I recently wrote that the investment trusts launched in 2021 had held up fairly well amid the recent sell-off, but some investors will have additional ways of measuring whether they pass muster. With 2021’s arrivals focusing on alternative and often less liquid asset classes, one thing holders will wish to know is just how soon these funds can put their IPO proceeds to work. Given that many such trusts stood out for their lofty dividend and total return targets, the ability to deploy cash quickly matters.
How has the group done so far? Analysis conducted for us by the Association of Investment Companies (AIC) suggests that of 14 trusts launched last year (ignoring Literacy Capital (BOOK) and Petershill Partners (PHLL), which had existing assets when they IPOed), most have deployed cash in a timely fashion. Life Science Reit (LABS) and Taylor Maritime Investments (TMI) have put their cash to work, while Cordiant Digital Infrastructure (CORD) has deployed or committed all net proceeds from its IPO and subsequent fundraising. Foresight Sustainable Forestry (FSF) had put an impressive 91 per cent of its IPO proceeds to work as of the end of March.
Some have further to go but you can argue decent progress has been made: VH Global Sustainable Energy Opportunities (GSEO) had committed 80 per cent of its net equity proceeds as of the end of March, with AIC analysis of latest disclosures indicating Seraphim Space (SSIT), Digital 9 Infrastructure (DGI9) and Castlenau Group (CGL) also have less than 30 per cent left to deploy. HydrogenOne Capital Growth (HGEN) and Pantheon Infrastructure (PINT) are not far behind. PINT has actually announced a further investment since the AIC's analysis was conducted. Harmony Energy Income (HEIT) has put money to work on six projects that are currently under construction.
Some still have work to do. ThomasLloyd Energy Impact (TLEI) had committed just 40 per cent of its net IPO proceeds as of the end of March. Atrato Onsite Energy (ROOF) looks like a more extreme case, given it had net assets of £146.1mn on 31 March with £145.8mn of this in cash.
It’s definitely worth stressing that the last two trusts I mentioned launched in the last two months of 2021 and may therefore deserve some leeway. But investors do need to ask whether cash is deployed in a fairly timely manner to generate high levels of income and total return. Slow progress can sometimes cause problems, even if a trust can recover over time.
One interesting case remains Aquila Energy Efficiency (AEET), which launched more than a year ago but had a hard time getting going. Two of its non-executive directors resigned in January 2022 because of a “difference of opinion regarding the speed of deployment” and slow deployment prompted a review of the company’s investment strategy. This review led to a few changes, including a condition whereby the investment team only earn fees on committed capital.
A very recent update suggests some improvement, with the company announcing on 25 July that its total commitments had reached £48.5mn, while capital deployed had reached £21.8mn. The investment team has also apparently “increased its origination capability”, something that may boost deployment in the future.
Given that the trust raised some £100mn, this seems like progress. But a shaky start reminds us that backing new trusts isn't always a fast track to success.