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 6 per cent.
This £1billion trust is managed by Philip Kent at investment house Gravis Capital and is listed on the London Stock Exchange.
More than 60 per cent of the trust’s investment portfolio is in trendy renewable energy
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.
Two years ago, the trust acquired an £80m stake in the wind farm off the coast of Norfolk
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 £2.5billion across a range of funds specialising in infrastructure, student accommodation, clean energy and property.