- First-half assets under management (AUM) rise 11 per cent to record £7.3bn
- Organic AUM growth of £500mn buoyed by new mandates and inflows into existing funds
- Infrastructure assets historically outperform equities in periods of high inflation and low economic growth
Gresham House (GHE:865p), a fund manager specialising in renewable energy generation (solar power, wind, and battery storage farms), forestry, infrastructure, and public and private equity investment strategies, has reported record first-half assets under management (AUM) and reiterated guidance that supports 30 per cent growth in pre-tax profits this year.
The most impressive take from the pre-close trading update was the £500mn organic growth in AUM, which accounted for 62 per cent of the overall £800mn increase. Significant fundraises in private asset funds include a £150mn oversubscribed fundraise for Gresham House Energy Storage Fund (GRID), the largest listed specialist fund in UK energy storage projects, £80mn raised in affordable housing funds, and first close of a new forestry fund with commitments of £75mn from institutional clients. The group also reported net inflows of £70mn into its open-ended equity funds and raised £70mn for the Baronsmead and Mobeus VCTs, both of which achieved their maximum fundraising targets.
Expect further AUM growth in the second half, buoyed by strong commitments to the group’s second British Sustainable Infrastructure Fund, international and UK forestry funds, and real estate funds. It’s easy to see why Gresham is proving popular with clients, offering funds with strong ESG credentials, elements of inflation-linkage, and exposure to government infrastructure delivery. For example, forestry funds account for more than 40 per cent of AUM.
Furthermore, Gresham is sensibly using its strong balance sheet – net cash of £40.3mn (105p a share) and liquid investments of £38mn (99p a share) at the start of 2022 – to invest a further £13mn in battery energy storage and renewable energy projects. The battery projects are then sold to Gresham House Energy Storage Fund once operational and have delivered historic internal rates of return (IRR) in excess of 30 per cent.
The first-half performance was even more impressive given that the general weakness in equity markets, which failed to subdue interest in Gresham’s listed equity funds, highlighting strong underlying demand. Despite the ongoing performance, Gresham’s share price has pulled back 12.5 per cent since I covered the first-quarter update (‘A trio of value plays’, 30 April 2022), albeit the holding has still delivered a 183 per cent total return since I initiated coverage in my 2016 Bargain Shares Portfolio.
Adjust for cash and Gresham's shares are trading on forward price/earnings (PE) ratios of 14 (2022) and 12 (2023), low ratings for an investment manager with infrastructure funds that are beneficiaries of the high inflationary, low growth economic environment. Prospects for a 30 per cent hike in the annual dividend per share to 13p adds to the attraction. Buy.
Simon Thompson was named Journalist of the Year at the 2022 Small Cap Awards.
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