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Product matters

It is that time of year when I cannot put the phone down without another venture capital trust manager ringing to say they are launching a product shortly. Sorting the good from the bad can be an arduous task. For this reason, it is nice to see someone setting their stall out differently.

Having a differentiating factor is what sets apart Core 4 and 5. Core launched its first VCT in 2004/05 and raised £11m. It was even more successful in the last tax year, raising over £30m.

Core’s approach stands out because of one major difference compared with other VCTs – it does not charge a management fee and only gets paid when it performs. Yes, you heard it right, the managers of Core VCT will not be charging a fee. They will receive 30 per cent of every dividend paid as long as investors are in profit.

This might sound high compared with other performance fees but do not forget that Core is not taking the 2 per cent annual management fee that most managers charge. I think this approach aligns the managers perfectly with investors. They are incentivised to pay out profits as, until they do, they will not get a penny.

VCTs are high-risk investments but this is a lower-risk proposition. Most of the investments will be well-established companies. Indeed, up to 90 per cent of every deal will be in the form of loans to the underlying companies, with upside coming through warrants and Piks (where interest rolls up and is paid when the investment is realised).

I think Walid Fakhry and Stephen Edwards, managers of this VCT, are highly incentivised to perform well and have their interests directly aligned with investors. There is no sweet equity, there is no fudge and they need the VCT to perform or they do not get paid. I think this is one VCT well worth looking at for this tax year.

Ben Yearsley is senior investment manager at Hargreaves Lansdown


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