2021: The 16 new trusts launching into a bumper year
Table: Private Equity
New fund launches played a huge part in what was a record year for money-raising by investment companies in 2021.
Sixteen ‘closed-end’ funds floated on the London Stock Exchange, double the number of 2020 when initial public offers (IPOs) disappeared in the pandemic crash, before reviving in an end-of-year flurry as the onset of Covid-19 vaccines reopened the market for new listings.
This year’s debutants raised £3.8bn, a quarter of the total money flowing into investment companies, which hit an all-time high of £14.8bn and £4.6bn more than the previous peak seven years ago.
We look at the year’s new intake.
In a year in which climate change vied with coronavirus for investors’ attention, six of the new entrants were energy funds focused on the transition from fossil fuels. They drew in an impressive £874m, starting with VH Global Sustainable Energy Opportunities (GSEO), which gathered £242m in January.
Infrastructure provided three further names, including two highly successful offerings from Cordiant (CORD) and Triple Point (DGI9). They spawned a new sub-sector of digital infrastructure in early spring by taking an initial £670m to invest in the cables and data centres required to support rapid, worldwide internet growth.
Underlining the ability of investment companies to cater for a diverse range of investor interests, funds for specialist property (Life Science Reit), timber (Foresight Sustainable Forestry), private equity (Petershill Partners) and special situations (Castelnau) also got the green light to start life on the UK stock market.
Not every wannabe did though. Whether it was something wrong with their propositions, or their fund managers weren’t sufficiently well known or a glut of alternative options, but Alinda Capital Infrastructure, Blackfinch European Renewables Income, Responsible Housing and UK Residential real estate investment trusts were among those that had to pull back due to a lack of investor interest.
Early performance was varied too, ranging from early star Literacy Capital (BOOK). The £177m private equity fund raised no extra money from investors when it listed in June, which is a shame as the shares subsequently soared 64%.
This was in stark contrast to Petershill Partners (PHLL), the Goldman Sachs alternative assets spin-off, which raised the most money – £1bn (over a quarter of the total) – in October but whose stock dropped 24% in the following weeks.
Richard Stone, chief executive of the Association of Investment Companies, said it had been ‘an extremely busy year’, commenting the ‘strong fund raising is a vote of confidence in the investment company structure, especially for investing in less liquid assets such as green infrastructure and growth capital’.
Former Capita boss Paul Pindar and his consultant son Richard may not have sought external investors when they listed Literacy Capital (BOOK) in the summer – they and their family own nearly half the shares – but the private equity fund will grab investors attention if it continues its early good start.
Hikes to its net asset value have come from Butternut, a subscription-based fresh dog food provider, and Hometree, a provider of home cover plans for boilers and heating, achieving higher valuations on fund raises from other investors.
Any increase in BOOK’s size will be good for the charity Bookmark Reading to which the Pindars donate some of their annual management fee.
Another strong performer is Taylor Maritime Investments (TMI), the shipping fund that has generated a 31% total return for shareholders in the six months since its oversubscribed launch raised $250m (£182m). Backers include M&G, Waverton, West Yorkshire pension fund and Fidelity International.
Half-year results this month confirmed the positive impact the surge in shipping charter rates caused by the pandemic is having on the portfolio of 25 second-hand Japanese ‘Handysize’ vessels. Net asset value grew 43% in the four months to 30 September with the company flagging up the possibility of paying an extraordinary dividend if the strong market conditions persist.
The dollar-denominated company has so far declared two quarterly dividends of 1.75 cents, covered 3.9 times by earnings, or profits. It aims to eventually pay 7 cents a year in dividends once its fleet is fully operational.
In December it also ploughed the profits from the sale of two boats into a 24.8% stake in Grindrod, a shipping business listed on the US Nasdaq and Johannesburg stock exchanges.
Tigran Manukyan, a multi-asset fund manager at Fidelity International, which has a 4.1% stake in the company, said the outlook for TMI looked good ‘given the highly constrained supply as a result of capital having fled shipping over the last 10 years’.
‘While this thesis was already playing through in buoyant charter rates, it was exacerbated by the impacts of Covid-19 [but] this was not being readily reflected in vessel values,’ he said.
Although the £150m raised by Seraphim Space (SSIT) fell slightly short of its £180m target, starry-eyed investors have seen the shares rocket 26% since launch in July to a heady 21% premium over net asset value. That’s good news for state-owned British Business Bank and fund managers Schroders and Premier Miton which rank among its leading investors.
Managed by Mark Boggett, a venture capitalist who formerly worked at YFM Equity Partners, and chaired by Will Whitehorn, ex-president of Richard Branson’s Virgin Galactic, Seraphim Space is targeting an interstellar 20% annual return from investments in early and growth-stage businesses involved in the commercial exploitation of space.
Having taken control of a seed portfolio that included cloud-based encryption provider Arqit, micro-satellite manager Iceye and satellite launch and deployment company D-Orbit, in November Seraphim announced its first new investment, a $25m stake in HawkEye 360, a commercial provider of space-based radio frequency (RF) data and analytics. It also posted quarterly results showing a 6% gain in NAV per share to 104p.
