Sequoia Economic Infrastructure H2 2025 Earnings Report

Sequoia Economic Infrastructure EPS Results

• Actual EPS: GBX 5.04
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Sequoia Economic Infrastructure Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Sequoia Economic Infrastructure Announcement Details

• Quarter: H2 2025
• Date: 6/25/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, June 25, 2025
• Conference Call Time: 4:00AM ET

Sequoia Economic Infrastructure (LON:SEQI)ome Fund Limited invests in a diversified portfolio of senior and subordinated economic infrastructure debt investments through its subsidiary Sequoia IDF Asset Holdings S.A. The Company operates through investment in senior and subordinated infrastructure debt instruments and related and/or similar assets segment. Its investment objective is to provide investors with regular, sustained, long-term distributions and capital appreciation from a diversified portfolio of senior and subordinated economic infrastructure debt investments. Its principal investment policy is to invest in a portfolio of loans, notes and bonds. It invests in various market sectors, such as transport, transportation equipment, utilities, power, renewable energy, telecommunications infrastructure and infrastructure accommodation. Sequoia Investment Management Company Limited is the investment advisor of the Company.

Sequoia Economic Infrastructure H2 2025 Earnings Call Transcript

Key Takeaways

• SECI delivered a 6.1% NAV total return for FY25 and offers an 8.8% dividend yield fully covered by cash, significantly above current gilt yields.
• The portfolio remains highly diversified with 59 positions across eight sectors, 60% senior secured exposure and 59% of assets on fixed or hedged rates, reducing interest-rate and credit risk.
• Since July 2022, the fund has repurchased £213 million of shares (≈13% of issued capital) to help narrow its discount and boost shareholder value.
• Analysts forecast a 4p per share pull-to-par uplift over the next four years as performing loans approach maturity, with three-quarters of that front-loaded in the next two years.
• Non-performing loans remain under 1% of NAV, but a write-down on a Washington DC school loan and one undisclosed position modestly weighed on FY25 NAV performance.

Presentation

[Randall Sandstrom, CEO & CIO at Sequoia Economic Infrastructure Income Fund Limited]

Good morning everyone. Welcome to our fiscal year twenty five results call for SECI. This covers the period January '20 '4 through thirty one March twenty five. I'm Randall Sandstrom and with me this morning is Steve Cook, a partner and head of portfolio management at Simcoe and Matt Diamond, managing director and head of client capital. If we turn right to the introduction on page one, SECI is a platform with scale and has been proven through the cycles.

[Randall Sandstrom, CEO & CIO at Sequoia Economic Infrastructure Income Fund Limited]

We have a ten plus year track record of meeting dividend targets in volatile market conditions. SECI is a market leading listed credit fund with scale and a NAV of £1,400,000,000 The shares are liquid with an average of 3,000,000 shares traded per day, and we have a low cost structure. We've had a resilient performance this year and there's upside potential. The total return for the year was 6.1% on a NAV basis and there's upside through a portfolio pull to par of an expected 4P per share as the loans approach maturity. We've had a leading share buyback program and have acquired over $213,000,000 shares since July 2022.

[Randall Sandstrom, CEO & CIO at Sequoia Economic Infrastructure Income Fund Limited]

The portfolio has a high yield of 9.9%. The dividend is cash covered at one times and at the current share price the dividend yield is an attractive 8.8%, which is more than double the 4% in five year gilts right now.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

Thanks, Randy. Turning on to page two, I want to touch on some of the financial highlights of the year. I think the first thing to say is that we saw a lot of continuity with previous years. So the portfolio yield to maturity, which is a key measure of future earnings capacity on the investment portfolio, remained practically unchanged at 9.9% versus 10% for prior years. The fund has also remained a very similar size.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

So total gross assets have been constant at £1,500,000,000 Total net assets are slightly lower, mainly as a result of the share buyback at £1,400,000,000 versus 1.5 previously. The net asset value per share of the fund has slightly declined, and we'll go through a NAV attribution bridge on the next slide. But that resulted, once you take account of dividends, of a NAV total return of 6.1% over the year, which is slightly beneath our target return of seven to 8%. Over the year, we also saw the funds discount to NAV widen fractionally from 13.5 to 15.4%. That has since year end, partially reversed, although it's still obviously at a discount, we'll talk again about that later on in the presentation.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

And then finally on this page, the portfolio's ESG score has improved, we'll talk more about ESG and sustainability, but this remains a very important initiative for us. Turning on to page three, here we have a NAV attribution for the portfolio. As you can see, the opening NAV was 93.77p per share. Interest income added 8.17p. And then against that, there were negative adjustments of 1.45 p, including the effect of FX hedging.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

Most of that is attributable to one carrying adjustment on a non performing loan. And again, we'll touch on that later. Other adjustments are relatively small. Acquisition costs of 0.17 are just the cost of marking things to the bid side of the market. That's a noncash cost, obviously.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

