Albion Development VCT [LON:AADV], is this week’s investment trust pick. Part of the Association of Investment Companies’ VCT sector, it is one of a stable of VCTs managed by Albion Capital, a VCT specialist established in 1996 with over GBP1bn of assets under management.
VCTs, or Venture Capital Trusts, were introduced in 1995 under the Conservative government of John Major. They are tax-efficient, closed-ended collective investment vehicles, created to encourage venture capital for small, growth-orientated companies and provide income, through dividends, to investors.
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They are publicly-traded private equity vehicles and generally invest in companies that are privately-held, although there is a special VCT category that invests in AIM-quoted companies. Usually VCTs hold a minority stake in their investee companies, as opposed to private equity firms that try to hold a majority, or controlling stake.
Albion's technology focus
Albion Development, which has a market cap of GBP131.8m, operates in the unquoted space. It invests in a broad portfolio of high-growth companies, but especially focuses on technology firms. The management team aims to diversify the fund’s holdings on both a sectoral and maturity basis and can hold up to 8% of AUM in liquidity funds.
The fund spreads its risk through this diversification and will not invest more than 15% of the fund in any single company. However, dependent on the success and growth of its portfolio, sole positions in any single company can grow to more than 15% of AUM, given the illiquidity or opportunity cost to dilute the fund’s holdings in any single investment. The fund has a maximum gearing of 10%.
As previously reported, there are compelling reasons to invest in VCTs which remain high in demand with over GBP1bn invested in VCTs the 2022/2023 tax year. This shows investors are keen to back early stage, innovative UK based companies. VCTs raise funds through issues of new shares. The managers of the VCT then has three-years in which to invest this money. During this time, they may hold the funds as cash or cash equivalents, or buy gilts, bonds and in some cases unit trusts / OEICs to attempt to maximize investor return.
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