Baronsmead VCT AGMs and VCT Prospects

Today (1/2/2023) I attended the two Baronsmead VCT AGMs (BMD and BVT) via a Zoom webinar, partly because of the train strikes today but partly because I did not expect any momentous events or questions to take place, and so it turned out. But they did get a number of shareholders attending in person despite the train strikes.

However despite me registering for the event some weeks ago I did not receive a zoom invite and had to chase that up just before the meeting.

Just looking at BVT results, their total return last year was -19.20% which was very similar to my overall portfolio return. They achieved a similar return on both quoted and unquoted holdings which is probably not surprising because the valuations of quoted companies will have been used as benchmarks for the latter (they claim to be the only “hybrid” VCTs with a mix of quoted and unquoted holdings). Both BVT and BMD run very similar portfolios). The result was much better in the previous year at a total return of 29.3%.

There were 6p in dividends paid last year which equates to a yield of 7.1% (tax free remember).

There were a number of good realisations last year including listed company Ideagen which I also held directly. That achieved a return on initial investment by the VCT of 13 times.  

But the Chairperson of BVT, Sarah Fromson, warned that returns are likely to be more volatile in future due to the change in VCT investment rules in 2015. They are having to invest in more immature businesses in essence.

Voting took place on a poll but on-line attendees could not vote so you had to submit your votes in advance which I did. For example, I voted against the remuneration report as did 1.37 million shareholders because pay in the Baronsmead VCTs seems to be going up substantially.

There were few questions from the audience. One issue that was raised was the fees paid by investee companies for directors nominated by the VCT or Gresham House which seemed to be increasing – now over £1million possibly. It was suggested that having nominated directors on boards assisted with control of the companies.   

Is it a good time to invest in VCTs? I think the jury is still out on that. We have not yet seen the result of the changes to the VCT investment rules and it is unclear whether the investment in more early stage companies will be successful. The valuation of such companies still seems high to me but it may be some years before we see whether the valuations are justified.

However VCTs are still raising funds so they must see opportunities to invest them. There may be a high demand by investors due to the high tax reliefs and good dividend yields but they need to be aware of possible changes to the taxation of VCTs due to the “sunset” clause in the legislation which was mentioned briefly in the BVT AGM.

There may be problems revising the legislation because, as reported in the FT today, the Government has a problem in that it has committed to revoking EU imposed legislation in the UK but has just added another 1,000 pieces of such legislation that have been discovered that will need reviewing. That means the total is now 3,700 laws and regulations to be considered and amended or discarded. That surely shows how bureaucratic we have become of late because of our former membership of the EU and there are so many obscure laws that even identifying them has proved to be a problem!

But the good news is that if they have not been reviewed by the end of 2023 then they are likely to be automatically dropped because of the   Retained EU Law (Revocation and Reform) Bill 2022 which is in the House of Lords at the moment. What that might mean for VCT legislation is not clear.

The AIC held a seminar on VCTs recently and you can see a report on it here:  https://www.theaic.co.uk/aic/news/press-releases/vct-managers-still-seeing-strong-investor-appetite

As I already have substantial VCT holdings I have not been adding to them recently as the returns achieved I do not consider that good (mainly due to high management costs including the hated performance fees) and I would prefer to see how these issues play out. The Government may have made statements supporting VCTs but we need definite commitments and no threats to remove the high tax reliefs on VCTs which is the only thing that makes them good investments.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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