aims to generate real returns on investors’ money over the long term by investing into early-stage and expansion-stage unquoted companies where Octopus believes three conditions will be met. “These eminently sensible hurdles are; the scalability the business model, an ability to expand the business into complementary areas using existing business relationships and to have a degree of pricing power. The typical deal size will range from £500,000 to £2m and the portfolio is expected to encompass investments in 20-25 companies,” says Both.

Investors’ money will be split equally between the two funds. “Since there is no strategy to protect the initial capital in any way, not even by way of corporate debt to investee companies, the diversification is essential for risk management, says Both.

Discussing the potential drawbacks of the VCT Both says: “The higher risk, pure equity investment strategy, will not suit all investors but to be fair whether making loans to such small companies greatly reduces risk is a moot point. As is usual for VCTs, the management fees are utterly exorbitant, rewarding managers with 20 per cent of any increase for the most mediocre of returns in the net asset value in addition to the standard annual management charge in excess of 2 per cent a year.

In Both’s view, the Downing protected VCT and Edge Performance VCT will provide competition, but he thinks there will probably be more VCT offers before the end of the financial year.

Summing up Both says: “Across its entire portfolio, including investments not yet sold, the Octopus Ventures team claims an impressive annual rate of return over the last seven years based on BVCA guidelines, but advisers would be wise to emphasise how each VCT company is different and that the trading share price could be at a significant discount to the theoretical NAV.

“VCTs carry significantly higher risk now the maximum deal size is so small and the minimum holding period is five years. The liquidity of the secondary market could make disposal other than by take-over or wind-up problematic, especially if the initial offer is not heavily subscribed. Having won a number of awards for previous launches suggests Octopus should capture sufficient portion of the VCT market this year to reduce that particular risk.

BROKER RATINGS

Suitability to Market: Good
Investment strategy: Good
Charges: Average
Commission: Average

Overall 8/10

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