Ahead of UK Election: VCT Manager Poll 2015

STRONG INVESTMENT OPPORTUNITIES AS VCTS CONTINUE TO FILL FUNDING GAP

In a better economic environment, how are those small companies at the coal face of Britain's economy fairing? The Association of Investment Companies (AIC) has published its latest survey of VCT fund managers, having received responses from 70% of the VCT sector by assets. 

The good news for VCT investors is that a strong year for capital is being reported, with managers overwhelmingly finding a good flow of investment opportunities and some companies enhancing their investment teams accordingly. Mobeus Equity Partners, Beringea, Foresight Group, YFM Private Equity, Maven Capital Partners and Puma Investments were particularly bullish in this regard (see comments on page 3). 

When it comes to SMEs securing bank debt, the picture was more mixed.  Some 50% of VCT managers say their investee companies are finding it easier to secure bank debt than five years ago; but 33% say it is worse and 17% say it is the same.  This suggests VCTs continue to fill an important funding gap (see page 2 for comments).

Exports are seen as particularly important (and 73% expect exports to be up this year), both as a means of generating sales and diversifying economic risk (see page 4 for more details).

General Election

More cautious optimism, in the context of the upcoming UK General Election, came from Dr Paul Jourdan, CEO of Amati Global Investors: "May's general election injects uncertainty into the investment outlook for 2015. However, the kinds of small companies we look to hold in the Amati VCTs are mostly focused on specific growth niches, which can prove resilient in the absence of a major setback." 

David Hall, Managing Director, YFM Private Equity, believes in the run up to the upcoming election: "Strong demand for investment finance has continued in 2015 from the previous year. SME confidence has remained high reflecting overall UK performance; we have seen no tailing off pre-election." 

Mark Wignall, Managing Partner, Mobeus Equity Partners, said: "Although UK business face economic, political and market risks, nevertheless business confidence is strong and it is this factor that drives smaller company investment and merger and acquisition activity."

Bank debt - where are we now?

Tim Levett, Chairman of NVM Private Equity, said: "A combination of tighter bank regulation and long lines of communication have resulted in a lack of appetite to support SMEs, and when they do the decision-making timetable is too long, un-commercial and unhelpful." In contrast, David Hughes, Chief Investment Officer at Foresight Group said: "We're pleased to see that appetite from the banks has generally been improving, although companies still need to be able to demonstrate a good track record, and decent asset backing."

Mark Wignall, Managing Partner, Mobeus Equity Partners, added: "The continuing perception amongst a large section of UK smaller business is that bank finance is not available, or that it is difficult to deliver or that it is undesirable. Many smaller companies are turning to VCTs instead as supportive and responsive business partners.  The larger VCT houses are very well positioned to invest sums into companies of around £5 million. There is demand for this amount of finance for the two reasons above and this is an amount that is too large for the many "equity gap" investors and too small for the mainstream UK private equity mid-market."

Eliot Kaye, Investment Director at Puma Investments said: "The entrepreneurial spirit of VCT managers will mean that, even if bank lending does return to pre-crisis levels, we will always maintain a competitive edge when financing SMEs. The funding we provide is quick and designed to meet the individual needs of each company while the business guidance VCT Managers give can be invaluable. The Puma VCTs have invested over £60 million over the past year and we see no slow-down in demand."

Where are the opportunities?

Some 67% of managers are currently finding lots of opportunities, whilst 33% say there are some opportunities.  Some 58% of VCT managers say investment opportunities are at similar levels to last year, 33% say opportunities are up on last year, and 8% say opportunities are down on last year.    

London and the South East are equally the most favoured regions, closely followed by the Midlands & East Anglia, then by the North West.  Technology/IT is the most favoured sector, followed by Business Services and Leisure/Hospitality. 

Strong year ahead for capital

Mark Wignall, Managing Partner, Mobeus Equity Partners, said: "The Mobeus VCTs have been investing in excess of £30 million for each of the past two years. Current deals in progress suggest that the 2015 figure will be higher." 

Bill Nixon, Managing Partner of Maven Capital Partners, manager of the Maven VCTs: "In terms of outlook, generalist VCT managers will continue to provide SMEs with a valuable source of capital. The leading managers have access to a steady flow of high quality transactions and the ability to attract regular investor funds. We've just successfully closed another top-up fundraising, having raised around £40m in the past 15 months from investors keen to access the strong tax-free returns from VCTs, and have invested in 17 profitable UK companies across a range of sectors in the past 2 years.  Our deal flow remains at healthy levels across the UK, with a number of attractive transactions in progress with our regional investment teams."

