Record Fund Raising for VCTs

The AIC have published a note that says that a record amount of money was raised by Venture Capital Trust (VCTs) in the last tax year. It passed the £1 billion mark for the first time.

This may not be surprising given that investors may have realised gains from stock market investment in last year and VCTs have been looking attractive because of good reported profits and the available tax benefits. But one issue that has yet to become clear is the impact on the long-term performance of VCTs under the new investment rules. The investment rules for VCTs changed so they now have to invest in early-stage companies rather than asset-backed companies or management buy-outs of mature businesses. This has meant that they are now investing mainly in immature technology businesses whose valuation is often problematic. And the valuations often depend on the last fund raising round rather than on the profits of the business.

The problem is that the valuations of juvenile technology businesses have been rising and you can see that from the comments of fund managers who have been finding the valuations of such businesses have been rising. They have been competing harder for new investments. If they are paying more for companies this might affect their long-term returns in due course.

More money piling into VCTs actually makes the situation worse as the cash has to be invested rapidly.

In the meantime, the reported profits of VCTs often depend on unrealised gains rather than realised ones based on fund raising rounds and comparable companies. They have been able to achieve a few good realisations which enables them to pay good dividends but that simply reflects the enthusiasm for technology businesses in the last couple of years.

I am not saying that VCTs are necessarily a bad investment at this point in time – I did purchase a few more VCT shares last year. They do provide some diversification in a portfolio and have good tax benefits even if there is a risk that the Government might reduce the latter in future. But investors do need to consider them as long-term investment vehicles and do need to be wary of the above issues.   

The AIC Press Release is here: https://www.theaic.co.uk/aic/news/press-releases/smes-to-benefit-from-record-funding-as-vcts-raise-over-a-billion-in-202122

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

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Northern Venture Trust AGM Report

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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Baronsmead VCT – More Corporate Governance Issues

I mentioned in a previous blog post that covered Northern Venture Trust that “VCTs are a perpetual problem in relation to excessive management fees, poor corporate governance, and general behaviour prejudicial to the interests of shareholders”.

Now we have an AGM for Baronsmead VCT (BVT) in prospect on the 16th February. As a holder I will be expressing the following concerns to the Chairman:

  • In the last year the board has appointed two new directors, Michael Probin and Fiona Miller Smith. Michael Probin undoubtedly knows a lot about the VCT sector because for many years he was the Investor Relations Manager at Livingbridge. But they were the investment manager for the Baronsmead VCTs until Livingbridge sold its investment management business to Gresham House so Michael Probin can hardly be considered to be “independent”. Even Fiona Miller Smith’s appointment is questionable because the Annual Report says she worked for Murray Johnson Private Equity in the past. Now Murray Johnson used to manage VCTs but their track record was atrocious, they lost the management contracts as a result and Murray VCTs subsequently changed their names. I will therefore be voting against the appointment of both Michael Probin and Fiona Miller Smith.
  • Another concern is that the AGM is to be a physical only meeting not a hybrid one. So people like me who are particularly vulnerable to Covid infection are very unlikely to attend. Bearing in mind the average age of VCT shareholders, this is certainly going to deter many shareholders from attending. It is quite unreasonable not to provide an electronic attendance option for investors while the Covid epidemic is still prevalent.
  • Lastly, the Chairman of the company, Peter Lawrence, was first appointed a director of one of the Baronsmead VCTs in November 1999 and has been so ever since, i.e. that’s over 22 years’ service. That is an excessive length of time and is contrary to the principles embodied in the UK Corporate Governance Code. He cannot be considered independent. This length of service is even contrary to the “Tenure Policy” of the company stated at the top of page 51 of the Annual Report. I will therefore yet again be voting against his reappointment as I have done in prior years for a number of reasons.

In summary, although the company like many VCTs reported a good financial performance last year (total return up 25.8%) this does not offset the questionable corporate governance. It also means that the company paid out a performance fee of £1.9 million thus increasing the overall expenses of the company to 3.0% of closing net assets. An excessive figure in my view when performance fees are simply unnecessary in VCTs.

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

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Northern Venture Trust and Other VCTs

Northern Venture Trust (NVT) recently published their Annual Report. It shows that the manager (now Mercia) collected a performance fee of £2.5 million which on my calculation raised the overall fees and expenses as a percentage of closing net asset value to 4.5%.

