Review: Downing FOUR VCT – Generalist
Downing FOUR VCT has both a Generalist and Healthcare share class. The Generalist share class is looking to raise up to £20.3 million (with an over-allotment facility of a further £20.3 million). This is a joint offer, with the Healthcare share class also allowing new subscriptions.
The Generalist share class aims to invest in early-stage businesses across a range of sectors.
- Co-invests with other Downing funds
- Target dividend of 4% of NAV from summer 2020 – (not guaranteed)
- Monthly investment option – min £500 per month
- Share buyback option at 0% discount to NAV (subject to liquidity and regulations)
- Minimum investment £5,000, which can be split between the two share classes
Watch a video interview with Richard Lewis, investment director at Downing LLP.
Downing’s history goes back to 1986. In 1997 it launched its first VCT. It now manages over £1 billion of funds across its products – £240 million of which is in VCTs (30 June 2018).
Downing FOUR VCT was created in 2015 by merging four other VCTs managed or advised by Downing. Previous share classes in the VCT were ‘planned exit’ offers, aiming to exit investments and return funds to shareholders. In contrast, the two new Generalist and Healthcare share classes are ‘evergreen’ in nature, aiming to provide longer-term returns to shareholders.
Downing will look to invest in a range of companies at different stages in the business lifecycle. Most of the companies it targets should already be generating revenues, however, some may still be pre-profit.
Downing is confident in its experience of investing in early-stage companies. It expects deal flow to be strong, with a number of opportunities arising from its Ventures EIS portfolio.
The Generalist share class held a portfolio of 21 companies as at 19 October 2018, valued at £11 million.
Funds awaiting investment may be deployed in the Downing Monthly Income Fund, the Downing UK Micro-Cap Growth fund, the Downing Strategic Micro-Cap Investment Trust and the Downing Diversified Global Managers Fund.
The portfolio sector breakdown for the qualifying investments is shown below. Please note: qualifying investments currently represent 39% of the whole portfolio. 45% is invested across the four liquidity funds mentioned above and 16% is in cash. As at 19 October 2018.
Portfolio company examples
Maverick Pubs (unquoted)
One example holding is Maverick Pubs (Holdings) Limited, a newly established company seeking to build an estate of high‐quality freehold pubs in and around London. The company is headed by industry veteran David Bruce, chairman of West Berkshire Brewery. Mr Bruce is a successful brewing entrepreneur who founded the City Pub Group and Firkin Pub chains. In January 2018, Downing‐managed funds invested a total of £5 million to support the acquisition of a number of pubs. The freeholds of The Old Suffolk Punch in Fulham, West London, and The Oxford in Kentish Town, North London, have already been purchased. The Generalist share class invested £1 million and as at 1 November 2018 represents 3.5% of the portfolio.
Destiny Pharma (AIM listed)
One of its current investments is Destiny Pharma plc, an innovative biotech company developing treatments for antibiotic-resistant bacteria (superbugs). In September 2017, Destiny Pharma floated on AIM. The VCT’s investment of £500,000 will primarily be used to progress the development of Destiny Pharma's 'XF‐73' drug, which has shown a capability for killing bacteria rapidly and before it can develop any resistance.
Target return and dividends
No dividends have been paid to date: this is a new share class launched in 2017.
The share class targets a dividend of 4% of NAV from summer 2020. This is not guaranteed.
Historical Net Asset Values of the two current Downing FOUR share classes since launch are shown below.
Source: Downing. NAV asset value to 31 March 2018. These Share Classes were first issued in 2017 so previous past performance is not available. There are no dividends yet. Past performance is not a guide to the future.
This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice.
VCTs are high-risk so should only form part of a balanced portfolio and you should not invest money you cannot afford to lose. They also tend to be illiquid and hard to sell and value. Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks.
Tax rules can change and benefits depend on circumstances.
VCTs can now only invest new money in growth capital deals. Management buyouts / replacement capital deals and investments in mature companies are no longer permitted. This results in considerably higher risks.
This is a relatively new VCT share class. If fundraising is slow, shares may take some time to be allotted and there may be limited diversification.
Fees and charges
A summary of the fees and charges is shown below. The net initial charge shown includes the Wealth Club discount and early bird saving.
|Full initial charge||5%|
|Wealth Club initial saving||2%|
|Early bird saving||1% until 28 Dec 2018|
|Net initial charge through Wealth Club||2%|
|Annual management charge||2%|
More detail on the charges
There is an unusual buyback policy which investors may find appealing, although it is not guaranteed. The board of Downing FOUR VCT intends to buy back shares in the company at a nil discount to NAV, subject to liquidity and regulations. In comparison, other VCTs typically offer to buy back shares at a discount of between 5-10%.
Dividend reinvestment policy
There are currently no plans to offer a dividend reinvestment scheme, however, the Directors will review this policy from time to time and consider introducing such a scheme if appropriate.
There is an early bird discount of 1%, gradually decreasing to 0.1%. Unless the offer is fully subscribed before these dates, the following deadlines apply:
- Deadline for 1% early bird discount: 28 December 2018
- Deadline for shares allotted in the 2018/19 tax year: 5 April 2019 (3 pm)
- Deadline for shares allotted in the 2019/20 tax year: 30 June 2019 (3 pm)
Wealth Club aims to highlight investments we believe have merit, but you should form your own view. You should decide based on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.
Downing FOUR VCT – Generalist
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