Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to 88V8,Howard,Bhoddhisatva,penym,Anonymous, for Donating to support the site

Albion Venture VCT (AAVC): AGM 2019

Sophisticated and complex high-risk tax-sensitive investments in small companies: handle with care
londoninvestor
Posts: 44
Joined: May 12th, 2018, 6:35 pm
Has thanked: 53 times
Been thanked: 15 times

Re: Albion Venture VCT (AAVC): AGM 2019

#250763

Postby londoninvestor » September 10th, 2019, 3:04 pm

timbo003 wrote: all shareholders should be fully briefed on his mishandling handling of the performance incentive fee negotiations well in time for the next AGM, when I assume he will be up for re-election


The thing about the "sabotage activist shareholders by sitting on the request for the register until it's too late" trick is that it only really works once...

timbo003
2 Lemon pips
Posts: 100
Joined: November 19th, 2016, 6:45 am
Has thanked: 10 times
Been thanked: 186 times

Re: Albion Venture VCT (AAVC): AGM 2019

#252765

Postby timbo003 » September 19th, 2019, 9:18 pm

.
Long term effects of the new performance fees on shareholder returns


At the Albion Venture AGM last month, the Chairman was asked during one of the Q&A sessions:
“Did the Board model the potential impact of the old scheme vs the new scheme over a period of 5 – 10 years? VCT shareholders tend to be long term shareholders and it is the accumulative effects of additional costs year after year which are extremely damaging to long term returns. So did the Board do modelling and quantify under different scenarios to assess the impact of the new scheme vs old scheme?”

In his reply the Chairman told Shareholders :
“Yes, the Board did the maths; it is not a difficult exercise….”

Having now performed my own basic modelling using a bespoke Excel spreadsheet specifically designed for the purpose, I have come to the unavoidable conclusion that either the Chairman was being economical with the truth (again), or he has little or no grasp of the effect of compounding on long term investment returns and he should read up on it before engaging with shareholders in the near future to listen to their concerns.

Using the financial year end NAV (79p/share), the long term average return for the VCT (6.5%) and the March 2019 RPI figure (2.4%) and assuming that the 5p dividend is maintained , it is quite an easy task to look at the effect of both the New and the Old Performance incentive schemes on NAV (and dividend cover) over time, see link to spread sheet used to perform the calculations and table below with the output using the variables above:
https://drive.google.com/file/d/1vMu3ZM ... sp=sharing

.                                      NAV (p/share)          	              NAV (p/share)
New performance fee Old performance fee
March 2019 79.0 79.0
March 2024 77.9 79.8
March 2029 76.4 80.8
March 2034 74.4 82.3



Alarmingly with the new performance fee, the NAV takes a hefty fall of 4.6p/share over a 15 year period and this would probably result in a dividend cut at some stage, whilst with the old performance fee arrangement, NAV increases by 3.3p/share. This means that over the 15 year period, the manager pockets an additional £6.7m at shareholder’s expense.

Using all the same the same assumptions, but taking a more pessimistic view on the outlook for the economy (RPI down at 1%), the situation is even more grim for shareholders with NAV falling to 69.4p resulting in a transfer of wealth of around £11m from shareholders to the manager over a 15 year period.

.                                      NAV (p/share)          	              NAV (p/share)
New performance fee Old performance fee
March 2019 79.0 79.0
March 2024 76.7 79.8
March 2029 77.5 80.8
March 2034 69.4 82.3



If RPI is running at 2% and the performance fee is reduced to 15% with an hurdle of RPI plus 2% (which is still relatively generous towards the manager compared to most of the other schemes run by the top 20 VCTs), the outcome for the shareholder is somewhat better, but still highly remunerative for the manager, amounting to an additional £5.1M going to the manager at shareholder’s expense over a 15 year period.

.                                      NAV (p/share)          	              NAV (p/share)
New performance fee Old performance fee
March 2019 79.0 79.0
March 2024 78.4 79.8
March 2029 77.5 80.8
March 2034 76.3 82.3



The spreadsheet is easy to use for any set of variables, I have currently set it up for a constant RPI, a constant annual return, a constant % share going to the manager and a constant dividend, athough these four constants can easily be changed by entering different values in cells G2, G3, G4, G5 respectively. It is also possible to vary three of these parameters each year by just overwriting the values in row E (RPI), row H (Annual return) and row J (Annual dividend) to see the different effects on NAV/share and dividend cover.

I have now tried a number of scenarios using the spreadsheet and the only way shareholders end up being no worse off under the new performance fee is if the VCT performs badly, or RPI races ahead, which are two scenarios which nobody should want.

