In the next instalment in our series of exclusive interviews with industry experts, Ewan MacKinnon, Partner at Maven Capital Partners, provides his insight on the biggest growth opportunities and most common risks for investors, and discusses his company’s approach to investing.
1.) What tax-efficient schemes does your company work with, and how do you offer a unique/compelling approach for advisers?
At Maven we offer a suite of long established VCTs, each offering investors access to large, highly diversified portfolios of carefully researched emerging UK companies. VCTs invest in smaller emerging businesses, typically at a crucial early stage in their development, so it is essential for investors to have confidence in the manager’s asset selection and risk management approach. It means managers need to do vigorous research into new investment opportunities and ensure diversification is maximised. To do that effectively, the ability to source, execute and manage a strong flow of new opportunities is essential. This comes down to the VCT’s size, regional footprint, SME expertise and sector knowledge, and that is where Maven offers a strong point of difference for investors.
We have one of the largest and best resourced teams in the VCT sector, with more than 25 investment and portfolio executives operating from a regional office network stretching from Central Scotland to the Southeast of England. Our size means we’re introduced to a broad range of VCT opportunities and our regionally based executives provide close support to each private company throughout the life of the investment. Our team includes professionals from a variety of commercial, financial and industry backgrounds, who have wide experience of providing growth finance to innovative, early-stage businesses.
Maven’s nationwide presence is another strong differentiator. While many VCTs invest across multiple sectors, Maven provides added investor value by accessing exciting new businesses across the regions rather than being London and Southeast-centric.
2.) How active are you in providing education to advisers on the types of clients that are suitable for these types of investments, as well as any changes in regulation or nuances in the existing rules?
We believe advisers are the experts on what is suitable for their clients. As a manager, however, we look to offer investment products with the features and risk profile to make them a valuable addition to a portfolio. That includes providing materials to help advisers fully understand our products and their risk profiles.
Maven’s investment, marketing and compliance teams work closely to ensure that we are completely aligned on regulation, and that our documents clearly set out the information advisers need. That information includes target market – the type of investor in terms of investment knowledge, risk tolerance and investment horizon – and consumer duty, which involves carrying out a comprehensive fair value assessment of the VCT investments we offer, and regularly reporting to the VCT boards on how we continue to meet those obligations, following the FCA’s new Consumer Duty that came into force last July.
Our compliance team engage with both regulatory bodies and industry bodies, including peer managers, to ensure we adhere to all the relevant rules. The team also works closely with our investment and marketing teams so that our product design, materials and communication are aligned with those rules. Alongside, we give advisers the opportunity to meet our investment and marketing teams, so they can ask more detailed questions about how Maven selects and manages VCT portfolio companies.
3.) Where and in which types of companies are you seeing the biggest growth opportunities?
At Maven we believe that high quality growth opportunities exist in some of the UK’s most vibrant sectors, such as software, cyber security, biotech, data analytics, training, life sciences, renewables and healthcare, which are less exposed during periods of market uncertainty because they tend to be less exposed to discretionary consumer spending.
The corollary is that Maven typically avoids sectors such as retail, leisure, travel, hospitality and entertainment. We target growth businesses that offer the prospect of significant capital gain and have typically built strong recurring or contractual revenue to support investors’ growth aspirations.
4.) What do you see as the biggest risks for investors?
Given the higher risks associated with underlying VCT portfolio businesses, Maven believes there are two main risk factors for investors in preserving and growing their capital, though these can be minimised with proper due diligence. The first is when a VCT does not offer a sufficiently diversified portfolio in terms of both sector and geographic exposure, increasing the risk of significant losses if one or two large investments fail. This is why we believe investors should choose VCT managers that have multi-sector expertise, plus UK regional presence and knowledge, to invest in a wide range of companies and then provide close support to each business as it grows.
The second is when there is a lack of expertise or post-investment aftercare by the VCT manager. As VCTs invest in smaller, early-stage businesses which may face a variety of challenges as they look to scale rapidly, investors will draw confidence from the manager’s approach to asset selection and risk management. They want to know that not only has each underlying investment been carefully researched, but the VCT manager has the ability and resources to provide valuable strategic advice to the management team of each business.
5.) Should advisers be worried about a lack of diversification, and why?
Diversification should certainly be a key consideration in assessing the quality of a VCT. Remember that VCTs invest in early stage, emerging businesses that are typically at an important early point in their product or service development, so it is important to do significant due diligence on each prospective investment.
By maximising diversification within a portfolio, VCT managers can mitigate risk substantially and minimise the impact of a failure in the portfolio. To build a truly diverse portfolio to guard against market volatility within certain sectors or UK regions, a VCT manager must be able to source and evaluate a wide range of opportunities – this requires an investment team with deep experience investing in and growing SMEs, plus expertise across a wide range of sectors. For Maven this is a strong point of difference. Its nationwide presence enables it to build large and diverse portfolios of dynamic businesses from all regions of the UK, not just London and the Southeast