This is way too high in my opinion even allowing for the work involved in managing a portfolio of small, unlisted investments. When launched back in 1995 Northern did not have a performance fee but it was added later despite the opposition of myself and many other shareholders.

There is of course no evidence that performance fees in investment trusts improve performance

I will be submitting a question and comments to the AGM on the 7th January on this issue and I would encourage other shareholders to do the same. It would be best to remove the performance fee. Other VCTs such as the Amati AIM VCT do not have one and they outperformed Northern last year in terms of Total Return.

VCTs are a perpetual problem in relation to excessive management fees, poor corporate governance, and general behaviour prejudicial to the interests of shareholders. Shareholders in the Edge Performance VCTs and Core VCTs should vote in support of campaigns for change – see https://www.sharesoc.org/campaigns/edge-vct-campaign/ and https://www.sharesoc.org/blog/vcts/core-vct-another-messy-vct/  . Note: I have never held shares in either of those VCTs but they are typical examples of problems in VCTs over the years.

Oddly enough a person who shall remain nameless has suggested that ShareSoc has become more active in campaigns against incumbent management since I departed as I was often too sympathetic or supportive of management. This is a gross distortion. Just considering VCTs, the following is a list of VCTs where I made representations or ran full blown campaigns while I was a director of ShareSoc or UKSA in the last 25 years:

Acuity VCT, Albion VCT, Baronsmead VCTs, Bluehone VCT, British Smaller Companies VCT, Chrysalis VCT, Downing Income 3 VCT, Foresight 1+3+4 VCT, Murray VCTs, Northern Venture Trust, Oxford Technology VCTs, Rensburg AIM VCT, Singer & Friedlander VCT and Quester/Spark VCT (some have since changed their names).

In some cases, this resulted in major board changes and changes to the fund manager. The results were positive in most cases which shows how important it is for shareholders to take action when things are going wrong.

It is good to see that since ShareSoc was founded 10 years ago by me and others it has become more active recently in promoting campaigns against companies. With a new Chair they are also seeking a new General Manager to take the organisation forward.

I wish them the best of luck in the New Year as it is certainly important for ShareSoc to continue to increase membership to act as a representative voice for private shareholders.

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

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General Meeting Requisition at Edge Performance VCT

I am glad to see that ShareSoc is supporting a General Meeting at Edge Performance VCT to remove three existing directors and appoint a new one.

I have never held shares in this company or the multiple funds it has managed but as it regularly came up in conversations at ShareSoc I have watched from the side-lines. I considered it to be a basket case of the first order from what I learned some years ago – particularly the large investment in Coolabi and the valuation of that holding plus the general standard of corporate governance and management of the company. The performance of the funds has generally been the exact opposite of what the company name was intended to suggest.

In such situations I generally consider it best to aim for a revolution including a complete change of the board and a change of manager. But it’s never too late to start anew as I have learned from other VCT problem cases in the past. Although Robin Goodfellow was appointed to the board last year to bring a fresh voice it remains dominated by others. This needs to change so I hope readers who hold the shares will support the proposed changes.  

Incidentally there is a good article on VCTs entitled “VCT lessons I have learnt” by Paul Jackson in the latest edition of Investors’ Chronicle. It covers some of the wrinkles of investing in VCTs which is certainly a complex subject.

VCTs are complicated enough without the complex structure of multiple share classes embodied in the Edge Performance VCT.

For more details see https://www.sharesoc.org/sharesoc-news/edge-shareholders-requisition-general-meeting-to-remove-3-directors-and-appoint-richard-roth-as-a-director/ . It is good that ShareSoc is actively encouraging and supporting action in such cases.

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

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Long Serving Directors and Maven VCT

I have long complained about directors serving on boards for longer than 9 years. The UK Corporate Governance Code (which you can easily find on the web) says any director who serves for more than 9 years cannot be considered “independent” and there should be a majority of independent directors.

When the UK Corporate Governance Code was drafted this principle of avoiding long-serving directors was introduced and I consider it a very sound principle. But investment trusts (including Venture Capital Trust) continue to ignore this rule. An extreme example of this is that of Maven Income & Growth VCT 4 (MAV4).

