VENTUS TWINS STRATEGY

Sophisticated and complex high-risk tax-sensitive investments in small companies: handle with care
BusyBumbleBee
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VENTUS TWINS STRATEGY

Postby BusyBumbleBee » November 6th, 2016, 1:09 pm

Migrating Fools will know that the votes at the AGMs were close - and one resolution was defeated. As a result of that and a group of Fools asking for the share holder register the board of VEN2 asked to meet us. This we did.

A great deal of what is in their Strategy document came as a result of that meeting. The things that weren't in it (mainly fees) were raised by us. IF anyone wants to know more about that meeting - and the follow up - let me know.

kind regards - BBB

TopOnePercent
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Re: VENTUS TWINS STRATEGY

Postby TopOnePercent » November 8th, 2016, 10:14 pm

I'd certainly be interested in hearing further details please.

BusyBumbleBee
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Re: VENTUS TWINS STRATEGY

Postby BusyBumbleBee » November 17th, 2016, 8:35 am

Met up with Timbo at the Albion event yesterday (the event was good by the way)

Agreed that I should draft a follow up letter to the BOD so if anyone wants input add it to this thread. Obviously the prime item in the letter will be the level of fees - which have simply got to come down. - regards - BBB

PS Timbo has not moved over yet! PPS you can still post on the Fool!

BusyBumbleBee
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Re: VENTUS TWINS STRATEGY

Postby BusyBumbleBee » November 17th, 2016, 4:47 pm

So Sorry to be so long posting this TopOnePercent but this is the letter that went to the Chairman of VEN2 after our meeting

________________

Dear Mr Moore

It was good to meet last week and to be able to discuss certain things about Ventus 2 VCT plc. I am sorry that we had to upset the arrangements you had made for a joint meeting with the manager as well but we had made it clear in correspondence that we wished to meet separately.

You started by stating that we wanted to call an EGM. Not so, by the way: we wanted to canvass shareholder opinion which might or might not have led to a call for an EGM.

As we said we think the company has a number of points in its favour but is lacking a clear objective and a strategy to bring about the objectives.

We said we thought the objectives should be :

• a stable, sustainable and, increasing dividend,
• a stable, sustainable and increasing NAV,
• a share price that is very close to NAV with a minimal spread.
• an indefinite life – i.e. a company that continues to deliver the above and also receive the advantages of a VCT well beyond the life of the underlying assets held by the companies in which it is invested.

Other Infrastructure companies do offer most of these by the way – the dividend increasing by RPI every year because that is the amount by which the FiT or ROC increases. The only part the other companies don’t offer is the advantage of a VCT wrapper . In fact the objectives would fit almost any investment trust.

What is needed is to produce a strategy and you said you were working on an ‘evolving strategy’. We didn’t discuss this. Nor did we discuss many other things that have already been raised on the Fool which you have read.

We pointed out that the fees were very high – particularly for a mature VCT which could no longer make new investments and that our research had shown that typically about 30% of manager’s time was spent on maintaining the portfolio and the other 70% on new investments and the sale of existing assets – neither of which Ventus 2 VCT envisages doing.

We pointed out several things that the AIC principles require to be discussed at every board meeting which you said you did even though it is not apparent in reports or press releases and the share price discount remains stubbornly high.

So you will be aware, the peer group mostly trades at 3 to 4% above NAV with narrow spreads.

You were dismissive of the potential for share buy-backs quoting the new Market Abuse Directive. Our research indicates that this directive largely re-enacts the existing rules which allow buy backs. Tim Grattan suggested you contact Chris Lloyd at Panmure to find out how he still managed buy backs for other VCTs and how he managed to offer lower spreads.

You were also dismissive of the idea of borrowing money as you had been quoted high rates despite the fact that other VCTs are borrowing money at below 3% for a similar purpose.

You were dismissive of the idea of the companies in which the VCT is invested still being able to invest without jeopardising the VCT status of Ventus 2. Our research shows that it is possible to do this – and other VCTs are doing it, so we suggest you cross check this with the Manager and if necessary with HMRC.

We did agree on two points, I think:

a) that more communication with the market and shareholders was vital and would be undertaken. We pointed out that true electronic communications necessitated this being delivered by email.
b) Consider sending a questionnaire to shareholders asking what they expected from their investment in Ventus 2 VCT and the direction the company should take.

We will be happy to give you input as to what could go in the questionnaire.

We also thought that the first moves on all of the above should be visible to shareholders by the time of the interims – i.e. before the end of the year.

