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Great idea Barchid, but there is bound to be experienced investors like yourself or publicly available material to make judgement - failing that I might well give them a call.
I was reading that the MERC 3rd party investment earnings are based on a blend of fees and periodic carried interest - they receive a percentage of realised shares. So I'll stick with my original view for now as it sounds conventional.
Direct investments in my view is special as they don't need to take a percentage of the realised shares. Also, am I correct in understanding that there are 24 direct investments?
Always happy to be corrected.
What do you think Board, Barchid and Others?
johnht
So why not call Merc this week as a potential EIS investor and discuss their fees?
Won't that save a lot of time and answer your question definitively ?
Great points Barchid really appreciate this. From what I can tell the MERC fees are cheap.
A couple of points; I can imagine them "dishing out free shares" - but they are usually not given a technical term of free or dishing out, generally within the field the shares will be realised as carry (as part of final fees). The percentage a management firm takes from the 3rd party is usually taken on a 20:80 split of what's realised. Many of the companies they invest in have a high failure rate. So it makes a lot of sense.
I'd say that the funds that MERC manages follows standard.
Any thoughts guys?
johnht/Boards
If you go to the Mercia site (or wealth club who also sell Merc schemes) and look at the application form you see that each investor is issued shares at a fundraisising round, which Merc charge the investor an annual management fee and a custody fee, they do not get free shares issued because they have invested. Can you imagine BBB dishing out free shares to Merc ? Their fees are not cheap to investors, tbh managing EIS co's requires a lot of time over not a lot of money, which I guess is why they bought out Northern VCT group
Investee companies often have several fund raises from start up to either liquidation, industry sale or flotation so it is at a later stage that Merc would usually choose to participate, eg Oxford Genetics (Oxgene) they chose to invest at a price of about 8 times more than their earliest investors paid some years earlier. Remember that a company does not receive the significant tax benefits a PI is entitled to. To be able to buy into a company which is showing promise is clearly different to buying into a start up or very early stage co. Also even in these start ups there are often more than just Merc investing, other VC companies can participate. So no dilution without payment can occur. Same way as VCT trusts operate, in broad terms.
Boards
You are totally correct as to NAV calculations being tricky, normally this is at last fund raise price less, for instance, an amount for post fund raise events, like covid or a big contract gained or lost, so essentially it is a wet finger in the air to see which way the wind is blowing. I think I am correct in saying that their only holding which is listed is/was blue prism, a real winner, but sadly Merc did not directly invest in it, they merged with a similar co who had Prism as an investment.
I know this is a long winded answer but they were involved questions !
@BoardsOfUk, it would be good to understand what the potential is. One key question re: 3rd party capital management - does MERC earn interest from the assets they invest in? I would say yes, but it seems that Barchid who has a deeper understanding could explain why they don't?
From there we can look at direct investments how they differ from 3rd party?
Also good to hear views on how MERC compares to other asset managers (I.e. industry standard)?
I'll leave Barchid to explain and will try and add where I can.
Thanks
Barchid, you mentioned a while back about how difficult it is to calculate a NAV for MERC, given the lack of transparency.
I feel the only way to really shift the SP is for investors to have clear visibility of the NAV and the figures behind it, otherwise this is a blind investment.
Thanks Barchid - from your last comment, clearly you've done your own research. Can you point me to the agreement documents between MERC and the funds they manage?
johnht
Are you making this up as you go along ?
They have few significant stakes but those they do they pay for in the relevant funding rounds
Dyor
Maybe their annual report will clarify their actual position in each company and they aren't just groovy. :) They don't work on a standard management fee - I'm fairly sure (will double check), but they acquire significant positions in companies (as a management fee).
johnht
If they say on their website or their accounts that they own a stake in a company then they do.
If they have invested clients money (which is the great bulk of what they do), then all they receive is their management fee so a shareholder in merc will only benefit from that fee, not from any uplift in value.
They tend to be focussed on large shareholders, not PI's, hence when they raised money to buy Northern VCT at a 40% discount to the share price it was not offered AT ALL to PI's, just the groovy gang and directors.
So in essence a PI is treated as a nuisance, historically. |Read the history & you will see for yourself
From what I understand the other funds are parallel internally managed vehicles so that MERC doesn't need to put a cap in hand to prospective co-p's. In some other cases they are going classical and are directly making investments without anyone else from internal co-op. They are likely to make more money in the former as they can control the terms better (as well as further benefits) then the latter more traditional method. However, this is a complicated process which I've summarised, but from what I understand they own part of the company.
In any case merc will certainly benefit - and so will the rest of us pi's. Overall it's a solid company and well respected in the field - perhaps not as well respected by pi's here because of the complicated structure. The net benefit to us may not be huge per company but if a) you get an average increase in roi value and/or b) one or more big roi then its a different story.
Anyways enough of merc I'd rather discuss what they've invested in.
Good luck
johnht
According to these links Mercia will not own anything in either of these companies, just the investors whose funds they manage.
johnht,
Thanks for the informative updates.
Nice and concise, no unnecessary adjectives.
Cheers..!
https://www.mercia.co.uk/news-media/news/2020/jun/3/biotech-firm-raises-12m-first-spot-stroke-test/