In the latest Annual Report (the AGM is on the 12th May), it appears that two of the five directors (Malcolm Graham-Wood and Steven Scott) were first appointed to the board in 2004 and another director (Bill Nixon) is a managing partner of the fund manager. Clearly a breach of the Code therefore and the explanation given to excuse this is feeble (see page 57 of the Annual Report).

I did raise this issue before the last AGM and got a response that the FRC considers compliance with the AIC Code as sufficient, but I have never seen any official pronouncement on this. As the AIC represents the fund managers effectively and certainly not the shareholders in trusts, it is hardly an unbiased body either.

No action was taken to refresh the board since the last AGM so we have the same cosy arrangement continuing. I have therefore voted against the aforementioned directors and also against the Chairman, Peter Linthwaite, for allowing this situation to persist. I recommend other shareholders do the same.

The company’s AGM is being held in Glasgow but no shareholders are permitted to attend and no alternative on-line or hybrid meeting is being provided. All you can do is submit written questions so here again the board is avoiding accountability to shareholders in a proper manner.

This is clearly a good example of how investment trusts (particularly VCTs) can become poodles of the fund manager and ignore good corporate governance principles.

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

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ShareSoc VCT Webinar Report

I attended a webinar organised by the VCT Investors Group of ShareSoc last night, and spoke on the panel. This is a very brief report on what was certainly a useful event for anyone invested in Venture Capital Trusts. There should be a recording of the event available from the ShareSoc web site to Members in due course.

There were good presentations on some problematic VCTs – the Edge Performance VCTs and the Ventus VCTs. ShareSoc was involved in campaigns on those companies. The former, which have multiple share classes, showed poor performance on all but one share class, and poor corporate governance resulting in shareholders demanding some changes. There are two Ventus VCTs that specialise in renewable energy which no longer qualifies for VCT investment. The directors are now proposing to wind up the companies.

Another “problem” case I spoke about was Chrysalis VCT which was another company that got into a difficult situation. Assets declining making it look unviable with high fixed costs and the portfolio consisting of dubious holdings such as Coolabi (also a holding in the Edge VCTs). Shareholders decided to wind up the company on the recommendation of the directors in October 2020 even though there were some investors who claimed capital gains deferral on their investment way back in time, which will now mean they get a big tax bill.  I sold my holding in Chrysalis VCT in 2018 as I could see the way the wind was blowing and had been through a similar experience with Rensburg AIM VCT in 2015/16. In that case they did manage to merge with another VCT who took over management of the portfolio.

Both the Edge and Ventus VCTs were not likely to be attractive to merger partners or acquirers though. But an administration process is going to be long-winded, costly and in essence painful.

As I said in the webinar, if you are holding shares in a VCT that is getting into difficulties, or is unlikely to be able to raise new funds from investors, best to get out sooner rather than later. Regrettably the directors and fund managers of such companies seem keen to keep the companies alive, and postpone tough decisions for too long.

Or if you think the VCT is revivable, or can survive, then pursue a revolution such as changing the directors and/or fund manager.

The seminar included a good analysis of the performance of VCTs by Mark Lauber. He suggests they can give a good return if you take into account the tax relief you get from investing in them, and the tax-free dividends. They do provide an alternative asset class to most FTSE shares, being effectively private equity investment trusts investing in smaller companies.

Are they good investments at this point in time? This is uncertain given that the type of companies they can invest in has changed recently. No more asset backed companies for example. They can hold diversified portfolios, but the fund performance depends a great deal on the competence of the fund manager.

There are few alternatives on which you can obtain tax relief. EIS companies are even more risky. With stock markets being buoyant of late, my view is that there are fewer reasons to invest in VCTs at present where management costs are high and corporate governance often leaves a lot to be desired. You also have to keep a close eye on them and understand the complex tax rules. It might be best to wait and see how the new VCT rules work out in terms of investment returns.

