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 3 is a generalist venture capital trust which invests in established unquoted companies, which has a particular interest in management buy-outs.
Michael Philips proprietor Michael Both says: Like most sequels, this VCT aims to leverage on the reputation built by its predecessors. Fortunately in this case, that gives it quite an advantage over many of its competitors.
Both explains that before being bought by Matrix, the VCT manager was GLE Development Capital and has been, by some measures, one of the most consistently successful VCT managers. It is a generalist VCT, but probably the main reason for its exceptional success is a twin strategy concentrating on management buy-outs with a sizable proportion of the investment as loan stock or preference shares.
According to Both, the VCTs strategy of working with the management of the companies it invests in – who also have a vested interest in a successful sell off and positive returns – has enabled the VCT manager to achieve on average a high tax-free yield combined with good capital gains on the previous Matrix VCTs.
It hasnt seen the massive volatility of some technology orientated VCTs, says Both. Investors like a 40 per income tax break, but they are even more interested in a return of their hard-earned initial capital, which they will consider is the amount written on their subscription cheque.
Looking more closely at the VCTs investment strategy Both notes that as the third in the Matrix VCt series, it can co-invest with issues one and two, facilitating later stage, larger investments as well as adding exit liquidity to earlier issues.
Discussing the possible downsides of the VCT Both says: Past success and a marketing machine which would be the envy of most, has allowed Matrix the luxury of setting the minimum investment at 5,000 which is somewhat higher than most new issues, especially sequels. This will make it harder for many smaller investors to diversify their VCT portfolio as much as they may have liked which, given that risk should always be uppermost in their mind, is not very helpful.
Both regards the performance incentive structure at 20 per cent of the dividend above about 6 per cent as notterribly demanding. But unlike some rivals it appears likely to remain fairly realistic and looks less open to outright banditry compared to some I have examined, he says. He also notes the acquisition cost of a VCT is higher than for a conventional investment trust, but not out of line with the market.
According to Both, Close Aim IHT, Baronsmead VCT3 and the less well known Neptune Calculus Income & Growth C share issue are worthy competitors. Neptune Calculus is probably nearest in spirit with Close particularly attractive for investors with over 50,000 who subsequently want IHT reduction, he says.
In conclusion Both says: By launching early and aggressively Matrix is trying to reach the 20m capacity well before the April 2006 deadline. Investors wanting their tax refunds quickly should not wait until the last minute, especially since this one could be one of the few to sell out.
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Average