The Board of directors should have been upfront about these adverse consequences in the documentation that accompanied the announcement of the General meeting (but they chose not to be). Furthermore there should have been worked examples of different scenarios similar to those above which would show the real corrosive effect of the newly introduced performance fee incentive scheme on long term shareholder returns. The Chairman should now reach out to shareholders (preferably through ShareSoc) to listen to their concerns first hand before going back to the manager to renegotiate terms of the newly introduced performance incentive scheme.

In the next few days I will endeavour to write up one further short piece on alternative ways to attract and retain talented Investment managers, which will mean all points raised by the Chairman in support of the punitive structure for the new performance fee will have been addressed and rebutted.
.

timbo003
2 Lemon pips
Posts: 100
Joined: November 19th, 2016, 6:45 am
Has thanked: 10 times
Been thanked: 186 times

Re: Albion Venture VCT (AAVC): AGM 2019

#256047

Postby timbo003 » October 5th, 2019, 3:11 pm

.
Alternative means for attracting and retaining talented Investment managers

At the Albion Venture AGM in August shareholders were told that the principle reason for introducing the new performance incentive scheme was to attract and retain new talented investment managers who would now be required following the switch from an asset backed, to a growth based investment policy. However, neither the Directors or Albion Management made any reference to any of the alternatives which were available to fulfil this stated purpose, other than a reference to co-investment schemes, which the Manager dismissed out of hand as being very disadvantageous to shareholders (which subsequent analysis of historical data shows to be a misconception: viewtopic.php?f=25&t=19235#p250118 )

First and foremost the Directors should have asked themselves whether the Manager could have provided the resources themselves?

A quick perusal of Albion Capital LLP’s recent filings at Companies House show that for year ending March 2018 the eleven members of the partnership took out a total of £5.278m, which on average works out at £479K each, yet the salary bill for the 22 employees of the group (which included 6 Investment Managers) was just £1.648m, an average of just £75K/employee.

All filings: https://beta.companieshouse.gov.uk/comp ... ory?page=1
Accounts for year ending March 2018: https://tinyurl.com/y2bgjpl7

The numbers speak for themselves and shareholders should now ask whether the Directors were even aware of these numbers when they “negotiated” the new contract with the manager.

Had the Directors been aware, then surely they would have made counter proposals around how some of the cash currently taken out by partners could be redirected, for example:

* If the eleven members of the LLP were to each forego just 5% of their remuneration, this would then free up circa £500K/year to redirect towards attracting and retaining talent
* If the emphasis is now on growth investment, rather than asset based investment, that should mean less resource will be required for the asset based portfolio, so LLP members who currently look after the asset backed investments can go part time and take out proportionately less form the partnership thus freeing up further funds for attracting and retaining talent.
* As part of the incentive package, new recruits could be offered shares in the partnership (and a share in the partnership profits) to reward success.

Shareholders should ask themselves whether the BOD did any negotiation whatsoever around the new contract, or were they just presented with a boiler plate template (as used by a number of other Albion VCTs) and accepted it after just a superficial read without question? Furthermore, the Directors certainly haven’t explained why they opted to introduce the scheme with such haste, given that it will take many years to transition the portfolio from asset based to growth investments.

There is no evidence that they did any objective benchmarking against appropriate comparators, or any objective analysis to assess the effect of the new scheme on shareholder returns, moreover they do not appear to have explored any other means of funding what shareholders were lead to believe was one of the main reasons for the introduction of the scheme, i.e. to attract and retain talent.

The Albion Venture Chairman has stated that he will now engage with shareholders to understand their concerns, when that process is complete he should be in a strong position to renegotiate a revised fee structure with Albion Management taking all the new facts and data into account as detailed earlier in this thread. If he fails in this regard, then fortunately there will be another opportunity for all shareholders to show their disapproval and vote against any Director seeking re-election at the next AGM.

.

barchid
2 Lemon pips
Posts: 181
Joined: November 30th, 2018, 2:18 am
Has thanked: 92 times
Been thanked: 77 times

Re: Albion Venture VCT (AAVC): AGM 2019

#256055

Postby barchid » October 5th, 2019, 3:53 pm

Tim
A wonderful piece of research !
To be honest I had to read it 3 times to make sure I hadn't missed something and my jaw was dropping lower each time !
No wonder W F-A did not want more than 1 question per shareholder, and only from a very few at that !
His behaviour, which at the time I thought outrageous could now perhaps be described as rather worse than that ?
Like many people I look forward to the next AGM to sort this out properly.

thebarns
2 Lemon pips
Posts: 122
Joined: November 4th, 2016, 12:56 pm
Been thanked: 71 times

Re: Albion Venture VCT (AAVC): AGM 2019

#256120

Postby thebarns » October 5th, 2019, 8:33 pm

Agreed,

A truly forensic series of posts from Timbo - indeed I think they should appoint you to the Board !