Finally, I must point out that there have been no answers to the points raised in my letter sent to you prior to the AGM which were largely along the lines of the “directors have not done…” The meeting did little if anything to allay those fears of ours and in some ways has exacerbated them – particularly the lack of knowledge in the Board on what is happening in the peer group, the lack of a cohesive strategy or even objectives, the misdirection on the Market Abuse Directive, the lack of knowledge on what a VCT can and can’t do under the new rules and the mere fact that these are still missing years after the company was first listed on 10th March 2006 with the same directors at the helm.

______________________

kind regards - BBB

Retiringat51
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Re: VENTUS TWINS STRATEGY

Postby Retiringat51 » November 17th, 2016, 7:36 pm

Excellent letter BBB.

And by George, the Fool Boards really have been closed after all.

127tolmers
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Re: VENTUS TWINS STRATEGY

Postby 127tolmers » December 1st, 2016, 4:30 pm

BBB, you may be interested on today's announcements from Octopus 3 and Octopus 4.

http://www.investegate.co.uk/octopus-vc ... 5559H1060/
http://www.investegate.co.uk/octopus-vc ... 5212H1059/

Some extracts which have a bit of a read across to Ventus.

As a reminder, the NAV (Net Asset Value) excluding dividends is designed to fall to zero over the life of the Company as the annual dividend is paid out and the value of the solar companies gradually reduces over their 25 year operating lives. Consequently the underlying NAV has decreased from 85.7p per share at 31 August 2015 to 80.1p per share at 31 August 2016.

It should be noted that the smaller than anticipated amount of funds raised for the Company in 2011/2012 and the resulting reduction in economies of scale leaves less margin for protection of the dividend than would otherwise have been the case in spite of close attention to costs by the Manager and your Board.

Finally, the Board is mindful that investors will pass through their five year VCT qualifying period over the course of Spring and Summer 2017. Whilst the fund was established as a VCT with a 25 year limited life, the Board is aware that some investors may wish to realise their investment earlier, once outside their five year VCT holding period. Due to the sub-optimal size of the portfolio, the Company's ability to satisfy any such requests risks having a significant detrimental effect on the value for remaining shareholders. The Board is therefore considering options to provide an equitable liquidity solution for all, once all shareholders have passed through their five year VCT qualifying holding period. This may include an orderly wind up of the VCT through the sale of its assets and the return of capital to shareholders.

The conclusions of these deliberations will be communicated at the earliest opportunity and shareholders will be invited to vote on the Board's recommendations as appropriate. In the meantime, in order to protect the interests of all shareholders, the Board has decided to suspend the share buyback facility in the intervening period. All shareholders will have passed through their five year holding period in September 2017 by which point I expect to be in a position to make recommendations for the future of the VCT and the provision of liquidity to shareholders. An update will be provided in the interim report.

Company Outlook

The Board is mindful that investors will pass through their five year VCT qualifying period over the course of Spring and Summer 2017. Whilst the fund was established as a VCT with a 25 year limited life, the Board is aware that some investors may wish to realise their investment earlier, once outside their five year VCT holding period. Due to the sub-optimal size of the portfolio, the Company's ability to satisfy any such requests risks having a significant detrimental effect on the value for remaining shareholders. As such, the Board is currently considering options to provide an equitable liquidity solution for all, once all shareholders have passed through their five year VCT qualifying holding period. This may include an orderly wind up of the VCT through the sale of its assets and the return of capital to shareholders.

For the assets, the key risk is the impact of long term power prices which have dropped during the past year, despite slightly recovering because of the depreciation of the Sterling. Unfortunately, there is little that can be done in the immediate term, apart from negotiating better purchasing power agreements for electricity generated. The team have explored the possibility of extending the asset life beyond the current 25 years. However, this option would not have significant positive impact to the NAV. The team continue to investigate ways in which we can optimise or enhance the existing portfolio to create more value through technical improvements.

As previously mentioned, the Government has effectively ended subsidies for new solar PV projects in the UK. This has the potential to increase the value of existing assets in the portfolio given there will now be a finite amount available in the market, and investors have become increasingly interested in such asset classes due to their relatively predictable income and established technology. During the period we have monitored the market closely and have adjusted the discount rates for the two ROC sites according to market trends, which has had a positive impact to the valuations.

We continue to monitor the renewables sector on a regular basis and the discount rates used to value the solar sites within the Company's portfolio are in line with market practice seen at present. Any changes to discount rates used by market participants in the future may cause us to change the discount rates we use to determine fair value of the investments.

