Review - Albion VCTs
This offer gives investors the chance to invest in up to six of Albion’s existing VCTs: Albion Development (NOW FULL), Albion Enterprise, Albion Technology & General, Albion VCT, Crown Place and finally Kings Arms Yard. Each VCT is looking to raise £4 million (with the option of raising an additional £2 million) and the minimum overall investment is £6,000. Each VCT has a minimum of £1,000, and investors are free to choose into which they invest, subject to the overall £6,000 minimum. When investing across all six, investors will have exposure to over 65 unquoted companies.
- Strong emphasis on asset-backed companies
- Monthly tax-free dividends available
- Average dividend expected of 5.7% (variable not guaranteed)
- Investors can invest across six of Albion’s existing VCTs
- Experienced and long-term VCT manager
Albion Ventures is a well-established VCT manager with roots going to back to one of the very first VCTs launched in 1996. In total it manages over £300 million in VCTs. Patrick Reeve has headed the team since the launch back in 1996 - then called Close Brothers. Mr Reeve led the buy out of the Ventures team from Close Brothers in 2009 to Albion. Today the investment team is 13 strong and has invested just over £25 million in companies in 2016. The Albion team has approximately £3 million of their own money invested across their range of VCTs.
Target return and strategy
Dividend targets range from 4.7% to 6.9% based on the current net asset value with the average being 5.7%. If you are investing in specific VCTs rather than the whole range, please check the prospectus for further details.
As well as a high level of income, asset backing is a strong feature of these VCTs – indeed 54% of the total assets are invested in companies with significant asset backing – this helps underpin valuations. As an aside, Albion VCT only invests in companies with asset backing, whereas the other five have more mixed portfolios. Overall the VCTs currently have 14% in cash (and near cash) and the balance is invested in higher-growth opportunities.
Asset-backed investments are predominately found in healthcare, education and renewable energy with 20% of the overall existing portfolios in renewable energy – the largest sector. Education accounts for 10% of the overall pot, and is typically private schools. Other asset-backed investments include pubs and hotels. These figures are the average across all six VCTs, and each VCT will have a different mix.
The higher-growth opportunities are often found in healthcare and IT. As a rule Albion won’t invest in companies that have any external borrowings.
One of the benefits of investing in a top-up offer of a longstanding VCT is you may get exposure to areas that are no longer permissible for new investments, thus helping add diversification.
A further benefit is that the percentage held in loans to the underlying companies, rather than equity is typically higher as the older VCT rules allowed more debt. This can help reduce risk and fund the annual dividend. According to Albion, 52% of the portfolios are loans.
New investments over the last year include Incrowd, a developer of mobile apps for professional sports clubs that seeks to solve the issue of poor connectivity in crowded places; Panaseer, a cyber security business; and Oviva, a digital health business providing nutritional counselling.
Clearly, exits are a feature of all VCTs, however Albion does tend to try and hold investments for longer than average in order to deliver higher returns to investors. The VCTs had £18 million worth of exits in 2016.
The risks and investment objectives are different with each VCT, but with over half the combined portfolios invested in asset-backed deals, investors are highly exposed to commercial property.
Please remember capital is at risk. VCTs are high risk investments and are not suitable for everyone. Investors should not invest money they are not prepared to lose.
The initial charge for these offers is 3%. Investors subscribing for the first £7.5 million (by 31/1/17) will receive an additional discount of 1% for existing investors and 0.5% for new Albion investors. The annual management fee varies between 1.75% and 2.5%, depending on the VCT. The annual charges are capped at 2.75% to 3%, depending on the VCT. Albion is also entitled to a performance fee and administration and secretarial fees on all six VCTs. Performance fees differ ranging from base rate plus 2% as a hurdle; an RPI linked hurdle; and a dividend distribution-linked one. Please read the prospectus to fully understand the fee structure of each VCT. Some of the performance fee arrangements seem overly generous towards the manager as they are linked to a small outperformance of the office base rate. The manager may also receive deal completion and monitoring fees.
Albion’s VCTs have differing agendas and performance record ranging from excellent to average. Interestingly the highest-risk VCT, Technology and General, has been one of the worst performers. Arguably this isn’t Albion’s areas of specialism and it is more suited to asset-backed deals. Nonetheless, the Albion team has solid long-term credentials and is experienced in VCT management. The offer allows the choice of which of the six VCTs to invest in. It would therefore seem sensible to study the investment criteria and record of each closely prior to investing, rather than simply investing equally in all six.
This review is not intended to be advice or a personal recommendation to buy the investment mentioned, nor is it a research recommendation. Wealth Club aim to highlight investments we believe have merit, but investors should form their own view on any proposed investment.