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

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Epidemic Over? Unable to Trade and Chrysalis VCT Wind-Up

The news that the Pfizer vaccine for Covid-19 appears to work (at least 90% of the time) and has no negative side effects gave stock markets a good dose of euphoria yesterday. It suggests that we might be able to return to a normal life in future, but exactly when is far from clear. Actually producing and distributing the vaccine is going to be a mammoth task and it is very clear that it will only be given to certain people in the short term – the elderly and medically vulnerable. Some people might not accept the vaccine and transmission of the virus may still take place. It is clearly going to be many months before we can cease social distancing and wearing face masks – at least that is the situation if people follow sensible guidance which they may not. Some countries may not be able to afford to immunize everybody so how this good news translates into reality is not clear. In summary, the epidemic is not over.

But the good news did propel big changes in some stocks such as airlines, aerospace industry companies and the hospitality sector which have been severely damaged by the epidemic. Rolls-Royce (RR.) share price was up 44% yesterday for example, although I wouldn’t be buying it until it can show it can make a profit which it has not done for years. In the opposite direction went all the highly rated Covid-19 diagnostic stocks such as Novacyt (NCYT) which I hold. There have probably been way too extreme movements both up and down in the affected stocks as sentiment was only one way.

The big problem faced by many investors though was that platforms such as Hargreaves Lansdown and AJ Bell Youinvest actually ceased to function. It is reported that their customers were unable to log in and trade. But this is not a new problem. See this report in December 2019 when there was a previous bout of euphoria that affected the same two brokers: https://roliscon.blog/2019/12/16/euphoria-all-around-but-platforms-not-keeping-up/ .

They clearly did not learn their lesson and should have done better “load testing”. Perhaps the moral is don’t put all your eggs in one basket by relying on one broker (I use 5 different ones and spread my holdings over them).

For those with an interest in Venture Capital Trusts (VCTs) it has been pointed out to me that Chrysalis VCT (CYS) is putting proposals to wind up the company to its shareholders. I used to hold the company, but sold out in 2018 at prices ranging from 62p to 66p – the current share price is 35p. I had big concerns then about the shrinking size of the company (NAV now only £14.9 million) as cash was returned to investors. The other major concern was the holdings in the company, particularly that in media company Coolabi and the valuation thereof (last filed accounts were to March 2019 and showed a loss of over £7 million).

VCTs that shrink too much, even if they are good at returning cash to shareholders, can get themselves into an unviable position as costs of running the VCTs sooner or later get out of proportion. As the announcement by the company makes clear, in such a situation a VCT has the following options: a) merge with another VCT; b) change the manager and raise new funds; c) sell the company or its portfolio; or d) wind it up.

But raising new funds under the tougher VCT rules that now apply might not be easy, while mergers with another company might be difficult. Who would want to acquire a portfolio where 29% of the current valuation is that of Coolabi – even if you believe that valuation!

The directors give numerous reasons why a wind-up is the best option after they got themselves into this difficult situation. They correctly point out that some investors will be prejudiced by this move as some original investors will have claimed capital gains roll-over relief. They will get their tax liability rolled back in after the wind-up and the ultimate cash cost might be more than what they obtain from the wind-up. Ouch is the word for that. But the directors are going to ignore those investors on the basis that a wind-up “best serves shareholders as a whole”.

The other problem is that a wind-up of a company with holdings of private equity stakes takes a long time and there is no certainty that the value they are held at in the accounts can actually be obtained. Investors in Woodford funds will have become well aware of that issue! Who would actually want to buy Coolabi for example, or some of the other holdings?

Another VCT I held in the past that got into the situation of returning cash to shareholders while finding no good new investments and not raising funds was Rensburg AIM VCT. They managed to escape from it after a lot of pushing from me by merging with Unicorn AIM VCT. But I fear Chrysalis VCT have left it too late and hence the choice of the worst option.

But if I still held the shares, I might vote against the wind-up and encourage the directors to take another path. It is possible to run VCTs on a shoestring if a big focus on costs in taken. In addition, the directors say that they did have some discussions about fund raising, possible mergers or the acquisition of the company but have rejected those for various reasons. But I think they need to look again, after a more realistic view of the values of the existing portfolio holdings has been obtained.

One change that should certainly be made if the company chooses not to wind-up is a change in the directors and fund managers who allowed the company to get itself into this unenviable situation. Regrettably there often appears to be a tendency for directors and fund managers to want to keep their jobs and their salaries long past when tough decisions should have been made.