BusyBumbleBee
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Re: VENTUS TWINS STRATEGY

Postby BusyBumbleBee » December 1st, 2016, 5:31 pm

Very interesting, Tolmers - thanks - makes Ventus seem almost good. But Octopus are in solar not wind and both are very small with high costs.

The listed solar funds BSIF, NESF and FSFL are doing so much better with all trading above NAV. Shows the high cost model of a VCT in a very bad light. But those listed funds might pay more than book value for the assets.

outages were horrendous - over 10%.
For the Huygens site, the issue was rectified before the summer months, as a result, the site was able to generate electricity 5% above budget during the last six months. However, when considering the overall performance for the whole financial year, the site produced 21% less electricity compared to budget. The other two sites were affected to a much less extent in revenue loss. At Debes, the site was operating around 89% of capacity and Delambre at 91%. The lower than anticipated performance has had a negative impact to the valuation of these companies.


This could make the price drop significantly in which case value might appear.
the Board has decided to suspend the share buyback facility


In the next 22 years there should be a step change in solar technology and having a site could be valuable. I will wait and see and probably buy if the price drops more than 20% as another manager could really improve performance. Risky but depends on your view of where the solar industry is going.

The two VCTs would make a good acquisition for any two of the Albion VCTs who would improve the management of the assets and reduce costs - thereby increasing the the yield significantly.

UncleEbenezer
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Re: VENTUS TWINS STRATEGY

Postby UncleEbenezer » December 1st, 2016, 6:19 pm

BusyBumbleBee wrote:Very interesting, Tolmers - thanks - makes Ventus seem almost good. But Octopus are in solar not wind and both are very small with high costs.

Tolmers, you hold those Octopus funds? Or just read RNS notices as a hobby?

Kind-of highlights what a great investment Foresight Solar has been (and, it seems, Hazel, though I don't claim to understand their workings). Octopus shareholders might want to explore the possibility of a Foresight takeover (become a new F solar share class), on the grounds that they have both the VCT for investors looking for income and the capacity to buy up VCT assets for cash.

I do wonder if the Octopus and Ventus valuations are opposite faces of the same coin. Ventus's rosy valuations, vs Octopus managing expectations downward with the prospect of any residual value being a pure bonus to shareholders.

127tolmers
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Re: VENTUS TWINS STRATEGY

Postby 127tolmers » December 1st, 2016, 11:18 pm

Uncle E, good to see you have migrated. I hold Ventus and Ventus 2 in the Ord and C versions and also Hazel 1 & 2. I keep a watching brief on all VCTs that might have a read across to my other interests. I am not an Octopus 3 & 4 shareholder but am interested in how other renewables perform and in the end game of small sub scale VCTs. With the continuing industry mergers there are not so many VCT announcements to look at these days.

BusyBumbleBee
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Re: VENTUS TWINS STRATEGY

Postby BusyBumbleBee » January 8th, 2017, 6:22 pm

This is a letter which I have just sent to Temporis to pass on to the Ventus 2 VCT Board - doubtless it will also be passed on to the Ventus BOD as well

Alan Moore OBE – Chairman
Ventus 2 VCT plc
c/o The City Partnership (UK) Limited
Thistle House
21 Thistle Street
Edinburgh EH2 1DF

Dear Mr Moore

It is most remiss of me not to write earlier on the publication of the Interim Results and the Strategy Note.

On the whole I thought they were good documents, as did other investors I have spoken to. A great deal of thought went into them and I and others thank you for this.

There are a couple of outstanding issues we raised at the meeting with the board late last year and these are set out below

MANAGER’S FEES

The manager receives fees as follows (according to the last annual report)

The Investment Manager is entitled to an annual fee equal to 2.5% of the Company’s net asset value (“NAV”). This fee is exclusive of VAT and is paid quarterly in advance. The fee covers the provision by the Investment Manager of investment management services as well as all accounting and administrative services together with the additional annual trail commission payable to authorised financial intermediaries. Total annual running costs are in aggregate capped at 3.6% of NAV (excluding the Investment Manager’s performance-related incentive fee, investment costs and irrecoverable VAT), with any excess being borne by the Investment Manager.

The Investment Manager will receive a performance-related incentive fee subject to the Company achieving certain defined targets. No incentive fee will be payable until the Company has provided a cumulative return to investors in the form of growth in NAV plus payment of dividends (“the Return”) of 60p per share. Thereafter, the incentive fee, which is payable in cash, is calculated as 20% of the amount by which the Return in any accounting period exceeds 7p per share. The incentive fee is exclusive of VAT.