Expenses and share buybacks are self explanatory. Turning on to page four. Here we have an analysis of the pull to par impact, on the portfolio. Just to remind people what this means, this is the unwinding of discounts on performing loans as they get closer to maturity. In other words, what happens is if interest rates increase, since we made a loan, for example, or discount rates increase, the carrying value, the the mark on the loan, will be typically be at a discount to par.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

That's obviously an unrealized price adjustment. And as the loan gets closer to repayment date, the price will go back up to par. Right? So that's called pull to par. It's a some mathematical or or consequence of the way the, loans are valued.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

And what you can see is that over the next four years, that adds up to about 4p per share. But interestingly, that's quite front loaded. So about three quarters of that will come in, we think, over the next two financial years and actually more than half over the coming financial year. I'd make the point that actually, although interest rates might rise faster or fall faster than expected, they may behave in some unpredictable way, of course. In fact, that won't affect the total amount of the pull to par, just the timing that we see on the on the on the income.

[Randall Sandstrom, CEO & CIO at Sequoia Economic Infrastructure Income Fund Limited]

Thank you, Steve.

[Randall Sandstrom, CEO & CIO at Sequoia Economic Infrastructure Income Fund Limited]

If we turn to page five and and look at the portfolio as of fiscal year end, things have not really changed that much since fiscal 'twenty four year end, and if we just start right at the top, you can see that we of course still maintain high diversity with 59 positions in eight different sectors and 29 sub sectors, which are shown across the bottom of the page. You can see the average life remains a pretty short three point four years. The construction bucket has ticked up a little bit. That's not part of any theme. We just saw a couple of good opportunities recently and we picked them up, but it still remains well below the 20% maximum.

[Randall Sandstrom, CEO & CIO at Sequoia Economic Infrastructure Income Fund Limited]

Over on the right hand side, can see that our senior secured exposure is at 60%, and that of course is the lowest point of risk in the capital structure. In terms of fixed and floating, we were at 59% as of fiscal year end on the fixed rate side, and we increased that a little while ago to take advantage of a lower rate environment.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

Thanks. Turning on to page six, I want to say a few words about the credit performance of the portfolio. As you know, we target high yield or sub investment grade debt, so it's inevitable that we're going to have credit consequences or credit problems from time to time. However, that is mitigated by having a highly diverse portfolio and also by the fact that infrastructure typically has lower default rates than the wider market and also better recoveries following a default. So when we look at our portfolio, we've got good reasons to expect outperformance versus high yield bond and leveraged loans.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

In fact, that's what we have seen over time. In terms of our current NPLs, we have two positions, which between them contribute less than 1% of net asset value. One is a school in Washington DC. This has been a long running transaction in the portfolio, which was bailed as a result of COVID. Unfortunately, the defunding of the Department for Education, earlier this year as part of Trump's initiative, sort of efficiency drives has resulted in further delays in releasing up this, and we took the decision to reflect that in a write down of the carrying value that contributed to the, decline in the NAV over the year.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

The second one is a small loan, which we're not able to disclose its name currently due to legal reasons, but I would say I think it's marked very realistically and it's backed by real assets, and that's what's driving the the valuation of that loan. Other NPLs have performed well, have been exited, so Bulb, we now expect a full recovery on. We're no longer including that in our NPL reporting. The loan on Clyde Street has been exited. We've got some further earn out potential, but the actual loan has been sold.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

And we also finally fully exited the Salt Lake transaction in Australia, where we had a small residual piece, which we sold during the year.

[Matt Diamond, Managing Director - Client Capital at Sequoia Economic Infrastructure Income Fund Limited]

Thanks, Steve. We'll now turn to the SECI total return performance. On this slide, you can see three lines. One is the SECI NAV total return, that's the black line. The second is the SECI share price total return, the dark blue line, and the light blue line is the high yield bond benchmark.

[Matt Diamond, Managing Director - Client Capital at Sequoia Economic Infrastructure Income Fund Limited]

Some key features of this. Well, our NAV total return which we see as the sort of core performance measure for the fund, has consistently, beaten the high yield, global benchmark, by between 34% per annum. It's closer to four at the moment. That's obviously a key measure for us in terms of benchmarking what we see as a very, already very attractive asset class, but actually beating the global standard for this huge sort of high yield market, is very important for us. Secondly, when you compare that to, the return over risk free rates, in the top right you can see our cumulative NAV return, spread over risk free rates is over, 5%.

[Matt Diamond, Managing Director - Client Capital at Sequoia Economic Infrastructure Income Fund Limited]

So what else does that mean? Obviously, we've got the challenge of the discounts and I'll come to that more in a second. But a key statistic that we would like to talk about is our cash generation. The business is highly cash generative since, the IPO. We're pleased to have reached the landmark of about 3 quarters of a billion pounds of dividends, paid since IPO, which really does represent an extraordinary measure of cash flow performance.

