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Ben Goldsmith's green investment trust turns red
Ben Goldsmith, brother of London mayoral candidate Zac, has had an inauspicious start at the helm of Menhaden Capital.
One of the more intriguing funds to launch last year was Menhaden Capital (MHN ). Managed by Ben Goldsmith, brother of London mayoral candidate Zac, and Alexander Vavalidis, Menhaden is supposed to profit by investing in green businesses and beat the MSCI World Index over the longer term.
It sits in the Association of Investment Companies' Specialist – Environmental sector; one of six environmental funds that between them have a market capitalisation of less than £500 million. Half the sector is in gradual run-off mode as Leaf Clean Energy (LEAF), Ludgate Environmental (LEF ) and Trading Emissions (TREM) all sell off assets and return cash to their shareholders.
This seeming lack of enthusiasm for environmental investing was reflected in Menhaden’s launch. They were targeting £150 million but managed to raise £80 million. What is more, most of that money seems to have been invested by people who already knew WHEB Capital Partners (the management company) or by the management team themselves.
I have long been puzzled why this segment of the market doesn’t attract more attention. It is not for want of trying. Various initiatives have been put forward to encourage socially responsible investing. Menhaden, for instance, is a member of the Social Stock Exchange, a regulated exchange that requires its members to submit an impact assessment of how their company makes a positive social or environmental impact.
Looking at the open-ended world in the UK though, the Investment Association doesn’t bother to classify environmental funds separately but Morningstar does have a Specialist – Ecology category. Just £1.8 billion is invested in this strategy, less than 0.2% of the open-ended market in the UK. It looks therefore as though it is not a big focus for individual investors and their advisers. Might this change?
Menhaden’s shares traded at a decent premium at the outset and I figured it wouldn’t be long before they would be back looking to expand the trust (as so many of 2015’s other new issues managed to do). They seeded the portfolio by agreeing to buy stakes in two limited partnership vehicles managed by WHEB. The cost of the stakes was £10 million and €3.7 million (£2.9 million) and they came with outstanding commitments attached of £900,000 and €9.5 million.
The portfolio is fairly concentrated – the target is about 20 to 25 holdings – and is made up of a mix of quoted and unquoted investments plus an allocation to income generating mainly solar and wind plants in the UK and Europe. The prospectus says the managers are targeting an annual dividend of 2p once they are fully invested and these yield assets will contribute to this. They can use gearing, up to 20% of net assets.
The first net asset value that the company published in September 2015 was a bit of a surprise though. Despite only being 62% invested, over the company’s first month of operations (to the end of August 2015) the net asset value (NAV) had dropped to 94.1p. The opening net asset value was 97.7p, 100p less the costs of raising the money and setting the company up.
WHEB invested £30 million more or less straightaway in mid and large capitalisation companies. The timing was unfortunate given the market weakness in August.
One stock in particular, Canadian Solar (CSIQ.O), fell sharply in August however (-23%) and this dented Menhaden’s performance. Canadian Solar’s share price has been very volatile since, at times showing a decent profit for the trust. The private equity positions were marked down in response to the market fall’s, taking almost 8% of their value in August, and two high yielding listed renewable energy companies they bought also fell.
Things didn’t improve much for them unfortunately. The renewable energy companies, Terraform Power (TERP.O) and Terraform Global (GLBL.O), have now fallen by around two-thirds from the levels where Menhaden invested. Today Morningstar estimates that Menhaden’s net asset value is about 83p. The share price, which had been holding up very well, cracked at the end of November and the shares are now on a 16% discount.
If all this sounds a bit gloomy, it might be worth contrasting Menhaden’s fortunes with the leading fund in the environmental sector, Impax Environmental Markets (IEM ). Its NAV is not much changed over the past five months. In its latest blog Impax is enthusiastic about the prospects for their markets in 2016. It think the Paris Climate Agreement provides a tailwind for companies focused on resource efficiency and environmental issues. We will have to watch to see if Menhaden can turn its fortunes around against this backdrop.
James Carthew is a director at Marten & Co. The views expressed in this article are his and do not constitute investment advice.
If you want to know more about environmental trusts and climate change read the special report in issue 24 of Investment Trust Insider.
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