First a couple of questions :

a) surely VCT management charges have been exempt form VAT since 2008 which I assume includes the performance fee. Could you change the wording in the next annual report to reflect reality here?
b) How long does the trail commission continue? And what is its cost per annum?

The government has changed the rules under which Ventus 2 operates and investments in new companies are no longer allowed, so Temporis no longer has to do this. It is not part of the strategy to sell any assets so that cost has also been removed. Put another way; the 2½% of NAV basic fee was set back in 2008 and no longer reflects the amount of work required of the manager. A more realistic fee would be 1 to 1½ % of NAV which is still substantially above the fees of comparable listed Green Infrastructure Funds but takes into account the scale of operations within the VCT.

Other costs are not so easily cut but we did point out that a common board would reduce costs by about 0.125 pence per share in reality.

The Incentive Fee is part of the manager’s reward and also needs to be addressed but the feeling is that it should reflect extra work or skill evidenced year by year and not a reward for doing the work that is rewarded within the standard management fee. There is more on this under ‘Share Class Merger’ below.

These two issues need urgent attention and preferably a renegotiation before the AGM. It is the single biggest investor concern. It would be good if a vote on the new reward system was taken at the AGM.

SHARE BUY BACKS

There don’t seem to be many shares available in the market so implementing such a policy would not cost the company much, if anything. But some existing investors would like to see a buy back policy introduced which would give some certainty of value to their shareholdings.

SHARE CLASS MERGER

The putative merger of the ORD and “C” classes is also welcomed by shareholders who would also like to see the “D” shares merged at the same time.

However, there are some problems here of which I am sure you are well aware. The problems relate mainly to the ORD share class and the performance-related incentive fee. At the moment the “growth in NAV plus payment of dividends (“the Return”) of 60p per share” coupled with the “7p per share increase in return in a year” is highly unlikely to be reached even in the medium term, whereas with the “C” and “D” share classes it should be reached in the near future.

I don’t think there is any easy solution and so it may be necessary to rethink and rebase the whole performance-related incentive fee at the same time as the share class merger. Such a rebasing would also reflect the change in Manager work-load caused by the changes in legislation.

Currently both share classes are paying dividends of very nearly 6½ pence per 100 p of NAV – which should/must continue with the addition of the extra penny coming from the reduction of the Manager’s fee by one percentage point making 7.5 pence from the time the new ORDs come into existence. The incentive scheme set out below might work but

a) it does slightly disadvantage the ORD shares as they would probably not pay any incentive fee until 2023 under the existing scheme whereas the “C” shares would probably pay it from 2020 onwards. However, the disadvantage is small – nowhere near the labourers in the vineyard advantage!
b) It does not take into account the fact that large parts of the revenue of investee companies is index linked probably adding one or two percentage points of income per year.
c) It does not take into account the extra money that investee companies will ‘rake in’ when their external loans are paid off but this could be addressed by adding something this to the scheme
“When an investee company has paid off its loans, the interest saved by that company shall be held within the company to provide a reserve to ‘refresh and renew’ its assets. At that time the Incentive plan will need to be reworked to ensure the manager is sufficiently incentivised to see this chapter in the life of the VCT to a successful conclusion”

Such a scheme probably needs to be in place for five years and then reviewed annually thereafter

A possible Incentive Scheme:

Step One : exchange all ORDs and “C” shares into NEW ORDs with each share having a NAV of exactly 100 pence. Set the incentive fee at 20% of any total return of in excess of 7½% of NAV. The target end of year Total Return then becomes 100 + 7.5 pence per share which is effectively the same as now with the addition of the 1 penny extra from reducing the base manager fee.

Step Two : state that for each succeeding year the hurdle for the payment of the incentive fee will be the higher of:

i) what the End of Year Total Return should have been (manager has to catch up)

and

ii) the actual End of Year Total Return (the manager has already been paid an incentive fee on some of this)

increased by 7.5%

Repeat Step 2 in each succeeding year.

Step Three : publish an illustrative table like one of these:


No increase in Dividend

Code: Select all

A   B   C   D   E   F   G   I
2018    100.00     107.50     109.00     0.30    7.50    0.25     1.50
2019    109.00     117.18     118.20     0.21    7.50    0.25     1.52
2020    118.20     127.07     128.00     0.19    7.50    0.25     1.66
2021    128.00     137.60     138.00     0.08    7.50    0.25     1.81
2022    138.00     148.35     149.00     0.13    7.50    0.25     1.96
2023    149.00     160.18     158.00     -      7.50    0.25     2.12
2024    160.18     172.19     173.00     0.16    7.50    0.25     2.29
2025    173.00     185.98     187.00     0.21    7.50    0.25     2.48
2026    187.00     201.03     202.00     0.19    7.50    0.25     2.69
2027    202.00     217.15     219.00     0.37    7.50    0.25     2.91
A    B     C     D     E    F    G     I



Increasing Dividend by RPI of 2% per annum.

