Review: Downing FOUR VCT – Healthcare
The Downing FOUR VCT has both a Generalist and Healthcare share class. The Healthcare share class is looking to raise up to £10.2 million (with an over-allotment facility of a further £20.3 million). This is a joint offer, with the Generalist share class also allowing new subscriptions.
The Healthcare share class aims to invest in early-stage healthcare, biotechnology and life sciences businesses.
- Focus on healthcare and biotechnology – a growing sector, driven by an ageing population and an increase in chronic conditions
- Specialist healthcare investment adviser – BioScience Managers
- 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
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, although this is not guaranteed.
This is the only current VCT offer dedicated to healthcare investments. Examples of investments sought include medical devices, medical technologies, drug discovery, medical consumables, hospital equipment or digital health.
The driving forces behind the increase in demand for, and growth in, care services include an ageing and increasing population, advances in medical treatments and an increase in chronic conditions. For instance, diabetes affects millions of people worldwide, is becoming increasingly common and costs billions each year to treat.
This could represent an opportunity for companies like Arecor, which is developing a portfolio of proprietary products for diabetes care.
The VCT will look to invest in a company once it is at an advanced pre-clinical stage, essentially once proof of concept is achieved but before the drug or product comes to the market.
Given the specialist nature of this sector, Downing has appointed Melbourne-based BioScience Managers (“BioScience”) as its healthcare adviser. BioScience is headed by Jeremy Curnock Cook who previously managed the International Biotechnology Trust at Rothschild Asset Management. BioScience will be responsible for sourcing deals, due diligence, monitoring and exit opportunities.
This will be a concentrated portfolio. The Healthcare share class, launched in 2017, holds a portfolio of four companies as at 1 November 2018, valued at £2.8 million. If the current fundraise is successful, it aims to hold between five and ten investments.
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 26% of the whole portfolio. 33% is invested across the four liquidity funds mentioned above and 40% is in cash. As at 19 October 2018.
Portfolio company examples
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 £750,000 will primarily be used to progress the development of Destiny Pharma's 'XF‐73' drug, which has shown capability of killing bacteria rapidly and before it can develop any resistance.
Live Better With (unquoted)
Another is Live Better With Limited, which created an online marketplace for products for people living with cancer. Products tackle common problems, from night sweats to nausea or hair loss, with the aim to make day‐to‐day life better for patients. The company launched in the UK and the US, with offices in London and New York. The share class invested £220,000 and Downing-managed funds have invested a total of £1.1 million in the company to date.
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, invested in a highly concentrated portfolio. There is no sector diversification and, due to the current size, very limited portfolio diversification (only four qualifying holdings). If fundraising is slow, shares may take some time to be allotted.
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||2.5%|
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 make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision 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 – Healthcare
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