Entrepreneurial Britain

Stuart Veale, Managing Partner of Beringea, manager of the Proven VCTs, comments: "The UK has a very vibrant small private company sector, in which entrepreneurial companies delivering superior products and services are achieving exceptional rates of growth.  Many of these companies will need equity finance to fulfil their potential and there should therefore continue to be a strong flow of investment opportunities for VCTs."

Echoing this, David Hughes, Chief Investment Officer at Foresight Group, comments: "We are seeing an increasing number of dynamic young entrepreneurs seeking investment to develop disruptive business models alongside more established growth businesses.  We're pleased to see animal spirits seem to have returned and we are seeing a 20% uplift in the number of potential deals."

Grant Paul-Florence, Fund Manager of the Octopus Apollo VCT, reports that: "Market conditions appear to be broadly similar to last year and we continue to see a significant investment opportunity where banks and private equity firms are not supporting high quality smaller businesses.  The size of our fund gives us the ability to support our investment companies with multiple funding rounds as they grow and our portfolio is performing well, with many of our companies continuing to create new jobs. We have grown the size of our investment team over recent months as we expect to increase deal flow in 2015."

David Hall, Managing Director, YFM Private Equity, said: "Small unquoted companies have weathered the storms of the 2008-14 period and are generating jobs; growth and wealth which has been reflected widely across the VCT investment community. The outlook for these companies looks strong provided that the political and economic backcloth remains as supportive over the coming year."

Commenting on how far the VCT sector has come, Patrick Reeve, Managing Partner, Albion Ventures, said: "VCTs are now an accepted and mature asset class, albeit focused on investing in growth and change - this is reflected in their out-performance against other asset classes over the past year."

Importance of exports

North America is the biggest source of exports, followed by Europe and Asia Pacific ex Japan.  Illustrating the importance of exports, David Hughes, Chief Investment Officer at Foresight Group pointed out that "in recent years we have seen the strongest performance from companies in our portfolio which export worldwide."  David Hall, Managing Director, YFM Private Equity adds: "Despite a relatively strong pound we are actively encouraging export where we can as it diversifies economic risk."

Happy 20^th Birthday VCTs!

It's twenty years this April since VCTs were first launched. It now feels like a mature sector, very much in its stride. 

This was brought home in a very entertaining way at our recent joint AIC/Raymond James VCT adviser seminar.  Enter Alan Wallace, Octopus Investments' energetic Senior Investment Director, who described their investor meetings with potential investee companies as "Dragons' Den on speed!"  It's not difficult to see why, with a portfolio which includes Secret Escapes (no longer such a secret), Zoopla, and snack-box producer Graze, whose products regularly keep the healthy eaters amongst our office ticking over.

And it's not just the speakers who impressed us: speaking of speed, one adviser flew in all the way from Hanover to London to see Alan Wallace and Unicorn AIM VCT's Chris Hutchinson in action, and even managed to send us a thank you email the next morning.  We very much like his style.

It's been busy on the VCT front, as we have just finished filming a video which aims to bring VCT investment to life. The video features three VCT managers and three very different investee companies, which brings home the very tangible impact VCTs can have on the businesses they invest in. The now very well-known and successful Secret Escapes, backed by Titan VCT from Octopus, features alongside the fertility clinic CREATE Fertility, where a £5m investment from Livingbridge has facilitated the opening of a flagship clinic in central London.  Plus, the good old fashioned British pub doesn't get forgotten, with an investment by Puma VCT allowing Brewhouse & Kitchen to increase the number of pubs. Watch this space for the video, as well as our soon-to-be published VCT guide, 'Going for Growth'.

Our just-published VCT manager survey has also hammered home the dynamism of the VCT sector - if you think VCT managers are resting on their laurels, think again.  Managers are overwhelmingly finding a good flow of investment opportunities, and some are expanding their teams further. Speaking like a true 'dragon' on the sector, David Hughes, Chief Investment Officer at Foresight Group, commented that: "we're pleased to see animal spirits seem to have returned and we are seeing a 20% uplift in the number of potential deals." 

It is this dynamism of British entrepreneurs which really came home in the survey, with Beringea's Stuart Veale commenting on the UK's "very vibrant small private company sector", with "entrepreneurial companies delivering superior products and services." So, it's no surprise to see technology and telecoms the most favoured sector, followed by business services and leisure and hospitality.  Patrick Reeve, Managing Partner at Albion Ventures, comments that VCTs "are now an accepted and mature asset class" focused on "investing in growth and change." 

