I attended the Northern Venture Trust (NVT) AGM this morning via Zoom. This trust gave a good performance last year and the AGM was well organised in some ways with shareholders both attending physically and via Zoom (i.e. it was a hybrid meeting but all votes had to be submitted in advance).
Tim Levett representing the fund manager gave a presentation on the historic results and covered one or two other points. He specifically mentioned the “sunset clause” on dividend income tax relief which is due to be removed in 2025 due to EU regulations but he said he believed it was likely to be retained. This is an important issue for VCT investors because the zero tax on VCT dividend income is one of the major attractions and is one of the few things that make them attractive to investors as otherwise the overall returns are no great shakes. This issue really needs to be resolved while VCTs are attracting such high levels of funding at present while many investors are not aware of the issue.
Note that Tim Levett has been on the board a very long time but is retiring from the fund manager. However he is remaining on the board which I do not consider good corporate governance as I don’t think managers or ex-managers should be on the board. I voted against him therefore as usual. He got 443,000 votes against and the Chairman, Simon Constantine, also received 375,000 votes against his re-election.
Questions could be submitted before the meeting or during the meeting (both on-line and by shareholders present of which there were a few apparently).
But the Chairman did not read out the pre-submitted questions in full or give the name of the submitter. He also did not answer my question directly which I had submitted in writing which was “Last year the trust paid a performance fee to the fund manager of over £2.5 million. On my calculations this resulted in the overall total of expenses and fees of 4.5% of closing net asset value. In my view this is way too high even allowing for the work involved in managing a portfolio of small, unlisted investments.
Could the board please consider reverting to the arrangement when the trust was first launched; in other words no performance fee being payable at all as there is no evidence that performance fees improve the performance of investment trusts. Other VCTs such as Amati manage without them”.
All that was said was that 76% of shareholders had voted for the introduction of the performance fee in 2013 and all of the top 20 VCTs have performance fees. That’s hardly a justification for the excessive level of fees. [Postscript: The Amati AIM VCT has a total return per annum over ten years of 13.9% according to the AIC while Northern has a total return of 9.4% p.a. so I do not believe the claim about top 20 VCTs is true].
Just to reinforce that point, a shareholder physically present suggested that after taking into account other fees collected via the manager such as arrangement and monitoring fees from investee companies, the total percentage was 7% of assets (I have not verified that claim but it was not denied by the directors).
Summary comments: Like other VCTs this company is doing very well from investing in technology and software companies with substantial realisations being achieved. The market is hot for such businesses but whether that will continue to be the case I am not sure as valuations are getting very high. This is of course also driving up the cost of new investments.
There were questions about the payment of performance fees (in cash of course) when the declared profits include unrealised gains as well as realised ones. But that that was discounted as being a concern. This is an issue however as unrealised gains can disappear in future.
The key problem with this and other VCTs as I see it is that the company is run more for the benefit of the fund managers and the directors, rather than shareholders.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
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