Octopus Investments has been voted the “Best VCT Provider by Independent Financial Advisers in 2007, 2008 and 2009″. Octopus is one of the largest and most innovative VCT managers in the UK.
LOWER RISK VCT
- The Octopus VCT will adopt a lower risk investment approach by investing in companies where Octopus believes there is a higher level of capital preservation. The main risk associated with traditional VCT investments is capital loss on investments (e.g. from a portfolio of private/AIM listed companies). The Octopus VCT has been designed to mitigate these risks using both insurance and deal structure.
- The Octopus VCT will have up to 3 years to invest 70% its capital in qualifying investments. This allows the fund to invest in a range of non-qualifying investments during this time, where the risk/return profile is consistent with the VCT’s objective of capital preservation.
- The VCT will invest in specially created businesses that operate low risk business models. As these businesses have been specifically created to receive the VCT funds they are not taking the risks normally associated with traditional qualifying companies that are seeking to consistently grow and increase profits.
- The specially created businesses will help improve short term cash flows for other companies, through a qualifying trade. Should there be any credit risk to the funds this will be protected using Credit Default Insurance.
- This investment strategy has been successfully used in up to 10 Tranches of the Octopus Protected EIS.
EXAMPLE COMPANY – TICKETUS
THE BUSINESS
The Ticketus business model is based on purchasing an allocation of tickets for an event, up to two years in advance. (An example of this will be season tickets for English Premiership Football Clubs.)
Event organisers receive a discounted price versus face value for their tickets in return for an immediate level of ticket sales. Ticketus is then able to sell the tickets on to the general public at face value, to mitigate the potential distribution risk. The event organisers will distribute this portion of tickets first through their normal distribution channels, which allows Ticketus to recover its original investment, plus a margin.
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PROTECTION
Ticketus only buys tickets for well established, long running events that regularly sell out. It only buys a portion of the tickets available, and ensures its tickets are sold ahead of other stocks available. By buying in bulk and in advance, Ticketus is able to purchase at a discount to the price at which it intends to sell the tickets.
LIQUIDITY
In order to provide investors with a clear exit route, the Octopus VCT Directors intend to seek shareholder approval to wind up the Octopus VCT and return capital to shareholders after the end of the five year holding period. Octopus expects that this approval will take place at the AGM scheduled to be held in August 2015.
This will allow investors to release capital, or perhaps re-invest into a new VCT and receive another tranche of 30% income tax relief (assuming that the appropriate VCT legislation is still in force in 2015).
TARGETED MINIMUM RETURN
Over the life of the investment, this product is designed to deliver a minimum effective tax free return of 50%, after all fees and charges. This is calculated as 100p invested less the 30p income tax relief (which provides an effective net investment cost of 70p) with a targeted minimum return to investors of 105p. This equates to an annualised tax free return of 7.85% (equivalent to a return of 13.08% per annum for a 40% taxpayer). Octopus will not receive their AMC until this has been achieved.
OCTOPUS INVESTMENT TEAM
With a total of 120 staff including a team of over 30 investment professionals, Octopus has over £230 million invested in 17 VCTs under Octopus management.
