The Scottish Mail on Sunday

The green fund with renewable flow of returns

- By Jeff Prestridge

INCOME from savings and investment­s is in short supply as a result of widespread company dividend suspension­s and low interest rates. But one fund valiantly battling against the income tide is GCP Infrastruc­ture Investment­s.

Although it is due to trim its income payouts from next year, it will still be paying an attractive annual income in the order of 6per cent.

This £1billion trust is managed by Philip Kent at investment house Gravis Capital and is listed on the London Stock Exchange.

It delivers shareholde­rs a stream of quarterly income by investing in a range of biggish infrastruc­ture projects – everything from solar panels to wind energy farms and biomass plants.

The trust lends money to businesses directly rather than by taking an equity stake in them. It then earns an investment return in the form of regular interest payments on the loans it makes that are used to pay shareholde­rs their dividends. Any repayments of loan capital are employed to fund additional investment­s.

It’s a ‘ conservati­ve’ modus operandi with an emphasis on income generation and capital preservati­on. But as the impending income shave indicates, it’s not without risk.

Although more than 60 per cent of its investment portfolio is in trendy renewable energy, it means the trust’s fortunes are dependent upon energy prices.

Any fall in prices can compromise the profitabil­ity of projects it has lent money to, occasional­ly resulting in the debt it has arranged having to be refinanced at a lower interest rate.

This is the case with a £25million loan it made to help finance a waste wood biomass plant in Widnes, near Liverpool, in 2014.

Although the plant, operated by Danish company Burmeister & Wain, is now fully operationa­l and generating electricit­y from building and demolition waste, electricit­y prices are not as high as anticipate­d, resulting in a diminishin­g cash-flow from the plant.

This has led to GCP’s £25million loan being restructur­ed at a lower interest rate – eight rather than 10 per cent per annum. It is a contributo­ry factor behind next year’s reduction in quarterly income payments to shareholde­rs, from 7.6 pence per share to 7 pence.

Kent says the trust, whose shares are held equally by private investors and institutio­ns such as pension funds, is well diversifie­d – across some 47 investment­s.

It is also an occasional equity investor rather than lender. For example, two years ago, it acquired an £80million stake in the Race Bank wind farm off the coast of Norfolk, comprising 91 wind turbines. The income the project generates comes from a mix of Government subsidies and the power it supplies to the National Grid.

KENT, who is running the trust from home in Herne Hill, South-East London, hopes the Government’s promise to invest ‘record’ sums in infrastruc­ture projects will not be deflected by the money it has had to spend on supporting the economy and workforce through the coronaviru­s pandemic.

‘The need for infrastruc­ture spending has not gone away,’ says Kent. ‘We need to continue to build new schools, hospitals, leisure centres and transport links. The private sector has a role to play in this.’

The trust’s shares are currently priced at £1.15 and trade at a 10 per cent premium to the value of the fund’s underlying assets.

Over the past one, three and five years, it has outperform­ed the FTSE All-Share Index on a total return basis. Annual charges are 1.1 per cent and the Stock Exchange identifica­tion code is 136173J1.

Gravis Capital Management runs assets worth £2.5 billion across a range of funds specialisi­ng in infrastruc­ture, student accommodat­ion, clean energy and property. jeff.prestridge@mailonsund­ay.co.uk

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