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

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Oxford Tech VCT3 and other VCTs, and the Coronavirus Bandwagon

One of my shareholdings, Oxford Technology VCT3 (OTT), fell 44% this morning. Am I concerned? No because I have only ever held 10 shares in the company. I cannot even recall why I bought the shares back in 2014 but it was probably to keep an eye on their interest in unlisted Ixaris Group Holdings Ltd. That company was a major part of their portfolio and was still 65% of the net assets at the 29 February. It is also held by other VCTs. To quote from the ITT annual report, issued today, “For OT3 the initial Covid-19 pain has been most strongly felt by Ixaris, a travel payments company as a result of knock on impacts from Thomas Cook’s failure and a decline in Asian travel. Subsequent to our year end the downward pressure has increased on Ixaris with major airline disruption”. It also discloses that Ixaris received an offer during the financial year which would have meant a major exit at an uplifted price, but it collapsed at the last minute.

As a former director of Ixaris, and a very minor shareholder still, I was aware of this bad news. It looks like they are almost back at square one. That is the nature of early stage venture capital. Two steps forward and one step back, or vice versa in this case. I always took a sceptical view of the value put on Ixaris by OTT and other VCTs as I always considered it a highly risky investment.

OTT also wrote down Orthogem as it was sold for a nominal amount. This is what they said about that: “Although Orthogem had made significant technical progress with the launch of its putty product and appointment of international distributors, it was unable to raise sufficient funding to be able to continue to trade.  The OT VCTs were willing to continue supporting the company, especially given we believed the company was very close to commercial success, but the VCT rules governing the age of companies and the use to which any new funds can be applied prevented us from doing so”. VCT rules are now preventing some follow-on investments.

OTT also has a holding in listed Scancell (SCLP) which OTT says has had a moderate uplift after announcing the start of its research programme to develop a Covid-19 vaccine. They also say this: “Scancell is our third largest holding and had a disappointing year of regulatory and clinical delays in its flagship melanoma trial and its share price fell over the course of the year. Its planned Phase 2 combination trial with their initial product SCIB1 ran into difficulties with the US Food and Drug Administration (FDA) due to the delayed approval by the FDA of the upgraded delivery device from 3rd party Ichor. In the event, the trials started in the UK later than expected. Subsequently the required US approvals were received but a year has been lost and results will now be correspondingly delayed. Post period end the UK trial went on hold as a result of Covid-19 risks. Nevertheless good data from these trials could represent a significant value inflection point for Scancell and are eagerly awaited”.

There were big hopes for Scancell a few years ago but that has long since evaporated and revenue has remained at zero. It’s a typical story of early stage drug development companies which I avoid for that reason.

The Net Asset Value of OTT fell by 33% from the previous year-end, and hence the share price drop on what is a very illiquid share, like most VCTs. Normally VCTs are immune to general stock market fluctuations but not in the current recession. Some of my VCT holdings have fallen sharply no doubt because of downward valuations of some of their unlisted holdings but also because of sharp falls in many AIM shares which are a significant proportion of some VCT portfolios. This has also been compounded by the halt to share buy-backs in some VCTs – the result is just a few shareholders selling causing a sharp fall in their share prices.

Are their opportunities in VCT shares appearing, or should I be selling also? Perhaps is the answer, but VCT shares I consider to be very long-term holdings with a lot of the value coming from their tax-free dividends. I only tend to sell when I have lost confidence in the board or the investment manager.

As with the mention above of Scancell, almost all biotechnology companies are now trying to get into the coronavirus space by developing interests in vaccines, antibody tests and diagnostic products. Such an entry does wonders for the share prices. This ranges from the very largest companies such as Astrazeneca and Glaxosmithkline who are both gearing up for vaccine production to the smallest start-ups. One example announced today is that of Renalytix AI (RENX) who announced a joint venture with the Mount Sinai school of medicine to produce Covid-19 antibody test kits. RENX are focused on renal diseases which is why I picked up this news as I have an interest in this area but I do not hold the shares – historically no revenue to date. But RENX will only have a minority interest in the joint venture. I would not get too excited about this, particularly as it is possible that the epidemic will die out and there are lots of people producing test kits. But the company may be of interest otherwise as it does seem to be making some progress in renal diagnostics. There are 40-45,000 premature deaths in the UK every year due to kidney disease so you can see that it is comparable to the coronavirus epidemic and with still no effective treatments.

