The stable of venture capital trusts (VCTs) run by the Albion Capital Group team have made their own luck of late.
In spite of the damage wrought to the economy by the coronavirus pandemic and the focus of the VCT sector on young companies, the performance of the funds and the multiple good news stories in the portfolio both speak to an investment strategy that it set up to deliver growth in the long-term but is also showing resilience in the short.
Under managing partner Will Fraser-Allen, the company oversees total funds of around £1bn under investment management or administration, including six VCTs with combined assets of around £440mln.
The two main investment themes guiding the wider VCT portfolio are healthcare and technology — which if you were to forced to pick two sectors to pour all your money going into the recent pandemic, would have been right up there.
Not only that, the funds also sold a combined portfolio of 45 pubs last year, just months before the sector was crushed by the coronavirus lockdown.
Fraser-Allen, however, admits that the timing was a lucky break for Albion and say “I take no pleasure in it” as he remains close to the businesses and — like most people — is keenly interested in the industry’s imminent recovery.
In part the timing of that sale, as well as the funds’ exit from a number of other asset-based businesses, including schools and hotels, has also been guided by VCT rules.
Creativity from adversity
While the AIM market last week celebrated its 25th birthday, VCTs are a slightly older sibling, having been launched by Chancellor Ken Clarke in November 1994 and launched the following April.
The broad principles have stayed the same over that time: VCTs enable investors to claim a sizeable tax rebate as a reward for the higher risks of investing in very small business for a minimum period of five years.
However, the sector has always been subject to limits over what size and shape of companies in which it can invest, which have been tweaked over past two and a half decades to fit in with prevailing government policy.
In late 2017 the sector last faced major policy changes, which stopped new investments in asset-based businesses such as pubs and care homes, while demanding that investments could only be made in companies with fewer than 250 full-time employees at the time of the investment.
“The rule changes have been positive all round,” says Fraser-Allen. “Good for encouraging investment in innovative companies and good for us. We’ve adapted well and built up a good tech team and a good healthcare team.”
This focus on tech and healthcare has meant that a number of companies in the portfolio have been performing well in recent months.
A recent revaluation of the VCTs to factor in the impact of COVID-19 on the underlying portfolio companies, unsurprisingly showed net asset values (NAVs) at 31 March had fallen.
The overall portfolio across the trusts is currently 23% in healthcare, 22% in software and technology, 12% in renewables, 33% in cash following a recent fundraising and several successful exits, and the rest individual investments in a few other sectors.
The diversified make-up of the portfolios provided some resilience, as well as the exposure to renewables, healthcare and technology, though the residual exposure to consumer-facing leisure businesses and a small number of other companies are where the softness was seen.
|VCT||NAV 31 Dec 2019||NAV 31 Mar 2020||Change|
|Albion Venture Capital Trust||75.70p||71.32p||-5.79%|
|Albion Technology & General VCT||82.58p||77.37p||-6.31%|
|Albion Development VCT||83.47p||77.66p||-6.96%|
|Crown Place VCT||33.73p||32.02p||-5.07%|
|Albion Enterprise VCT||115.70p||106.54p||-7.92%|
|Kings Arms Yard VCT||22.02p||19.79p||-10.13%|
Sweet spot of technology and healthcare
As well as the longlasting resilience that would be expected from the renewable assets, dip into the portfolio and you find all number of businesses that seem to have been set up for the very times in which we find ourselves.
Egress Software, which has gone from 12 employees when Albion first invested in 2014 to around 260 now, provides secure email software of the sort that the NHS badly needs now that so many staff need to work remotely and exchange sensitive information. The NHS is one of its largest customers.
Similarly, Healios provides remotely delivered children's mental health services across the NHS, including offering free access to an app that aims to help children cope with anxiety, including about coronavirus.
OVIVA is another tech provider providing remote medical services, as it provides dietician counselling.
“They’re doing a lot of work with the NHS, especially in diabetes and as they’re looking to do more work remotely,” says Fraser-Allen.
Locum's Nest is a platform used by NHS trusts to manage locum doctors. As well as helping hospitals manage highly complex staffing rosters during the pandemic and deal with the subsequent backlog of operations, there is a lot of untaken holiday being built up that will require locums to fill when things quieten down.
Fraser-Allen and the team have made two new investments during the pandemic, though these were all-but sewn up before the UK went into lockdown in March, as well as in existing companies.
“We have not been sitting on our hands,” says Fraser-Allen. “We’ve also been working with existing companies in the portfolio as a number have had to look at their business plans and some have needed extra funding to weather the storm.
“We have also been looking at potential new investments. You can still do a lot from home: research, talk to customers and experts in the field. The next bits which we can’t really do yet are visiting the premises and meeting the management.”
That’s why he’s glad to be escaping from his home office to London for a series of face to face meetings in coming weeks.
“We won’t invest until then. Meeting people face to face is critical. After all we could be working together for 10 years or more.”
As an example, he points to Process Systems Enterprise (PSE), a software developer in which several Albion VCTs first invested as a young company around 10 years ago, and which was recently bought by Siemens for £120mln.
Having invested a total £2mln over the lifetime of its backing of the business and so the exit represented roughly a tenfold return for the Albion VCTs.
It stands as a fine example of how Albion has a longstanding history of backing tech winners and how VCTs can work perfectly for young companies and their patient backers.