Code: Select all

Year ending Feb   Start Total Return   Target Total Return   Actual Total Return   Incentive p/share   Dividend p per share   Director fee p per share   Base Fee p per share
2018    100.00     107.50     109.00     0.30    7.50    0.25     1.50
2019    109.00     117.18     118.20     0.21    7.65    0.25     1.52
2020    118.20     127.07     128.00     0.19    7.80    0.25     1.65
2021    128.00     137.60     138.00     0.08    7.96    0.25     1.80
2022    138.00     148.35     149.00     0.13    8.12    0.25     1.95
2023    149.00     160.18     158.00     -      8.28    0.25     2.11
2024    160.18     172.19     173.00     0.16    8.45    0.25     2.27
2025    173.00     185.98     187.00     0.21    8.62    0.25     2.46
2026    187.00     201.03     202.00     0.19    8.79    0.25     2.67
2027    202.00     217.15     219.00     0.37    8.96    0.25     2.89
         TOTALS    1.83     82.12     2.50     20.82
            10 years' dividends     82.12       


I have also attached the spreadsheet used to calculate this and will publish this letter on the Lemon Fool to see the reactions of other investors

I hope this is useful and shall look forward to hearing from you.

With all best wishes for the New Year

Yours sincerely - etc


-----------------------------------------------------------------------------

Sorry I couldn't get the table headings s to line up properly!

The columns are

A: Year ending Feb
B. Start Total Return
C. Target Total Return
D. Actual Total Return
E. Incentive p/share
F. Dividend p per share
G. Director fee p per share
I. Base Fee p per share

It may not be a perfect solution but apart from the small disadvantage to the ORDs it seems to be one hell of a lot better than we have now

Hope you like it - and as always comments very welcome - and, of course, you could also write to the board in support of the idea!!

BusyBumbleBee
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Re: VENTUS TWINS STRATEGY

Postby BusyBumbleBee » January 8th, 2017, 6:43 pm

To add to my last post

These figures show the 'global picture'

Ords NAV 18,480,000 at 28 February 2015 or 75.8p per share
"C" shares NAV £13,908,000 at 28 February 2015 or 123.3p per share
Total NAV 32,388,000 i.e this number of new shares will come into existence

Directors Fees per year £80,000 0.25 pence per share

Basic Fee £485,820 1.50 pence per share

Incentive Fee £59,412 0.18 pence per share average

Dividends £2,429,100 7.50 pence per share

--- and that gets me my first pip !

127tolmers
Posts: 22
Joined: November 22nd, 2016, 7:32 pm

Re: VENTUS TWINS STRATEGY

Postby 127tolmers » January 21st, 2017, 11:50 am

BBB, you might be interested to note that the Hazel Renewable manager has offered a reduction in management fee from 1.9% to 1.4% now it is fully invested. See p9 of the circular below.

http://www.downing.co.uk/sites/default/ ... c_2016.pdf

A reduction in the management fee can be negotiated with the Investment Manager,
to reduce their net fee (after trail commission costs) to 1.4% of net assets per annum.

This compares to the current fee (net of trail commission costs) of 1.9%. The Manager
has indicated that it would be willing to accept this deduction;

BusyBumbleBee
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Re: VENTUS TWINS STRATEGY

Postby BusyBumbleBee » January 22nd, 2017, 11:43 am

127tolmers wrote:BBB, you might be interested to note that the Hazel Renewable manager has offered a reduction in management fee from 1.9% to 1.4% now it is fully invested. See p9 of the circular below.

http://www.downing.co.uk/sites/default/ ... c_2016.pdf

A reduction in the management fee can be negotiated with the Investment Manager,
to reduce their net fee (after trail commission costs) to 1.4% of net assets per annum.

This compares to the current fee (net of trail commission costs) of 1.9%. The Manager
has indicated that it would be willing to accept this deduction;


Thanks for posting this Tolmers, : Now if only we could get that for the Ventus twins and with concerted shareholder action we should be able to get that.

To all Ventus investors : please read that link and see what the Hazle boards predict over the coming years and then write to the Chairman saying that the fees need to be reduced and the incentive fee reorganised along the lines outlined above.


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