Octopus Apollo VCT
The longstanding Octopus Apollo VCT recently merged with Octopus Eclipse VCT. It has approximately £130 million of assets and a portfolio of around 50 companies. It did not raise funds in the last tax year, having raised £20 million in 2016/17.
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- Large, well diversified VCT
- Regular income is key objective
- Largely defensive investment strategy
- Invests in typically cash flow positive businesses which have at least £1 million in annual profits
- A mixture of debt and equity: currently around 80% held in loans and 20% in equity
- After it has merged with Octopus Eclipse VCT, smaller, more growth orientated businesses will also feature
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Octopus Apollo VCT is managed by the Intermediate Capital team at Octopus, led by Grant Paul-Florence. The eight members of the team have a wide variety of backgrounds including private equity and banking and are exclusively focused on this VCT.
Following the merger with Octopus Eclipse there are also some smaller, more growth-orientated businesses in the portfolio, which are managed by the Octopus Ventures team.
Target return and strategy
Maintaining the capital value (i.e. the current net asset value) and paying a regular dividend are the long-term priorities of the VCT.
Whilst the previous strategy of this VCT was to take as little risk as possible and keep equity exposure to a minimum, the inclusion of some smaller, more growth-orientated businesses does push up the risk profile.
Legacy Apollo VCT investments are typically split 80/20 between debt and equity. The debt might be a five-year loan of 80% with a charge or security over some assets, with the remainder invested in shares of the business. Following the merger the debt to equity ratio will have moved closer to a 50/50 split.
These firms are not the early-stage businesses typically found in the Octopus Titan VCT. Apollo’s managers look for businesses with annual profits of at least £1 million, recurring cash flow and defendable positions. They prefer non-cyclical businesses that can prosper regardless of the wide economic environment and which are not dependent on discretionary consumer spend. Business to business companies are a favourite. One example is Clifford Thames, which supplies the motor industry.
Revenue and profits are as important for younger businesses as they are for more established ones. A key question is why the company wants the capital as they can't use it to pay founders. The company might have need of liquidity, for new stock for example, or might want to enter new market such as the US. High margins are important too and loss making businesses aren’t considered appropriate.
In the past, a typical deal size for the Apollo VCT was £4 to £5 million. New rules have made it harder for VCT managers to find investments. The managers now believe deals of £2.5- £3 million will be more commonplace giving them capacity to invest between £10 million and £20 million each year.
Both existing and new investors will have to get used to a higher risk profile and potentially more volatility than in the past due to the greater exposure to more growth-orientated businesses. Limited equity upside means bad loans can have a detrimental effect on the portfolio value.
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 annual management fee is 2%. In addition Octopus is entitled to an administration fee of 0.3% p.a. and a company secretarial fee. Annual running costs are capped at 3.3%. Octopus also receives deal arrangement fees of 1.5%. A performance fee is also payable of 20% of gains above the Bank of England base rate.
How to invest
No details have yet been announced regarding fundraising for 2018/19, but if you would like to be notified as soon as a share offer becomes available, please register your interest here.
- Target dividend
- Initial charge
- Initial saving via Wealth Club
- Net initial charge
- Annual rebate
- Funds raised / sought
- No current offer
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