Mark Dampier: VCT that's not just a risky shot in the dark
Friday 18 October 2013
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
Questions of Cash: What are my rights if my leak is caused by neighbours’ roofs?
Pension mortgages: 'The advice I was given was wrong and now I face losing my home'
Minister's pension promise to firefighters challenged
Mark Dampier: Maybe boom, maybe bust, but we'll probably just muddle along
Bank-beating exchange rates on your international payments
- 1 President of Argentina adopts Jewish godson to 'stop him turning into a werewolf'
- 2 ALS ice bucket challenge co-founder Corey Griffin drowns, aged 27
- 3 Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations
- 4 Sir Winston Churchill’s family begged him not to convert to Islam, letter reveals
- 5 AirAsia flight QZ8501 missing: Search for plane carrying 162 passengers from Indonesia to Singapore suspended overnight
British actor Idris Elba cannot star as James Bond because he is black, says shock jock Rush Limbaugh
Millions of Britons struggling to feed themselves and facing malnourishment
Ukip member gets into Christmas spirit with Union Flag plea to Santa 'for our country back'
Germany anti-Islam protests: 17,000 march on Dresden against 'Islamification of the West'
Nigel Farage: Ukip leader named 'Briton of the year' by The Times
Immigrants make UK racist, says Ukip councillor Trevor Shonk
iJobs Money & Business
Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...
Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...
Not specified: Selby Jennings: SVP Model Validation This top tiered investment...
Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...
Day In a Page
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens