Review: Northern VCTs

Archived article

Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.

ALERT: 18 January 2019

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If you were to describe a textbook example of a VCT, you might end up describing the Northern VCTs. Northern Venture Trust (NVT) was one of the first VCTs to launch in 1995. Northern 2 VCT (NV2) and Northern 3 VCT (NV3) followed in 1999 and 2001 respectively. 

They enjoy one of the most loyal followings of any VCT. The most recent offer to raise £60 million across the three VCTs was fully subscribed in around three weeks. Previous smaller offers have filled in less than 48 hours. There are stories of investors flying to Newcastle to deliver their applications first thing in the morning. 

What lies behind investors' loyalty?

NVM Private Equity, which runs the Northern VCTs, looks for promising businesses across the UK with compelling propositions and capable management. This is not that different from what most private equity firms set out to achieve. But the tightly knit and hugely experienced NVM team has proven remarkably good at it. 

Over the years it has backed and helped grow over 270 businesses across all its funds. 

NVT, the longest-running of the three VCTs, has been the best-performing generalist VCT over the last 10 years. It has paid total dividends of 162.5p per share, which is equivalent to a yield of 9.6%. NV2 has produced the same dividend yield, whilst NV3 6.5%. Please note, past performance is not a guide to the future and dividends are not guaranteed.

Source: NVM. Past performance is not a guide to the future. Dividends are not guaranteed. Chart shows Net Asset Value and cumulative dividend paid to 30 Sep (excluding 2018, NVT) and 31 Mar (NV2 and NV3) each year, pence per share.

The Climbing Hangar – Northern VCTsA portfolio of strong companies

All three VCTs have an established portfolio of largely mature companies – over half of the investments were made under previous and less restrictive VCT rules. They tend to be management buyouts structured to include a loan element, with loan repayments helping support dividends.

In the last three years, the VCTs have made growth capital investments into younger companies the manager believes have bright prospects. 

An example is The Climbing Hangar, which already operates three successful indoor climbing sites. NVM led a £5 million investment to help it roll out the concept across the UK. 

CURRENTBODY – Northern VCTsAnother example is CURRENTBODY, which operates the only website specialising in beauty devices for home use. Having achieved exceptional sales growth in the last year, NVM’s investment should help support its next phase of expansion. 

The growth potential could be significant, but opportunities like this will likely take time to come to fruition and there might be more failures along the way. So, dividends may be lumpier.

CloserStill – Northern VCTsExample of an exit

NVM has been backing the management team behind CloserStill Media since 2005 when it supported the management buyout of its predecessor, Ithaca Business Media. That investment was profitably exited in 2007. In 2008 the Ithaca management team approached NVM again to help fund the launch of London-based CloserStill. NVM originally invested £4 million, of which £2.7 million through its VCTs and has participated in two subsequent management buyouts of the business, each time reinvesting a portion of the sales proceeds.

NVM’s continuing support helped CloserStill grow both organically and through a number of acquisitions at attractive EBITDA multiples. It now has events in London, Birmingham, Paris, Berlin, Frankfurt, Koln, New York, Hong Kong and Singapore – from Cloud Expo Asia (Singapore) to Wild West Vet (Nevada), Dentiste Expo (Paris) and The London Vet Show.

NVM fully exited the investment in December 2018. The final remaining holding was sold in a buy-out transaction to Providence Equity, delivering a return of 7.8x cost in aggregate over the entire lifetime of the investment. Past performance is not a guide to the future.

Risks - important

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. 

What to consider next

Please visit the offer page using the link below to download the provider documents, read more (including risks and charges) and apply online.

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.

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