VCTs undergo consolidation with Matrix and Aberdeen moves

In a sign that it's 'survival of the fittest' in the venture capital trust (VCT) community, a couple of the UK's strong performers have taken over management of existing funds.

"There will be further consolidation within the VCT sector because deal sourcing takes a lot of work," says James Thorneley at Aberdeen Asset Management. "You need a network and regional office support. Some VCTs, established a few years ago, do not have that and their performance has suffered. We will thus see consolidation in favour of larger, more successful fund managers."

Just last week, Aberdeen Asset Managers became the latest to drive VCT consolidation when it was appointed fund manager to the Gateway VCT. The move sees Aberdeen's growth capital team increase its assets under management to £145m across seven funds, making it one of the UK's largest VCT managers. Aberdeen has grown through acquisition, and since its foray into VCTs in 2004 has won contracts for two other underperforming VCTs.

A week earlier, small buyout house Matrix Private Equity Partners had taken on sole-manager status at The Income & Growth VCT, a £40m fund that had been launched in 2000 as a multi-manager VCT. The move saw Foresight Group step down as co-manager, following a similar move by Nova Capital Management in September 2007. The fund, launched as TriVest VCT, is touted as the best performing of all VCTs fundraising, with a gross annual rate of return of 25%.

"The move is a natural progression and a sign that our track record is coming through for us," said Mark Wignall, CEO at Matrix.

This move was the second time in a year that Matrix had won a sole investment mandate for a previously multi-manager fund. TriVen VCT, another triumvirate, was established in 1999, with Matrix managing alongside Nova and Elderstreet. The vehicle was converted to Matrix Income & Growth 4 around 18 months ago. "The funds were launched with the idea being that diversity could bring benefits," Wignall explained. "Over times, investment preferences change and it made sense to move to a single-manager status."

The fund has a number of successful exits. Recently it was one of three Matrix VCTs that divested Ministry of Cake, a Somerset-based business originally backed by Matrix in September 2005. The business, which counts Brakes and Hard Rock Cafe among its clients, was sold to Irish food company Greencore Group in December 2007. The transaction generated a 2.5x money multiple and 58% IRR for the vendors.

Matrix manages five VCTs with £130m funds under management. It is currently raising a fresh £15m share issues for The Income & Growth VCT. Most recently it divested its stake in Apollo Lifts, an investment made through the Baring English Growth Fund, managed by Matrix. The divestment marked the fourth this year for the VCT manager, and generated a 3x money multiple and 34% IRR for the vendor.

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