Come in, the profit's lovely

A new post-venture capital fund promises less risk for investors taking the plunge

Spotting investment potential ahead of the rest of the market is the best way to make significant returns. Investors who buy cheap shares in companies which go on to do well, can make a tidy profit.

Spotting investment potential ahead of the rest of the market is the best way to make significant returns. Investors who buy cheap shares in companies which go on to do well, can make a tidy profit.

But spotting that potential is the difficult part. And once you've bought your shares, you need to monitor them carefully if you are going to get the best return.

A unique new fund which focuses on companies which have received venture capital aims to take care of these problems. Launching tomorrow, the Post-Venture Capital fund from Credit Suisse Asset Management is an aggressive, high-growth fund. Fund manager Beth Dater, who will manage the US side of the portfolio, says that her aim is to spot the potential in any investment opportunity.

"Post-venture capital stocks are poised for enormous growth, yet still trade at a discount to their growth rates," she says. "The rewards for spotting the potential before anyone else are huge."

The fund, which is available as a maxi or mini individual savings account (ISA), focuses on companies across the world which have received financing from professional venture capitalists in the past 10 years (see below).

Although you would think that the fund is fairly risky because it invests in companies which have just shown potential, rather than actually achieved it, independent financial advisers (IFAs) reckon it will be suitable for many investors.

"It is taking the volatility out of investing in venture capital," says Kay Lowe at IFA Equal Partners. "Three years ago investors were looking for income, two years ago Europe was popular, and last year it was technology. This gives those investors who are prepared to take on more risk another option."

She is also impressed by the fact that only a third of the fund is invested in technology stocks.

"Those who invested heavily in that sector last year, don't want too much exposure to technology stocks," she adds. "The good thing about this fund is that it gives investors a better spread." Mark Dampier, research director at IFA Hargreaves Lansdown, agrees. "It is fairly well-diversified across the board," he says. "I think it may well develop into a flagship fund for Credit Suisse."

This is the first fund of its kind to invest in post-venture capital stocks, which is surprising as they have many advantages. Such companies are financed by a secure source - the venture capitalist - who will have a track record in selecting viable business models. The venture capitalist will refuse to back a non-runner.

Another advantage is that the financing of the company has already been sorted, leaving management free to develop the business.

The continued involvement of the venture capitalist can also prove invaluable because they can use their experience to provide legal aid, professional contacts and help with management decisions.

As the company's management plays the most significant role in its success, it usually has a strong incentive via personal shareholdings. This means it pays for them to make the company succeed, and that is good news for investors.

The companies themselves also tend to be in more dynamic sectors, such as technology, healthcare, financial services and telecoms - with good growth prospects. These companies should be at the cutting-edge of global developments.

The advantage of investing in this fund, rather than a venture capital trust, is that you get limited exposure to each company: no more than 2 per cent of the fund will be invested in any one company, while the fund will hold between 100 and 130 stocks. Such diversification should help to lower the risk. Although it is a new fund, without a track record in the UK, Credit Suisse does have a US version, the Warburg Pincus Global Post-Venture Capital Fund, which has been running successfully since 1996.

This has produced returns of 93.87 per cent over one year, and 241.9 per cent over three years, compared with 18.43 per cent and 67.54 per cent respectively on the MSCI All-Country World Growth Index.

The fund invests in well-known companies such as Cisco Systems, described by Ms Dater as the "ultimate post-venture company", and Yahoo! The same fund management team will head the UK fund. The initial charge is discounted to 3.25 per cent from 5.25 per cent until 3 November.

The annual management fee is 1.5 per cent, and regular savings of £100 a month in the ISA or a lump sum minimum of £1,000 are available.

Comments