The coronavirus epidemic is clearly creating a bandwagon for companies to jump on. That can be a minefield for investors. Or to put it another way, an enormous amount of venture capital is being put into research of treatments and diagnostic production. It may produce results sooner or later, but a lot of the investment might produce nothing.

Lastly, it’s worth covering the dire economic gloom. Unemployment has reached record levels and Rolls-Royce (RR.) are making 9,000 employees redundant as new aero engine demand will clearly be non-existent for some time – maybe years.

To quote from the FT: “Rishi Sunak [Chancellor] has warned that the economy may not immediately bounce back from the corona-virus crisis and could suffer permanent scarring, as jobless claims soared at a record rate to more than 2 million. The chancellor struck a sombre note on a day that saw the biggest month-on-month increase in out of work benefits claims since records began in 1971. A further 10 million are now precariously relying on the state to pay their wages. He said ‘We are likely to face a severe recession, the likes of which we haven’t seen, and, of course, that will have an impact on employment’”.

Some of my readers may be facing redundancy or soon will be. Clearly we are living in exceptional times, but on a personal note it’s worth mentioning that I have been out of a job more than once in my past career. Recessions tend to only last a short time so the answer short-term is simply to take any job going. Longer term the answer is to ensure you can never be fired in future is to set up your own business. CEOs rarely fires themselves, and there is the possibility that a new business might make you rich. So that is what I did a few years later.

I don’t come from a family of entrepreneurs but from people who worked in big businesses. But it is easier than ever to start-up from scratch and redundancy pay can give you the initial capital required. Recessions don’t make it harder to start a new business but easier in some ways. As companies lay off full-time staff that gives opportunities for others, and any service or product that saves a company money can be immediately attractive. So redundancy just needs to be faced up to with some energy and initiative.

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

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Long Serving Directors and Kings Arms Yard VCT

I have commented in the past on my objections to long-serving directors on public company boards. That included comments on the directors of Baronsmead Venture Trust (BVT) only a few weeks ago – see https://tinyurl.com/talr69o , particularly the Chairman Peter Lawrence.

The UK Corporate Governance Code contains specific provisions that indicate that directors who serve for more than 9 years cannot be considered independent. Therefore companies should provide good explanations as to why they wish to ignore this provision. This is not just an issue of “box ticking”. It is about ensuring that directors do not serve for too long and become stale. In the case of investment trusts, including VCTs, this also ensures that the directors do not become too close to the fund manager which long relationships can tend to encourage.

But now we have another VCT that wants to ignore this principle – namely the Kings Arms Yard VCT (KAY) who have their AGM on the 15th June. Robin Field, the Chairman, was appointed in January 2009 – over 11 years ago, and Thomas Chambers was appointed as a director in October 2011. There are only 2 other directors so there is no majority of “independent” directors.

This is what it says in the Annual Report about Mr Field’s position: “The Board does not have a policy of limiting the tenure of any Director as the Board does not consider that a Director’s length of service reduces their ability to act independently of the Manager. As such Robin Field, who has been Chairman of the Company for more than nine years, is still considered to be an independent Director”.

I do not consider this reasonable and therefore I will be voting against the re-election of Mr Field and Mr Chambers and I suggest other shareholders do the same.

You may consider this a trivial matter when the world is suffering from the coronavirus epidemic and the IMF is forecasting that the recession will be the worst global economic contraction since the depression of the 1930s. But good corporate governance is even more essential in bad times.

Attendance at the KAY AGM in person is being strongly discouraged but there is an easy way to submit your proxy votes electronically if you are on the share register. Just go to www.investorcentre.co.uk/eproxy to do so. All you need are the reference numbers from your paper AGM notice. Registrar Computershare therefore makes it very easy to vote unlike other registrars. You don’t need to register or give away your email address.

Note the history of Kings Arms Yard VCT is that it was previously called the Spark VCT and prior to that the Quester VCT. It had a quite appalling record prior to Robin Field taking over although it took him some time to change the fund manager. It has done better since but last year was not great – a total return of only 1.8%. Poor performance in VCTs seems to be becoming more common in reports by VCTs for last year. Baronsmead Venture Trust actually had a negative return last year (to end September).

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

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