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Trust Insider: understanding the generational divide in green tech trusts
by James Carthew on Dec 17, 2013 at 00:01
Having spent some time looking at the recently listed renewable energy companies, it seems slightly odd these companies have been raking in hundreds of millions of pounds from investors but the pre-existing environmental/green/renewable sector is not so well loved.
This year has seen the demise of Impax Asian Environmental and the shrinking (through buy-backs) of Jupiter Green and the larger Impax fund. This is despite decent performance this year from the latter two funds, Premier Energy & Water and BlackRock New Energy . The fund that I wanted to have a look at this week though is Leaf Clean Energy (Leaf).
Leaf was launched in June 2007. It started as a £200 million fund but, like many funds of that time, fell out of favour in the credit crunch. Leaf bought back quite a few shares and held a tender in 2010 that shrunk the fund further; the market cap is now £64 million. The share price has fallen from 100p to less than 50p today but seems largely a discount problem; the discount is around 47% on the last published net asset value (NAV).
At the end of June, the NAV was 93.8p (the next update is in March 2014 with the figures as at the end-2013). A weak US dollar should have had a negative impact as most of Leaf’s assets are based in the US, but there could have been compensating moves in the valuation of its investments.
Leaf provides venture and growth capital to renewable energy companies. Instinctively I am in favour of venture/growth capital funds. Enabling businesses to grow by giving them money to help them expand is much more socially useful than trading shares in established companies.
However, with a few exceptions, the venture and growth capital industry has been a disappointment for investors since the collapse of the tech boom. The recent news from Ashmore Global illustrates this. Its largest holding, Brazilian bioethanol company Odebrecht Agroindustrial (which I mentioned in June might be in trouble), has just been written down by 90%. This has a potential read-across for Leaf as one of its holdings, Vital Renewable Energy Company, is involved with Brazilian sugar cane ethanol production and electricity generation and infrastructure projects.
Leaf has invested $23 million in Vital Renewable but does not tell us what it thinks it is worth today (it publishes aggregate NAV). Perhaps it thinks this is justifiable on the grounds it might affect any potential sale price but if I were invested in Leaf, I would want to know.
Overall, Leaf has invested $181.5 million into its portfolio, which was estimated to be worth $162.6 million at the end of June. It also had $21 million in cash at that date. The management was internalised in 2010 in exchange for a payment of $7 million to the former manager and the fund is now managed from Boston (though domiciled in Cayman).
The overheads last year were, I think, too high, at $5.2 million. I appreciate private equity investments, especially in early-stage companies, require more looking after than listed companies but my biggest gripe is the directors’ fees: $566,000 for three non-executives (and this is after reducing the fees in 2011) and $900,000 for the executive director.
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- Jupiter Green (Ordinary Share)
- Impax Environmental Markets (Ordinary Share)
- Premier Energy and Water (Ord Income)
- BlackRock New Energy (Ordinary Share)
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