Mark Dampier: VCT that's not just a risky shot in the dark

The Analyst

Venture Capital Trusts (VCTs) have been around for more than 15 years, to encourage investment in small and medium-sized private businesses in the UK. They are higher risk and aimed at sophisticated investors, but to compensate for that various tax breaks are on offer, though these should be seen as the icing on the cake rather than the reason for investing.

Many VCTs have come and gone and some have evolved to invest in alternative asset classes, such as renewable energy. Northern Venture Management (NVM), however, has stayed true to the original spirit of VCTs. It was one of the first VCTs ever launched, back in 1995. This was followed by Northern 2 in 1999 and Northern 3 in 2001. All three invest in unquoted companies across the UK and are managed using the same approach by a team headed by the highly experienced Tim Levett, who set up NVM with Alistair Conn in 1988.

NVM was early out of the blocks this year in seeking investment to top up these three well-established VCTs. Fundraisings began in August and NVM has already reached its quota. However, Northern 2 and Northern 3 still have capacity available. The advantage of investing in existing VCTs via top-ups is that you are investing in an established portfolio with the prospect of early dividends, rather than a new VCT taking years to get fully invested.

These are "generalist" VCTs who invest in any type of company rather than a specific sector. They are also "evergreen", with no fixed life, unlike some VCTs which have a limited life and aim to wind up after five to six years.

The NVM team is based across the country and sources deals by directly contacting companies and through a wide range of contacts and industry events. They see 200 new investment ideas every year and are encouraged by the quality of the opportunities they are currently finding. Initially they are looking for companies that stand out in their industry, with a market-leading product or service, or a top management team. NVM takes a reasonably conservative approach, looking to invest in established, profitable companies with potential to grow market share or expand overseas. They use their experience to help the business and take a hands-on approach, generally appointing a chairman to the investee company and taking a seat on the board.

NVM tends to back management buyouts and they prefer management to invest alongside the VCT so interests are aligned. Capital is also provided to companies looking to expand and a small amount is in development and acquisition capital, where the team backs less mature, but still profitable, businesses with growth potential.

Investments range from £3m to £10m and all three VCTs tend to co-invest together. Each has around 40 existing investments and there is considerable overlap with around 90 per cent of holdings common to each. While Northern Venture Management has the longer track record, Northern 2 and Northern 3 are similar portfolios and managed in the same way. Both Northern 2 and Northern 3 aim to pay a dividend of 5.5p per share. The NVM approach is unlikely to lead to huge special dividends from achieving ten times their money when selling companies, but it should lead to a steady stream of dividends and hopefully a lower failure rate.

Any dividends paid are free of tax and this makes VCTs ideal for improving retirement income. Indeed, investors in new VCTs and top-ups such as this receive a tax rebate of up to 30 per cent of their initial investment (provided the shares are held for five years) and there is no capital gains tax to pay on disposal.

NVM's experienced team and robust approach focused on steady dividends has helped them become one of the top-performing VCT managers, so this top-up could be an ideal stepping stone for investors considering their first VCT investment.

Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial advisor and stockbroker. For more details about the funds included in this column, visit hl.co.uk/independent

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

PROMOTED VIDEO
News
Buddy DeFranco
people
Arts and Entertainment
British actor Idris Elba is also a DJ and rapper who played Ibiza last summer
filmIdris Elba responds to James Bond rumours on Twitter
Arts and Entertainment
Lena Headey as Cersei Lannister in Game of Thrones
film
News
i100
Sport
Yaya Sanogo, Mats Hummels, Troy Deeney and Adnan Januzaj
footballMost Premier League sides are after a striker, but here's a full run down of the ins and outs that could happen over the next month
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

    Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

    Selby Jennings: Quantitative Research | Equity | New York

    Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

    Selby Jennings: SVP Model Validation

    Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

    Selby Jennings: Oil Operations

    Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

    Day In a Page

    War with Isis: The West needs more than a White Knight

    The West needs more than a White Knight

    Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
    Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

    'The day I was shot by the Taliban'

    Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
    Revealed: the best and worst airlines for delays

    Revealed: the best and worst airlines for delays

    Many flyers are failing to claim compensation to which they are entitled, a new survey has found
    The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

    The stories that defined 2014

    From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
    Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

    Disaster looming? Now you know where to head...

    Which British city has become the first to be awarded special 'resilience' status by the UN?
    Finally, a diet that works: Californian pastor's wildly popular Daniel Plan has seen his congregation greatly reduced

    Finally, a diet that works

    Californian pastor's wildly popular Daniel Plan has seen his congregation greatly reduced
    Say it with... lyrics: The power of song was never greater, according to our internet searches

    Say it with... lyrics

    The power of song was never greater, according to our internet searches
    Professor Danielle George: On a mission to bring back the art of 'thinkering'

    The joys of 'thinkering'

    Professor Danielle George on why we have to nurture tomorrow's scientists today
    Monique Roffey: The author on father figures, the nation's narcissism and New Year reflections

    Monique Roffey interview

    The author on father figures, the nation's narcissism and New Year reflections
    Introducing my anti-heroes of 2014

    Introducing my anti-heroes of 2014

    Their outrageousness and originality makes the world a bit more interesting, says Ellen E Jones
    DJ Taylor: Good taste? It's all a matter of timing...

    Good taste? It's all a matter of timing...

    It has been hard to form generally accepted cultural standards since the middle of the 19th century – and the disintegration is only going to accelerate, says DJ Taylor
    Olivia Jacobs & Ben Caplan: 'Ben thought the play was called 'Christian Love'. It was 'Christie in Love' - about a necrophiliac serial killer'

    How we met

    Olivia Jacobs and Ben Caplan
    Bill Granger recipes: Our chef's breakfasts will revitalise you in time for the New Year

    Bill Granger's healthy breakfasts

    Our chef's healthy recipes are perfect if you've overindulged during the festive season
    Transfer guide: From Arsenal to West Ham - what does your club need in the January transfer window?

    Who does your club need in the transfer window?

    Most Premier League sides are after a striker, but here's a full run down of the ins and outs that could happen over the next month
    The Last Word: From aliens at FA to yak’s milk in the Tour, here’s to 2015

    Michael Calvin's Last Word

    From aliens at FA to yak’s milk in the Tour, here’s to 2015