Hargreave Hale AIM VCT
Update (15 Feb 2021): Offer Closed
The Company has announced that it has received valid applications in respect of the full £10 million over-allotment facility and, therefore, the directors intend to close the Offer for subscription to further applications.
Hargreave Hale AIM VCT is an established VCT that launched in 2004. It is managed by Hargreave Hale, a subsidiary business of Canaccord Genuity, a £26.9 billion wealth management business.
The VCT gives investors access to a well diversified portfolio of over 100 underlying holdings, split between AIM-quoted companies, unquoted companies, the Marlborough Special Situations Fund, UK main market equities, fixed income securities and cash. The VCT seeks to invest predominantly in AIM market opportunities; however, the investment manager will also consider investments in unquoted companies on an opportunistic basis.
The VCT has net assets of £135.1 million (31 July 2020). The current offer is seeking to raise up to £20 million with an overallotment facility to raise a further £10 million.
- Managed by one of the UK's best-resourced small and micro-cap investment teams
- Diverse portfolio of 100+ companies – mainly AIM-quoted firms but also some unquoted businesses
- Bias towards technology and healthcare sectors
- Dividend target of 5% of NAV a year, paid bi-annually (not guaranteed)
- 0.10% annual rebate for three years
- Available for this tax year (2020/21) and next tax year (2021/22)
- Minimum investment £5,000
Hargreave Hale is a well established fund manager that specialises in smaller UK companies. It has been managing AIM VCTs since 2004. It also manages several unit trusts marketed under the Marlborough brand, including the well regarded £1 billion Special Situations Fund, the UK Micro-Cap Growth Fund and the Multi-Cap Income Fund.
In 2017 Hargreave Hale was acquired by Canaccord Genuity Wealth Management, the UK arm of Canaccord Genuity, a global investment group headquartered in Canada. In total, Canaccord manages £26.9 billion (July 2020). In March 2018, Hargreave Hale AIM VCT 1 plc merged with Hargreave Hale AIM VCT 2 to form Hargreave Hale AIM VCT.
In July 2019, Oliver Bedford assumed the role of lead manager of the VCT. Oliver joined Hargreave Hale in 2004 after spending nine years in the British Army. As a member of the Hargreave Hale fund management team, Oliver also supports the management of the unit trusts.
Lucy Bloomfield serves as co-manager of the trust. Lucy joined the VCT team in 2018, after spending two years as a small and mid-cap fund manager with one of Europe’s top small and mid-cap investors, Ennismore Fund Management.
Giles Hargreave continues to act as a co-manager focusing primarily on supporting the delivery of the non-qualifying investment strategy through the VCT’s direct investment into listed equities as permitted by the VCT rules. Giles has announced his intention to step back from his co-management role at the end of 2020. In 2020, the team hired an in-house legal counsel to assist with due diligence on an increasing number of private company opportunities.
The VCT management team is supported by a 16-strong fund management team, which manages more than £4.1 billion. Hargreave Hale believes the scale of its investment into smaller companies, its track record, and the breadth and reach of its team could help the VCT attract deal flow.
The VCT will focus on managing a diversified portfolio of VCT-qualifying companies but also target non-qualifying investments on an opportunistic basis. The primary focus will be on investing in companies quoted on AIM; however, there will also be investments in private companies and those planning to trade on AIM.
The VCT may also invest in non-qualifying exposure to UK and international equities, fixed income securities and cash. A proportion of funds raised will be invested into the Marlborough Special Situations Fund to maintain exposure to small companies pending investment into VCT-qualifying companies.
The investment team follows a stock-specific, rather than sector-specific, investment approach and is more likely to provide growth and development capital than seed capital.
The VCT has not been immune to the volatility caused by Covid-19. The VCT’s net asset value fell from 72p as at 31 January 2020 to a low of 53p in March 2020. However, the government has since gone to great lengths to contain the economic impact of Covid-19, and this so far appears to have stabilised investor confidence. The trust’s NAV has since recovered to 67p as at 31 July 2020, excluding the 1p dividend paid on 24 July. Past performance is not a guide to the future.
Like other AIM VCTs, Hargreave Hale has reported buoyant levels of investment activity in 2020. Despite the disruption and lack of IPO activity on AIM, it has deployed capital substantially ahead of its own expectations. Hargreave Hale believes there is no shortage of opportunities for AIM VCTs in 2020.
