Do you expect to fully execute on the targets laid out in the capital allocation policy, and what is next for the Company once it has completed its stated aims?

To facilitate the aims of the policy, the Investment Adviser has been focused on executing disposals and refinancing processes to realise the £150 million capital target. The Company’s disposals total £38.2 million at the end of 2024, with a pipeline of additional disposals in excess of £150 million. We have experienced consistent delays across transactions throughout the year, with processes taking longer than expected across all sectors. However, the Board and the Investment Adviser remain committed to achieving the stated aims of the capital allocation policy as quickly as possible.

The capital allocation policy was developed in conjunction with shareholders to help address the disconnect between share price and NAV. Once the Company has executed on the stated aims of the policy, the Board will re-evaluate its position based on the price at which shares are trading. If there is a material discount¹ thereafter, the Board will evaluate the merits of continuing to return capital to shareholders against the risks of decreasing the Company’s scale. Nevertheless, we, and the Board remain
optimistic about future investment opportunities.

The new Government has made encouraging commitments to decarbonisation that will require significant investment across the UK. A heightened interest rate environment also offers the opportunity to take materially reduced risk to achieve the same level of return or capture elevated returns from new technologies that will form part of the Government’s decarbonisation mandate.

Where does the Investment Adviser see attractive opportunities in the UK infrastructure market?

The UK infrastructure market finds itself in a far better position than it was at this time last year, with aggressive ambitions for deployment of renewables: 60GW offshore wind, 50GW solar photovoltaic, 30GW onshore wind and 10GW of low carbon hydrogen capacity, and decarbonisation of the electricity grid by 2030. This comes alongside policy support in a number of new sectors, including a cap and floor scheme for long-duration energy storage, and ambitions for four industrial carbon capture and storage clusters sequestering 20 to 30 million tonnes of carbon dioxide per year by 2030.

The Company is well placed to benefit from a transitioning subsidy landscape, and has a track record of being an early-mover in new sectors, particularly through its focus on debt. Significant policy developments will be required in the next decade to support widespread decarbonisation across existing sectors (wind and solar), but also across a broad spectrum of industries including heat, transport, industry and agriculture. There are attractive opportunities to benefit from enhanced returns in new technologies before yields compress, which is an approach the Company has a legacy of executing. Fundamentally, the ambitions stated will require levels of investment that have not previously been seen, and this will stretch liquidity in the market, providing further investment opportunities for the Company.

What do you believe has caused the disconnect between share price rating and NAV?

There are several reasons for the discount between the share price and underlying NAV. One of the most significant reasons is the current interest rate environment, as increases in base rates have fed through to discount rates, which has caused valuations to decrease. This has increased the cost of debt, with many investment companies relying on leverage for capital deployment programmes and to enhance returns. At the same time, investors have seen an attractive opportunity to reallocate into traditional fixed income such as government and corporate debt. 

We now find ourselves in a position where central banks have started to cut interest rates, and we hope that as this progresses the relative attractiveness of listed investment companies increases.

The increased interest rate environment has highlighted areas of stress within some investment companies, where shareholders have focused on valuations, highlighting a lack of uniformity in methodology. In a handful of isolated cases, flaws in certain approaches have caused contagion across a whole asset class, such as social housing and battery energy storage.

Can you explain the legacy of double counting in cost disclosure, and  what recent developments mean for investment companies?

In the United Kingdom, the Financial Conduct Authority (“UK FCA”) is responsible for implementing regulations to ensure a financial product is transparent when disclosing the costs associated with investing. These costs can include fees for fund management, transaction costs or the charges of underlying assets. The aim for cost disclosure is to provide investors with a clear view of how much they are paying, which allows them to make informed decisions. In 2018, the European Union (“EU”) introduced the Packaged Retail and Insurance-based Investment Products (“PRIIPs”) regulation, which required investment managers to provide retail investors with a Key Information Document (“KID”), explaining a product’s features, risks and all associated costs, including their ongoing charges figures (“OCFs”). This regime runs parallel to the 2009 Undertakings for the Collective Investment in Transferable Securities (“UCITS”) regulation, which applies to the EU and any UK funds that market themselves to EU investors.

Following Brexit, the UK began work on updating its own PRIIPs regime, with the UK FCA reviewing and adjusting the framework to make it more relevant to the UK market. As part of this, the UK FCA implemented new cost disclosure guidance on 1 July 2022, which required closed-ended investment companies to report in the same way as open-ended funds. These regulations aimed to increase transparency for non-UCITS vehicles by requiring them to disclose their costs more clearly. However, as investment companies already provided detailed cost information under the former rules, institutional investors and intermediaries were made to report these costs again in their own disclosures to clients, which has resulted in double counting. As a result of the double counting, some investors have been unable to invest in investment companies or have significantly reduced their exposure.

It is broadly accepted by the industry and by the Government, that this single aggregated figure is not an accurate representation of the actual costs of investment in shares in an investment company. Following the successful campaigning of a group of parliamentarians and industry participants, HM Treasury proposed a Statutory Instrument to remove the requirement for investment companies, along with persons advising on or selling shares of investment companies, to produce a KID. Additionally, investment companies, and firms investing in them will not be required to disclose costs and charges relating to investment companies to clients, pursuant to the MiFID Org Regulation.

The Statutory Instrument became law on 22 November 2024. However, additional issues have been encountered post period end, with investment platforms continuing to require ongoing charges to be disclosed in the KID. We continue to monitor the impact of cost disclosure on the Company, and the Investment Adviser has been active in the campaign to resolve the issue.

Important information 

This article is issued by Gravis Capital Management Limited (“GCM”), which is authorised and regulated by the Financial Conduct Authority under Firm Reference Number 770680. GCM’s registered office address is 24 Savile Row, London, United Kingdom, W1S 2ES.

GCP Infrastructure Investments Ltd (“GCP Infra”) is a Jersey-incorporated, closed-end investment company. Its shares are traded on the main market of the London Stock Exchange. It is regulated as a certified fund in Jersey, pursuant to the Collective Investment Funds (Jersey) Law 1988. GCM is the Fund’s Alternative Investment Fund Manager.

Any decision to invest in GCP Infra must be based solely on the information contained in the Prospectus, the latest Key Investor Information Document and the latest annual or interim report and financial statements.

GCM does not offer investment advice and this article should not be considered a recommendation, invitation or inducement to invest in GCP Infra. Prospective investors are recommended to seek professional advice before making a decision to invest. The merits and suitability of any investment action in relation to securities should be considered carefully and involve, among other things, an assessment of the legal, tax, accounting, regulatory, financial, credit and other related aspects of such securities. 

Your capital is at risk and you may not get back the full amount invested. Past performance is not a reliable indicator of future results. Prospective investors should consider the risks connected to an investment in GCP Infra, which include (but are not limited to), hedging risk, concentration risk, counterparty risk, inflation and interest rate risks and risks relating to property development and social infrastructure assets. Please see the detailed Risk Factors section in the Prospectus for further information.

This article has been prepared by GCM using all reasonable skill, care and diligence. It contains information and analysis that is believed to be accurate at the time of publication but is subject to change without notice. It is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. Any recipients outside the UK should inform themselves of and observe any applicable legal or regulatory requirements in their jurisdiction.