‘Space is now open for business and no longer just the preserve for billionaires,’ Boggett declared.
HydrogenOne Capital Growth (HGEN), the UK’s first listed fund dedicated to the nascent clean hydrogen power sector, also shook off a shaky start when it took in £107m in July, less than half its £250m target.
Bright hopes for its prospects have seen the shares advance 17%, even though there has been no underlying investment growth published for the portfolio yet. The share price rise is reassuring for chemicals billionaire Jim Ratcliffe who took a £25m cornerstone stake, encouraging wealth managers Rathbone and Investec and the West Yorkshire pension fund to get involved too.
Fund manager Richard Hulf, who previously ran the Artemis Global Energy fund, quickly invested 10% of the portfolio in 19 listed hydrogen stocks. In October he made the trust’s first private equity investment with a €24m (£20m) position in Sunfire, a German manufacturer of the alkaline and solid oxide electrolysers used to make clean hydrogen.
Hulf also recently agreed a £9m private investment in NanoSUN, a supplier of mobile hydrogen storage and refuelling systems, and a £10m holding in HiROC, a supplier of clean energy production technology. He is looking at a pipeline of a further 120 possible deals.
Cordiant Digital Infrastructure (CORD) was the year’s second launch, generating an enthusiastic response from investors who committed £370m of capital, more than the £300m the company was seeking, for its vision of investing in the ‘plumbing of the internet’.
After the company, managed by Canada’s Cordiant Capital, swiftly returned to raise another £185m in a C-share issue in June, there was some grumbling about the pace of investment, with 46% of assets deployed by the end of September.
Mick Gilligan of wealth manager Killik & Co said the company had three months to invest the remaining 20% cash from the IPO and keep to the prospectus timetable. He noted that CORD faced growing competition for investments from rival Digital 9 Infrastructure (DGI), which raised £300m the following month in March, and also 3i Infrastructure (3IN), which recently announced a £500m investment in the sector.
Overall performance, however, has not disappointed big investors like fund managers Newton and Sarasin or the private clients of wealth manager Charles Stanley. The shares are up 12%, ahead of the 3.6% rise in underlying net asset value. Moreover, the company declared a 1.5p per share maiden dividend, instead of the 0.5p planned at launch, enabling it to lift the first year’s target from 1p to 3p. Longer term the fund aims to generate a a 9% annual total return including dividends.
Genevra Banszky von Ambroz, a fund manager at Tilney Smith & Williamson, which owns 4.7% of CORD, said the trust was in advanced talks on a number of deals and ‘we are confident the team will complete on those which fit’.
Triple Point’s Digital 9 Infrastructure (DGI9) also raced back to the market with a £175m share issue in June, just three months after its launch. Investors who subscribed at the start include fund managers Schroders, Rathbones, Insight, Foresight and CG Asset Management of Capital Gearing Trust (CGT) fame. They have not been disappointed either with the shares up 13% to a 6.5% premium to net asset value.
There has been good progress on investments with fund manager Thor Johnsen investing £160m in Aqua Comms, a platform that owns and operates 14,300km of transatlantic subsea fibre systems used by US internet giants.
In December he complemented this core asset with a £15m investment in SeaEdge UK, a data centre and subsea fibre landing station in Newcastle.
Pantheon Ventures has used its long-standing contacts around the world with hard-to-access private equity fund managers to good effect in its Pantheon International (PIN) trust. The prospect that the firm could repeat the same trick in infrastructure saw investors, including fund manager Quilter, pour £400m into the launch of Pantheon Infrastructure (PINT) last month, £100m more than was targeted.
This gives fund manager Richard Sem plenty of money to pursue a £1bn pipeline of potential investments in cash-generating, physical assets in the energy, transport, healthcare and digital sectors.
The ambition is for a 10% annual total return including dividends. So far the shares are up 4.5% and stand on a 6% premium over NAV.
Quilter also led fund managers Sarasin, Newton and Courtiers along with Witan (WTAN) investment trust in backing the £243m IPO of VH Global Sustainable Energy Opportunities (GSEO), the first launch of the year.
This was less than the £400m it wanted so having committed all its money, in November it nipped back with a £70m share issue to fund four new investments, including an onshore wind farm in Mexico, a hydro project in Brazil, and a solar project in Vietnam.
Nick Wood, head of fund research at Quilter, which is the largest shareholder in the fund with a 19.8% stake, was attracted by the ‘spectrum of energy transition assets’ in which GSEO fund manager Victory Hill invests.
The firm was founded last year by a team of energy financiers from Mizuho Bank. Its chief executive is Anthony Catachanas.
The fund is targeting a 10% annual return including a 5p per share dividend once fully invested and hopes to differentiate itself by investing globally, including in Australia, Brazil, Bulgaria and more established markets in the UK and US.