Current portfolio overview
The VCT has a portfolio of over 100 holdings and net asset value of £135.1 million (as at July 2020). The top ten investments currently represent 31.2% of the VCT’s net asset value.
The assets of the VCT are split between AIM-quoted companies, unquoted companies, Marlborough Special Situations Fund, UK main market equities, fixed income securities and cash. This appears to be a well diversified portfolio.
Source: Hargreave Hale, July 2020.
72.3% of the portfolio is in qualifying investments, with a bias towards the Healthcare (33%) and Technology (30%) sectors (July 2020).
Source: Hargreave Hale, July 2020.
Examples of portfolio companies
Gousto (largest holding, unquoted)
Gousto is the VCT’s largest qualifying holding, representing 5.5% of the portfolio as at July 2020.
Gousto has created food delivery technology to offer a weekly box of healthy, responsibly sourced ingredients, providing everything needed in the right quantities for couples or families to cook delicious meals, helping avoid wasting space and food. The company claims the scale of its data means it can predict what each customer will choose to cook for dinner.
This approach has enabled the business to grow rapidly: in early 2020 it was reported Gousto now delivers over four million meals to more than 400,000 customers every month.
The VCT has invested £2.5 million into the business. As at July 2020, its stake is valued at £7.4 million. Please note, past performance is not a guide to the future.
Learning Technologies Group plc (AIM-quoted)
Learning Technologies Group provides a comprehensive and integrated range of e-learning services and technologies to corporate and government clients. The group offers end-to-end learning and talent solutions ranging from strategic consultancy, through content and platform solutions to analytical insights that help corporate and government clients meet their performance objectives.
In a recent trading statement (July 2020) the business stated it was in a robust capital position which will enable it to continue its value-enhancing acquisition strategy. The business will continue to capture the opportunity presented by the accelerated structural trend towards digital learning and talent management. Learning Technologies has repaid all furlough payments received by the government.
The business has seen substantial growth over the last five years. Revenue has risen from £19.9 million in 2015 to £130.1 million in 2019. As at 31 July 2020 the VCT’s holding was valued at £6 million, representing an unrealised profit of £3.7 million. Please note, past performance is not a guide to the future.
Rosslyn Data Technologies plc (recent investment, AIM-quoted)
Rosslyn Data Technologies has a simple mission: to make its customers hugely successful with data. The business has developed a platform which aggregates, organises, analyses, and manages data from disparate sources to tell users what they need to know, and what to do next. Historically, Rosslyn’s key focus has been in the supply chain, in particular spend analytics. Today, it is looking to provide integrated and automated solutions.
Hargreave Hale invested £0.75 million as part of a £7.3 million placing in May 2020. Proceeds are expected to be used to increase sales and marketing, strengthen its balance sheet, and potentially make a small opportunistic bolt-on acquisition.
As is to be expected, not all investments work out. Escape Hunt is currently one such example. It operates ‘escape games’, games in which a team of players cooperatively discover clues, solve puzzles, and accomplish tasks to accomplish a specific goal in a limited amount of time. The goal is often to escape from the ‘escape room’.
The business seeks to capitalise on the growing experiential leisure sector and is engaged in a capital intensive plan to roll out its escape rooms experience across the globe. The business has faced challenges in rolling out this strategy, and its share price has performed poorly since IPO. The lockdown of the economy added to these challenges. Escape Hunt has seen its share price fall from an IPO price of 135p in May 2017, to 7.5p in July 2020. The business has recently raised additional capital to fund the continued roll-out of its sites, and for working capital. The VCT has maintained a small holding in the company.
Performance and dividends
The past five years to June 2020 have been challenging. The VCT has endured two substantial periods of volatility, which affected the whole AIM market. The first occurred in late 2018 when investors grew fearful of the outlook for the global economy due to trade tensions between the US and China. This, combined with concerns over Brexit, saw investors shun markets such as AIM. The second was caused by the Covid-19 pandemic. These events have impacted the performance of the VCT, and whilst returns have remained positive during this time, in the short term the VCT has lagged behind some peers.
Source: Morningstar. Past performance is no guide to the future. Dividends are variable and not guaranteed. The bar chart shows net asset value and cumulative dividends per share for the period 31 Dec 2014 – 30 Sep 2020.
