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Trust Insider: GCP's growing family of high-yield infrastructure
by James Carthew on May 27, 2014 at 00:01
GCPII launched in July 2010, GCPSL in May last year and GCPSID in December. All are managed by Gravis Capital Partners, a six-strong partnership who are mostly ex-DTZ corporate finance. They also manage an Oeic along the same lines.
GCPII is now a £450 million fund, having just added another £80 million in a C-share and completed a deal to restructure the way it invests.
GCPII invests in the debt portion of the funding structure that supports public/private infrastructure (PPI) and private finance initiative (PFI) infrastructure projects in the UK. The funding of most big projects comprises a mix of debt and equity.
Some other closed-end infrastructure companies hold some debt in their portfolios but mostly they invest in the equity part of the capital structure.
GCPII is the only listed fund that specialises in the debt portion. The debt it holds may be mezzanine level finance, subordinate in the capital structure or more highly rated debt but, as it ranks above the equity, GCPII is cushioned if anything goes wrong.
The cashflows that service its debt are also largely sourced from government and local authorities, making these vehicles less risky than structured corporate debt.
Additionally, their cashflow often has a degree of inflation protection built in. Even with all these safeguards, GCPII’s ethos is to ensure its portfolio is fairly well diversified (maximum 10% in any single project). GCPII has exposure to assets under construction (between 10% and 15% of the portfolio), this adds a little to the risk. GCPII can be geared up to 20% but is not geared at the moment.
GCPII is targeting returns of 8% per annum, quite attractive given the degree of risk control built into the fund, and this accounts for it having traded at a premium since launch. Most of that comes back as dividend; GCPII has just switched to paying quarterly dividends, currently running at 1.9p per quarter.
There is increasing competition for large PFI-style infrastructure assets but GCP has been diversifying its portfolio into smaller projects and says there is still demand for subordinated debt. The portfolio is spread across 32 holdings and PFI assets make up less than 50% of this.
The balance is spread across: rooftop solar (funding the installation of domestic solar panels); biomass (wood fuelled, combined heat and power plants); anaerobic digestion (generating energy from farm waste); onshore wind (generally small wind turbine projects); and commercial solar projects, all of which benefit from predictable government-backed cashflow.
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