‘These include power generation as well as transmission, storage, and distribution, which is a differentiator compared to most other trusts in the sector which target a specific technology or geography,’ he said.
‘In addition, the trust targets mid-market assets which are generally less competed for,’ Wood added.
So far the shares have risen 7% to stand at an 8% premium, which Wood believes ‘offers value compared to a mid-market sector average of 14% and pure renewables average of 7%’.
Wealth manager EQ Investors took a shine to battery fund Harmony Energy Income (HEIT), buying 6% of the £187m of shares when they were issued in November.
Daniel Bland, EQ’s head of sustainable investment management, liked its plan to build a network of renewable energy storage systems across the UK using Tesla batteries. These would help the UK reach its net zero carbon goal and in time would generate good dividends.
The advantage of Tesla batteries is they last longer than competitors and come with Autobidder software to help their owners optimise revenues from selling energy to the grid.
‘Tesla is one of the primary battery providers and these are large-scale projects that plug directly into the National Grid to supply two hours of on-demand power and load balancing,’ said Bland.
‘The trust is unique in being able to supply two opposed to the standard one hour of power, which the team believe is a sweet spot in terms of battery cost versus returns,’ he added.
Aquila Energy Efficiency (AEET) squeezed on to the market when it raised £100m in May with supporters again including Schroders, Investec and the shrewd West Yorkshire pension fund.
This is the second UK-listed investment company from Aquila Capital in Germany, which also runs Aquila European Renewables Income (AERI).
Although AEET shares have not done much since flotation, it is early days and London-based fund managers Alex Betts, Franco Hauri and Bruno Derungs are confident they can generate total annual returns of between 7.5% to 9.5% from operating energy efficiency, heating and ventilation services for companies in the UK and Europe. The target includes dividends of 5p per share by 2023.
Atrato Onsite Energy (ROOF), the UK’s first listed rooftop solar power fund, did better in November when it hit its target of £150m with the share offer heavily over-subscribed by eager investors including Close Asset Management, Liontrust and Sarasin. The shares are up 9% on an 11% premium.
Gurpreet Gujral, managing director of fund manager Atrato Partners, which also runs the Supermarket Income (SUPR) real estate investment trust, is looking to provide an 8%-10% annual total return. This will include a 5p per share dividend in its first two years with revenues from selling solar power under long-term, index-linked contracts to the occupants of the buildings on which its panels are fixed.
Juliet Davenport, the trust’s chair, was delighted with the support from retail and institutional investors. ‘This demonstrates the alignment of the investment community with our mission to build new renewable energy capacity to help meet the UK’s binding net zero emissions target and meaningfully contribute to the green economy,’ she said.
By contrast, Foresight Sustainable Forestry (FSF), which floated on the same day in November as ROOF, has had a tougher time. It only raised its minimum target of £130m thanks to a cornerstone investment from another fund in the Foresight Group. So far the shares have fallen 5% on a 4% discount below asset value.
Although two previous UK-listed timber funds did badly, FSF fund managers Richard Kelly and Robert Guest point to the likely growth in demand in the UK for the organic construction material, particularly as this country imports most of the wood it uses.
Petershill Partners (PHLL), the alternative assets platform, has been on a downhill slide since making a £4bn splash spinning off from investment bank Goldman Sachs in October. Shares, which remain nearly three quarters held by Goldman Sachs associates, have shed nearly a quarter of their value and languish on a 32% discount. That disappoints JP Morgan, Lazards and Abrdn, which also bought into the flotation, but was enough to gain it a place in the ‘mid cap’ FTSE 250 index.
The company holds stakes in 20 privately-owned fund managers, including Riverstone Holdings, the New York-based fund manager of Riverstone Energy (RSE) and Riverstone Credit Opportunities Income (RCOI) investment companies. Its first post-IPO investment was a minority stake in Symphony Technology in California.
Phoenix Asset Management, manager of the Aurora (ARR) investment trust, launched this new investment company as a turnaround vehicle to hold its interests in undertakers Dignity, train set retailer Hornby and stamp dealer Phoenix SG (formerly Stanley Gibbons) along with two technology service companies.
Castelnau raised £53.1m to give it a market value of £178m. At 106p the shares are up 6% and stand on an 18% premium over net asset value, making them a feature in the ‘expensive’ list in our recent weekly Trust Watch column.
Life Science Reit (LABS) claimed to be the biggest real estate investment trust launch in five years last month when it attracted £350m, instead of the £300m it wanted, for its move on to the junior AIM exchange.
As the UK’s first dedicated listed property fund for the burgeoning healthcare research and manufacturing sector, LABS excited interest from private investors at Investec as well as fund managers Sarasin and Schroders.
Simon Farnsworth, fund manager at Ironstone Asset Management, is eyeing a 10% annual total return from laboratories, manufacturing & testing facilities, offices and data centres in the Oxford-Cambridge-London ‘golden triangle’ of world-leading research universities.
Income will provide a big chunk of this with an initial dividend yield of 4% set to rise to 5% in a few years.