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Twins for Octopus

Octopus Asset Management is looking to raise up to 60m for its twin structure venture capital trusts, Eclipse 3 and 4 VCT.

The twin structure, whereby two VCTs are established as clones of each other, was designed to allow investments of up to 2m to be made in companies within the portfolio twice the amount that single structure VCTs are allowed to invest.

Investors capital will be split equally between the two VCTs, allowing them to benefit from investments in larger, more developed companies which Octopus believes will also lower the risk profile. It also believes these companies will be sold earlier than less developed investments in a typical single structure VCT, providing an income stream much sooner.

Unlike some generalist VCTs, this will not invest in start up or seed stage companies as the directors feel the risks are too high and the expected time to exit is too long. Instead, they believe the ideal time to invest is when companies have proven their business models and are looking for capital to expand. This is the process it uses in its Eclipse and Eclipse 2 VCTs.

The new VCTs will hold 20 per cent in cash and 80 per cent will go into unquoted companies with good growth prospects, strong management and which have demonstrated a sustainable competitive advantage over rival firms in the same sector. The portfolio will contain between 20 and 30 qualifying holdings. When selecting companies the investment team will spend time with the management, customers and suppliers. They will also ask other professionals in the industry to provide independent comment and assessment.

Octopus, which raised 47m for its two existing Eclipse VCTs in the last tax year has a head start on its competitors in the VCT market. Many VCT providers will be particularly keen to promote their offerings as this is the final year of the temporary enhancement to VCT income tax relief. Although the increased income tax relief, up to 40 per cent from 20 per cent, helped the VCT market last year, as a whole the money raised still fell short of its target.
If these VCTs fail to raise their combined target amount, this may have a negative impact on the diversity that a fully invested dual structure can provide.

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