VCT charges on Cash holdings is negaitive interest rates!

[Bud1]

Am I the only one who gets so upset with managers of VCTs imposing an advisor charges on cash held doing nothing. This weeks annual report from British Smaller Companies VCT 2 highlights this, and the other risk free returns that YFM earns on our money.

They have a charge of 1% on cash in excess of £10 million, but when you do the math, the charge on the amounts up to 10 million is 2% as it constitutes part of “other assets” So with 3 years to invest monies we give them they have up to 6% for the joy of holding our money in addition to the charge they make for getting us to part with it.

When you add that to the 3% they can charge the investee for the use of our money ( only 2% for follow ons) approx £45 for each of the 6 investments averaging £1.5 million this year and up to £ 40k per annum for monitoring each investee then it brings to just 10% the income the manager makes before our money is invested after 3 years “maturation” in their pockets.

Yes, interest is earned at bank but not enough to cover the charge made by the manager.

While this is roughly in line with the market, is it not time that the charge for holding our cash is dropped to zero and that reports include what the managers earn from companies related to VCT investments is made explicitly clear, rather than the current, cosy arrangements, or that VCTs be made tender for management companies every 4-5 years.

[UncleEbenezer]

It's a topic that has been raised here a few times, and I think it fair to say your views are widely shared. YFM has been one of the worst offenders for as long as I can remember.

p.s. Welcome!

[Bud1]

Thank you Uncle Ebenezer - yes i expect it has been raised before but the current climate affords more time to scrutinise these docs coming through.

Looking at the shared investments by BSC 1&2 it makes you wonder whether each VCT can charge the investee companies the (up to) £40k monitoring charge

Money for old rope !

[UncleEbenezer]

My previous reply was rather brief, not least because I don't recollect all the relevant details: for example, some VCTs have changed policy on charges for cash relatively recently, but I forget which stable I have in mind. I kind-of hoped someone else might recall more.

You might be interested in this thread, which you've just prompted me to recollect. A table of quite a few VCT cash piles, albeit compiled from public information that's not really sufficient.

I didn't mean to say of your post that we've seen it all before. In fact your analysis of the detail of charges is a welcome addition: I don't recollect seeing quite so much detail condensed into a to-the-point summary here before - thank you!

[naflod]

Thank you UncleE for the pointer to my cash pile list.

At the prompting of BBB I did expand on it to look at how much the managers were making from cash raised in this thread:

viewtopic.php?f=25&t=4835&p=162473#p162473

Looking back at it, I see it is some time since I last updated that one, although I planning an update to the cash piles one before long

naflod

[flyer61]

Naflod,

much appreciated.

[BusyBumbleBee]

Well, Bud1 : first welcome to the Lemon Fool. Secondly for posting a fantastic insight on Day one as a subscriber. Thank-you and have a rec as we used to say on the old Motley Fool.

The charge on cash is shared by new and old investors by the way - which is another argument for separate share classes.

Now what is the betting that managers go to the chancellor and ask for an extension of the time they can hold cash without investing it? Reason : (of course) we can't get out an do due diligence during lock down! And what is the betting that they don't offer to waive their monitoring fees cos they can't do it under lock-down?

[Bud1]

Hi BBB

Thank you.

Although we all know what is being done is permitted, it ( in my opinion ) is so wrong. It was bad enough when the interest rates were better and (nearly) off set the charges but those days have long gone.

Surely the charge for doing nothing should be nothing.

To your point of the possible, or likely, extension request we are expecting Im sure it will presented as in the investors interests because it will only be 2% charge if they hold on to it but a lot more if it has to be repaid and raised again !

Bud