Assuming they are not going to do that, then I do hope you are going to e mail all your detailed research to the Board, invite their comments and look forward to their answers at the next AGM.

shootingstar
Posts: 21
Joined: July 16th, 2019, 11:19 pm
Has thanked: 3 times
Been thanked: 10 times

Re: Albion Venture VCT (AAVC): AGM 2019

#256133

Postby shootingstar » October 6th, 2019, 1:03 am

Incredible work Timbo. I would second your nomination to the board!

Was I the only one at the AGM who thought the Chairman was almost certainly lying when he said 'the board did the maths'...the pause in him giving his answer said it all!

I think I will almost certainly write to wealthclub as one of their clients to make sure they are fully aware of this debacle. As I've mentioned before I'm hoping positive from all this is that the fees situation will limit appetite for new money into the VCT (and hence keep the asset backing % high)

naflod
Lemon Pip
Posts: 82
Joined: November 5th, 2016, 7:40 pm
Has thanked: 40 times
Been thanked: 30 times

Re: Albion Venture VCT (AAVC): AGM 2019

#256223

Postby naflod » October 6th, 2019, 3:59 pm

Once again fantastic work by Tim.

Given the range of his review of management incentives and the lip service that the board of directors appear to have paid to researching the subject, it has brought to mind the question:

Are the directors in breach of thei fiduciary duty to the members?

The duties of a director are covered in chapter 2 of part 10 of the Companies Act 2006

http://www.legislation.gov.uk/ukpga/200 ... /chapter/2

Sections 173 and 174 in particular require directors to exercise independent judgment and reasonable care, skill and diligence.

Thre may be a legal case for the directors to answer and they may have personal liability to the members. How one would quantity the cost to the members is, to say the least, hard to quantify, but something to bare in mind.

naflod

timbo003
2 Lemon pips
Posts: 100
Joined: November 19th, 2016, 6:45 am
Has thanked: 10 times
Been thanked: 186 times

Re: Albion Venture VCT (AAVC): AGM 2019

#256391

Postby timbo003 » October 7th, 2019, 5:14 pm

.
Thanks for all the positive feedback folks :)

The wife received a letter from the Albion Chairman at the weekend requesting feedback from shareholders who voted against the resolution to change the performance fee incentive arrangements (see link)

https://drive.google.com/file/d/1jRLRfU ... sp=sharing

I know for sure that she will relish writing the reply.

I have not received such a letter, but that maybe because he is already fully aware of my views (through monitoring the Lemon Fool), but it would be useful to know whether anyone else received similar correspondence?

oxmatt
Posts: 44
Joined: November 5th, 2016, 6:54 am
Been thanked: 5 times

Re: Albion Venture VCT (AAVC): AGM 2019

#256426

Postby oxmatt » October 7th, 2019, 7:34 pm

I have not received the letter - and I certainly did vote against!

If I don't I will probably write anyway including querying whether somehow my vote was ignored meaning I wasn't on their "nay" list.

barchid
2 Lemon pips
Posts: 181
Joined: November 30th, 2018, 2:18 am
Has thanked: 92 times
Been thanked: 77 times

Re: Albion Venture VCT (AAVC): AGM 2019

#256431

Postby barchid » October 7th, 2019, 8:06 pm

I have just sent W F-A an email enquiring if I am owed a letter requesting feedback on this matter as I took the trouble to mail him well before the AGM querying the resolution.
I am not holding my breath for a reply though.

timbo003
2 Lemon pips
Posts: 100
Joined: November 19th, 2016, 6:45 am
Has thanked: 10 times
Been thanked: 186 times

Re: Albion Venture VCT (AAVC): AGM 2019

#258858

Postby timbo003 » October 18th, 2019, 7:39 pm

A brief update from Cliff on the ShareSoc blog which sums up a recent meeting with Albion Director's Richard Glover and Jeff Warren:

https://www.sharesoc.org/sharesoc-news/ ... -oct-2019/


Return to “Venture Capital Trusts (VCT's)”

Who is online

Users browsing this forum: No registered users and 4 guests