So, with all of that in mind, happy 20th birthday VCTs!  And if you're wondering which VCTs have been around longest, it's Baronsmead VCT and Northern Venture Trust.  £1,000 at the launch of each trust would have grown to £3,549 and £4,031 respectively in share price total return terms*. Their investors certainly have something to celebrate!

Bringing VCT Investment to life: AIC launches new video and VCT guide

• AIC video - Bringing VCT investment to life
• AIC VCT guide - Going for Growth

The Association of Investment Companies (AIC) today launches a video, 'Bringing VCT investment to life', and a new VCT guide, 'Going for Growth'.  Both of these take a closer look at some of the exciting businesses that VCTs have helped to flourish.

The video brings home the impact of VCT investment on three exciting and diverse companies.

The companies featured include:

• The not so secret holiday company, Secret Escapes backed by Titan VCT, Octopus Investments.
• CREATE Fertility, a fertility clinic backed by Livingbridge, where a £5million investment has facilitated the opening of a flagship clinic in central London.
• Brewhouse & Kitchen, a pub business, backed by Puma VCT, which is bringing the microbrewery direct to the customer.

The VCT Guide, 'Going for Growth' explains the benefits and risks of investing in VCTs.  The guide covers the types of businesses VCTs invest in, the tax benefits, how you buy VCT shares, the risks, as well as key things to consider and remember. The guide also features three fast growing companies which have benefitted from VCT investment and support. 

The companies featured include:

• DXS, backed by NVM Private Equity, a personalised medicine company that develops diagnostic tests to identify which patients would respond well to particular cancer drugs.
• Procam TV, backed by Foresight Group, which supplies cameras, technical equipment and crew to broadcasters and production houses. It has been involved in The Great British Bake Off, Made in Chelsea and Derren Brown.
• The Gro Company, backed by Mobeus Equity Partners, specialises in baby sleep products and is the number one brand in the UK, Australia and Canada. It has just launched the Gro-hush, a unique portable white noise baby calmer.

Annabel Brodie-Smith, Communications Director, Association of Investment Companies (AIC) said: "VCTs provide finance and advice to some of the most dynamic small businesses in the UK.  The video and guide offer an introduction to VCTs and they showcase some of the exciting stories which bring VCT investment to life.

"VCTs invest in companies which start small, and are high risk, but they can become household names in the future, helping to create jobs and economic growth. Over the past twenty years VCTs have supported thousands of SMEs, the backbone of the UK economy."

• AIC video - Bringing VCT investment to life
• AIC VCT guide, Going for Growth

Albion Ventures sells mental health hospital in Taunton

Albion's total investment in Orchard Portman totalled £8.4m

Albion Ventures LLP ("Albion"), one of the largest independent venture capital investors in the UK, today announces that it has sold Orchard Portman House Hospital ("Orchard Portman"), a mental health hospital near Taunton to Cygnet Health Care.

In 2010 Albion invested £6.5m in Orchard Portman to acquire a nursing home and constructed a 23 bed psychiatric care hospital as an extension to the existing building. The sale of Orchard Portman will result in the creation of one single psychiatric care hospital with a total of 46 beds, renamed Cygnet Hospital Taunton.

Orchard Portman has addressed a current shortage of dedicated psychiatric care units in the South West of England and under Albion's guidance, the hospital has experienced extremely high occupancy rates.

Orchard Portman cares for elderly patients suffering from a mental illness or personality disorder as well as those affected by a physical health problem requiring general nursing input. These patients are highly dependent, requiring the stabilisation of mental illness and the management of aggression and challenging behaviours to the point where they can move on to a nursing home or the community.

£18m Maven VCT Offers fully subscribed and close early

Maven Capital Partners (Maven) is pleased to announce that its £18m VCT Offers are fully subscribed, just three months since launch and around three months ahead of the scheduled closing date.

Maven's is the first generalist VCT offering to close for this VCT season.

This year's Offers, by five Maven Income and Growth VCTs, generated significant demand from investors who were able to access mature portfolios of profitable and high-growth private companies, each with an established history of attractive tax-free dividends.

Bill Nixon, Managing Partner at Maven, said "We are very pleased to be the first manager to see its VCT offers fully subscribed this year, symptomatic of continuing strong investor appetite for later-stage focussed VCTs. Almost 1000 investors have subscribed to the Maven offers since they were launched in late October. We are also very encouraged by the continuing support for VCTs, which have become established as a mainstream investment product as most successful generalist managers have, like Maven, established a track record of steady growth in NAV, in tandem with attractive tax free yields.  In an environment of continuing low interest rates for savers, and reduced scope for pension contributions, VCTs continue to offer investors exposure to something interesting and different, as part of their overall portfolio.