The past six months has taken its toll on UK infrastructure and GCP Infrastructure Investments (GCP) is now looking to the secondary market for opportunities under a new lead manager.
Philip Kent is taking over as lead manager as existing managers Stephen Ellis and Rollo Wright step back, the trust announced in half-year results.
With investors having suffered a 3.8% loss over the six months to the end of March, trust chairman Ian Reeves said the sector had faced a ‘number of headwinds’, with concerns about a Labour-led government nationalising UK public finance initiative (PFI) projects, the collapse of services group Carillion, and rising interest rates.
On top of these well-publicised problems, the trust has also had to deal with the regulator of social housing ‘querying the financial visibility of First Priority Housing Association’ to which the trust has 4% of assets exposed.
The regulator found the housing association based in Kent lacked ‘sufficient working capital’, although interest on loans made by GCP are up to date.
Reeves said the trust had ‘significantly progressed discussions with a number of potential replacement registered providers and in light of these negotiations, do not anticipate that there will be a material impact on the company’s net asset value’.
However, investors are still confident on the outlook as the trust raised £100 million in an oversubscribed share issue, well above its £60 million target.
The issue for the trust now is how to invest the money in a sector which is slowing, particularly in GCP’s specialist area of renewable energy debt. With a dearth of projects available, the trust is looking to the secondary loan market for investment opportunities.
‘The pipeline of primary UK infrastructure projects requiring finance remains subdued,’ said Reeves.
‘Although competition remains strong, there does appear to be more activity in secondary market deals. In this context, the experience of the investment adviser in transacting across a range of infrastructure sectors ensures that the company has access to the majority of opportunities that do emerge.’
He added that the secondary activity was fuelled by borrowers seeking to refinance and lenders looking to sell loans, and since 31 March the trust has used the market to invest in solar and wind projects.
The trust, which currently trades at a premium of 8.5%, has 46 investments worth around £1 billion and Reeves said the majority of the portfolio was ‘performing materially in line with expectations’.