One of the big worries for investors in the investment trust sector has been the relative paucity of new IPOs, especially in the IPO sector. We’ve seen a few alternative funds list, such as the Gresham House Energy Storage fund and SDCL’s energy efficiency fund but overall investors seem rather more interested in existing funds raising extra money rather than brand new concepts.
The good news is that we should be about to see two new, properly alternative funds list on the stock market in the next month. I’ve already mentioned the putative global agriculture fund which I’ll review in more detail at the end of this week.
Yesterday though came news of something really very different. Its called Cabot Square Alternatives Plc and is targeting an initial £200m with the proposed ticker ALTS. The placing closes 13th February and the book is being run by Cantor Fitzgerald.
The pitch? It’s investing in a range of slightly less mature alternative asset niches ranging from social property to lending into renewables. The twist is that
- It invests in less mature alternative assets, including lending to infrastructure and property assets and
- It co-invests in the equity of the fund managers it works with for each investment niche.
In a sense, it’s a kind of fund for investing in less mature alternatives that would traditionally only be available to larger institutions. And who are the underlying funds and asset managers? The IM lists outfits such as the following: Signature Care homes, MedicX healthcare, PRS Holdings, Equitix Infrastructure, Storage King and NetZero Buildings – an offsite manufacturer of buildings I presume.
If the manager does raise the full £200m, it plans to invest about 47% in renewable assets such as solar, 28% in social housing and 25% in ‘sustainable assets’. About 7% of the fundraising will be invested in equity 9and working capital) with the managers and the rest in the underlying assets of which a fair chunk (around 44%0 will be structured as debt – and 80% invested in the UK.
We get a bit more granularity about the investment strategy by looking at the disclosed pipeline which I summarised in the graphic below, which seems to suggest three main investment platforms: Rosewood, Phoenix and TBD (?).
Rosewood might comprise £5 to £10m in equity and working capital plus £200m in renewable infra assets, many of them structured as loans. These could be Short term loans to UK renewables, ranging from £3m to £20m loans for 1 to 3 years with a bullet repayment, and leverage upto 85%, interest 6 to 7%. Projects could also include solar in Spain, plus Solar refinancing, and the buy out of an operational AD plant. There’s also financing of hydro project, and finance for battery storage plants. So a real mixed bag.
Phoenix might comprise of £2 to £3m in equity plus £125m invested in infrastructure assets – again they predict loans in the £5m to £15m range, with 4 to 12-year terms, and a focus on sustainable assets plus shared ownership.
The manager behind the investment trust (main market) is Cabot Square Capital, which was established in 1996, and is an AIFM with £760 million AUM in private equity – key managers include Keith Maddin, who will be the fund manager and Partner responsible for infrastructure and property investing. Overall the manager boasts a 15 year track record of successfully investing in this space with a 23% IRR, 2.8x Money Multiple based on £285 million of total value creation. The ;argest single loss, to date, has been a £1 million investment in Aleltho.
As you’d expect this is primarily an income play targeting 3% dividend in first year, 5% in the second year and growing thereafter with a total NAV return projected between 8% – 10% p.a. NAV total return. The AMC is set at 1% up to £100m and the placing closes on 13 February.