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; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Voices
voices
News
general electionThis quiz matches undecided voters with the best party for them
Arts and Entertainment
Keira Knightley and Matthew Macfadyen starred in the big screen adaptation of Austen's novel in 2005
tvStar says studios are forcing actors to get buff for period roles
News
Prince William and his wife Catherine, Duchess of Cambridge show their newly-born daughter, their second child, to the media outside the Lindo Wing at St Mary's Hospital in central London, on 2 May 2015.
news
Finacial products from our partners
Property search
  • Get to the point
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

    Ashdown Group: Trainee Consultant - Surrey/ South West London

    £22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

    Ashdown Group: Trainee Consultant - Surrey / South West London

    £22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

    Recruitment Genius: Claims Administrator

    £16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

    Recruitment Genius: Senior SEO Executive

    £24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

    Day In a Page

    Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

    Fishing is on Nigel Farage's mind

    Ukip leader casts a line to the disaffected
    Who is bombing whom in the Middle East? It's amazing they don't all hit each other

    Who is bombing whom in the Middle East?

    Robert Fisk untangles the countries and factions
    China's influence on fashion: At the top of the game both creatively and commercially

    China's influence on fashion

    At the top of the game both creatively and commercially
    Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

    The man known as GOD has a reputation for getting the job done

    Lord O'Donnell's three principles of rule
    Rainbow shades: It's all bright on the night

    Rainbow shades

    It's all bright on the night
    'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

    Bread from heaven

    Dutch survivors thank RAF for World War II drop that saved millions
    Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

    How 'the Axe' helped Labour

    UK will be 'run for the wealthy and powerful' if Tories retain power
    Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

    The price to be paid for challenging the rule of extremists

    A revolution now 'consuming its own children'
    Welcome to the world of Megagames

    Welcome to the world of Megagames

    300 players take part in Watch the Skies! board game in London
    'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

    Charlotte Gainsbourg on 'Nymphomaniac'

    Starring in one of the most explicit films ever
    Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

    Robert Fisk in Abu Dhabi

    The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
    Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

    Vince Cable exclusive interview

    Charging fees for employment tribunals was 'a very bad move'
    Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

    Iwan Rheon is returning to his Welsh roots

    Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
    Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

    It's time for my close-up

    Meet the man who films great whites for a living
    Increasing numbers of homeless people in America keep their mobile phones on the streets

    Homeless people keep mobile phones

    A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before