Public markets affecting VCTs

[sinterklaas]

I have just watched two video interviews on Wealth Club (ProVen VCT and Octopus Titan) and they both describe how much they've dropped valuations of significant chunks of their portfolio due to stock market moves.

i.e. tech growth companies falling dramatically out of favour on the Nasdaq, etc, has a direct knock on impact on the NAV of VCTs (albeit delayed by up to several months)

Can be tempting to think that public markets and private companies arent really correlated but this shows how much they can be.

Both Karen from Beringea and Malcolm from Octopus make the point how different this is to the trend in underlying revenues of their companies.

[Mainwaring]

Interesting thanks. I doubt Microsoft’s business has gone backwards in 2022 either though there is $100 dollars off the SP/ market valuation. Hopefully value will out in about 5 years as I’ve just had a small punt on Titan (3% of my VCT portfolio, sized to my perception of risk).

[Kidman]

The public market valuations will only affect certain VCT investee company valuations.

One may note in all VCT annual reports details of the different ways of valuing the companies invested in and only some will be affected by taking public company multiples (P/E) and using them. Other companies will be valued at purchase price, usually for the first year and further if there has been no significant change, last funding round share prices, or an offered exit price.

Naturally, in all cases, if valuations are trending lower then the VCTs will have to adjust lower.

In the end there is only one valuation that is absolute and that is the exit, but that is no help to anyone selling VCT shares when valuations in general are down!

[Smoggy]

If you're valuing a company using a discounted cashflow approach then the higher discount rate will apply whether you're Uber, Tesla or whatever is in the Octopus Titan portfolio. It's why growth stocks have done so much worse than value stocks this year because their value derives from potential profits far off in the future which are now more heavily discounted than they were before.