Source: Morningstar. Past performance is not a guide to the future. Dividends are variable and not guaranteed. The bar chart shows dividends per share paid in the period 31 Dec 2014–30 Sep 2020.
The VCT aims to pay a 5% dividend p.a. (based on year-end NAV) through semi-annual distributions, not guaranteed. The ability to pay dividends will be subject to the performance of investments, the available reserves and cash resources. In years when performance is particularly strong, the directors may consider a higher dividend payment. Conversely, in poorer years, the directors may opt to reduce or declare that no dividends will be paid at all. Over the last 5.5 years, the VCT has paid total distributions of 22.9p per share.
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.
AIM shares can be very volatile and could suffer extreme volatility if the market falls sharply.
Charges and savings
A summary of the main charges and savings is shown below. The net initial charge shown includes the Wealth Club saving and any early bird discount. The investment may have additional charges and expenses: please see the provider documents including the Key Information Document for more details.
Please note, capacity – for the offer or any early bird savings – can be reached early, and we may not be notified of this by the VCT in real time.
|Full initial charge||3.5%|
|Early bird discount||—|
|Wealth Club initial saving||1.0%|
|Existing shareholder discount||—|
|Net initial charge through Wealth Club (new investors)||2.5%|
|Net initial charge through Wealth Club (existing shareholders)||2.5%|
|Annual management charge||1.7%|
|Annual administration charge||—|
|Annual rebate from Wealth Club (for three years)||0.10%|
More detail on the charges
- Deadline for receipt of applications for final allotment in 2020/21 tax year: 12pm on 1 April 2021
- Deadline for receipt of applications for final allotment in 2021/22 tax year will be no later than 20 August 2021, unless the offer has been fully subscribed by this date
Hargreave Hale AIM VCT operates a share buyback policy to improve the liquidity in its ordinary shares and control the discount. The buyback policy targets a 5% discount to the last published NAV per share. The discount is measured against the mid-price per share as listed on the London Stock Exchange and reflects the price at which the VCT buys its shares off the market makers. The VCT publishes its unaudited NAV per share on a weekly basis.
The VCT has maintained its buyback policy throughout the three-month period to 30 June 2020, buying back 1,574,977 shares.
Dividend Investment Scheme
Subject to shareholder approval at the next General Meeting (scheduled for 29 September 2020), the VCT will now be offering a dividend re-investment scheme ("DRIS") going forward. This will allow shareholders to reinvest future cash dividend payments in new shares, if desired. As these are new shares they should be eligible for tax relief (you will need to claim this on your tax return or directly with HMRC) and the shares will count towards the VCT annual subscription limit.
Annual rebate when you invest through Wealth Club
Hargreave Hale AIM VCT includes an annual rebate for Wealth Club investors, payable for the first three years.
This is a rebate of our renewal commission and should be equivalent to 0.1% of the Net Asset Value of the Offer Shares issued to you when you invest. Terms and conditions apply.
Launched in 2004, the Hargreave Hale AIM VCT is an established offer from a well regarded fund management house.
Giles Hargreave’s decision to step back from co-managing the VCT at the end of 2020 appears to have been handled smoothly, with succession planning taking place well in advance. The appointment of Lucy Bloomfield in 2018 should help support Oliver Bedford in managing the VCT. Lucy has excellent previous experience working within one of Europe’s top small and mid-cap investors. In addition, the VCT benefits from the wider resources of the 16-strong fund management team which manages the Marlborough Fund Managers unit trusts.
The AIM market has been challenging over the last five years and the trust has not been immune to its volatility. Despite this, it has continued to generate positive returns and pay a consistent dividend for shareholders – although there are no guarantees this will continue and past performance is not a guide to the future. It has also maintained its share buyback policy, so the discount has remained tightly controlled, a feature some investors may appreciate.
The Hargreave Hale AIM VCT is differentiated from other AIM VCTs in our view. The manager has allowed itself the freedom to invest in unquoted opportunities as they arise. This makes the VCT less reliant on the AIM market for generating quality deal flow, although the strategy is not without its risks.
Investors may find the diversification appealing. The trust could complement a wider VCT investment portfolio.
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.
- Target dividend
- Initial charge
- Initial saving via Wealth Club
- Net initial charge
- Annual rebate
- Funds raised / sought
- £30.0 million / £30.0 million
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