VCTs: time to consolidate?

Legg Mason Investments has transferred the management of its Legg Mason Investors AIM VCT to Close Investment Limited (CIL) following its decision to focus on mutual fund distribution. The group believes the interests of the shareholders will be best served by appointing an investment manager with an ongoing, specific interest in VCTs and particular expertise in managing AIM investments.

The VCT sector has been through hard times; performance figures are down and the dividend stream has dried up. With over 70 VCTs in existence and around £1.5bn raised in the sector to date, consolidation in the industry is a natural progression. Legislation is being finalised to enable VCTs to be merged and enable those that have reached maturity to be wound up.

David Cartwright of PricewaterhouseCoopers says: “VCTs have been around for over eight years and a period of maturity has arisen with some management contracts moving from one manager to another.” A recent example is Aberdeen Asset Management’s acquisition of Edinburgh Fund Managers, of which VCT manager Northern Venture Managers has been a part since 2000.

Legg Mason Investors AIM VCT specialises in investment in companies quoted on AIM. Its market capitalisation is around £3.644m (based on the mid-market price at the close of business on October 31, 2003) and the net asset value of the company is approximately £5.82m equivalent to 65.47 pence per share (as at September 30).

CIL is the specialist subsidiary of Close Brothers Group responsible for managing and advising a range of AIM portfolios. Close Brothers already manages five VCTs for which it has raised a total of £138m and so is an active participant in the VCT sector.

Legg Mason Investors AIM VCT will change its name to Close Second AIM VCT. The change of name will require the consent of the shareholders at an EGM and a circular will be sent to shareholders in due course.

CIL will receive a fund management fee of 2% per annum of gross assets. There will be no further incentive fee linked to performance and the cap on administration and management fees not exceeding 3.5% of gross assets on an annual basis will be removed. This fee will cover both fund management and company secretarial functions. The management agreement is for an initial period of three years and is terminable at any time thereafter on six months notice.