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VCT Edge – Ben Yearsley

You might have read in the financial press in the last couple of months the spat going on between Aberdeen and Close Venture Managers over the management of the Murray Johnstone family of VCTs.

It has been quite an extraordinary and entertaining argument and shows no sign of ending at the present time. Just to recap, Aberdeen bought Murray Johnstone in 2000 and inherited the four Murray VCTs. Aberdeen also manage the Aberdeen growth VCT, Aberdeen growth opportunities 1 and the newly launched Aberdeen growth opportunities 2 VCT.

Close Venture Management has five generalist VCTs under the management of Patrick Reeve and his team of five. The team has a good track record in asset-backed investments and it has generally delivered shareholder value, especially from its early VCTs. The boards of the four Murray Johnstone VCTs recently terminated the management contract with Aberdeen and stated they wanted to move to CVM, citing poor performance. This is a fact that no one denies – not even Aberdeen.

My view on the Murray Johnstone team has been well documented. Indeed, when Aberdeen bought Murray Johnstone in 2000, I said it had wasted its money. I do like to keep an open mind on these matters and when Aberdeen invited me to meet Bill Nixon who was put in charge of the VCT department in late 2001, I was pleasantly surprised at how impressive he was (and continues to be).

I changed my recommendation and suggested to my clients that they should consider investing in Aberdeen growth opportunities 1. I do seem to rec-all that I was almost a lone voice on this due to the majority of IFAs confusing Bill with the poor performance of Murray Johnstone.

The question of why the Murray boards have sacked Aberdeen and are moving the management to CVM intrigues me. How do they expect CVM to turn around a fully invested portfolio of unquoted companies, even though they have had a good track record in the past of managing VCTs?

Turning around an unqu-oted portfolio is similar to doing an emergency stop in a super-tanker. The decision of the boards strikes me as illogical, especially when Aberdeen, that is, Bill Nixon has already been proactive in attempting to turn the performance around. They have cut their management fee and they have invested as much spare cash as possible into new investments.

I am left scratching my head wondering how moving the management contract to Close is in the shareholders’ best interests. I do wonder why it has taken 10 years (in the case of Murray 1) for the board to fin-ally find its teeth.

There are other factors to consider as well such as the fact that other Aberdeen funds are co-investors alongside the Murray VCTs in many of the underlying inv-estments. Aberdeen still has the biggest say in how these companies are managed and will have more influence whether they make or lose money for investors. The question that needs asking is, will the shareholders of the Murray VCTs have more chance of making money with CVM rather than Aberdeen? I know what my answer is.

Bill Nixon is a very effective venture capitalist and the boards of the Murray Johnstone VCTs are making a mistake moving the management contract. I think managing these four VCTs will be time-consuming for CVM and will divert attention away from the 30m-40m VCT it has launched.

I do not think CVM has acted badly throughout this, it has just been presented with an opportunity to acquire another 100m funds under management. Nor do I think Aberdeen has acted badly throughout this. It has been proactive and has tried to make moves to turn the performance around – bad performance it inherited.

I think the boards of the four Murray VCTs have created this mess, supposedly in the name of shareholder interest. Perversely, they have probably made things worse. I for one will stand by Aberdeen and will continue to recommend them now and in the future.

I have personally inves-ted in both Aberdeen growth opportunities and the new Aberdeen growth opportunities I view Bill Nixon and the team as one of the best venture capital teams in the country. The performance of Aberdeen growth 1 is picking up nicely and, after looking at the portfolio recently, I am more than happy with my investment.



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