[Matt Diamond, Managing Director - Client Capital at Sequoia Economic Infrastructure Income Fund Limited]

So on discount control, I mean, is a major point for us as it is for other players in the London listed alternatives industry. So there are several things we're doing to continue to maintain pressure on that discount and narrow it. Firstly, is the buyback. We were one of the first in the sector, in terms of investment companies to launch a buyback and definitely within our peer group, the first, to lead programs such as this. Since July 2022, we've repurchased about £213,000,000 of stock that's nearly 13% of the original or the previous, issued capital.

[Matt Diamond, Managing Director - Client Capital at Sequoia Economic Infrastructure Income Fund Limited]

However, we are very keen to continue to balance this with new transactions. Now why do we do this? And we do this to maintain strong diversification in the fund. This is really important for a credit fund and also maintain what we call thematic freshness of the portfolio. Even in the infrastructure world, which is relatively protected and defensive, it's very important to stay thematic and fresh With a average life of less than four years, we are able to roll over the portfolio into these strong themes.

[Matt Diamond, Managing Director - Client Capital at Sequoia Economic Infrastructure Income Fund Limited]

Finally, I would say, we can in current markets lend at attractive rates that are not too far off what you would call the buyback yield. In other words, the return to shareholders, from buying back ordinary shares. Beyond the buyback, there are several things we do to enhance the marketability of the shares, which is another feature of discount control. Firstly is transparency. We maintain monthly reporting with an external consultant in the form of PwC providing a high confidence in our monthly NAVs.

[Matt Diamond, Managing Director - Client Capital at Sequoia Economic Infrastructure Income Fund Limited]

Secondly, we have what we believe is a very competitive fee. Over the last year, our ongoing charges ratio has been within the lowest quartile within our peer group. We continue to take 10% of the fee as the manager in SECI shares, which aligns the interests with our shareholders. We would also note that being a fund with a revolving portfolio of loans with in general less than four years life, it is a pretty intense management process. We have to continue to reinvest, keep the portfolio, fresh, as well as, keeping our origination processes highly active and the monthly reporting and so on.

[Matt Diamond, Managing Director - Client Capital at Sequoia Economic Infrastructure Income Fund Limited]

Finally, we're working very closely with, other advisors to SECI, both in The UK and overseas. So that's with Jefferies and JP Morgan, with Kepler and PR advisers, 10AO, to enhance the understanding and appeal of SECU's very strong proposition.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

Thanks, Matt. Turning to page nine, I want to say a few words about the company's ESG and sustainability policies. This remains a very important focus for us and and the fund in in a number of ways. One is clearly the high level of reporting and transparency that we pride ourselves on this year's sustainability report is, I think, exceptionally detailed. And as usual, we've mandated KPMG to come in and do limited assurance on the reporting that we give to our investors in relation to sustainability metrics.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

So that's one element. Secondly, obviously asset allocation needs to reflect our ESG priorities. So there remains a number of sectors where we have negative screening, where we simply don't invest. There'll be things like coal fired power stations, upstream oil and gas. We don't do military infrastructure, etcetera.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

But at the same time, we also look to, prioritize. We have positive screening for, infrastructure with social benefits or which are focused on renewable energy or help energy transition, etc. And then thirdly, we're very focused on, engagement with the companies that we invest in, the companies we lend to, making sure that they have got strong ESG policies, that their level of reporting is accurate and comprehensive, that they have appropriate covenants in loan agreements to ensure a high level of environmental compliance. And that's not just done for the purposes of ESG policy. We also have seen a very strong correlation over the years, I would say, between things like companies with good governance, companies with good environmental policies and credit quality and performance.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

So I think there's a natural alignment between how we think about sustainability and how we think about portfolio performance. Turning on to page 10, we've got here three very short case studies of investments over the year. And they're all very different. The first one is community fiber, which is fiber to the home, a broadband business. In The UK, it's been a very strong business.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

I think what makes this interesting is the sector as a whole has clearly had some challenges over the last couple of years, and that's in relation to build out, perhaps overbuild in some areas, perhaps competitive pressures, lower take up than expected. There's been some headwinds across the sector and that's led to a repricing of capital. I think that's created an opportunity for us to lend to very strong businesses like community fiber, top tier businesses, and still get attractive, economics on transactions that we do. The second is a German transaction. It was just shy of a €30,000,000 loan as part of 112,000,000 transactions.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

So we were about a third of the overall financing. It's a club deal where we refinanced existing debt and provided funding for growth. And this company provides diagnostic imaging and radiotherapy services. It's a very highly regulated and constrained market in Germany with high barriers to entry. Therefore, we think it's a business with very attractive prospects.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

And then the third one is a infrastructure services business in The UK. We provided £40,000,000 of senior secured financing, and this is a company which is really helping The UK transition to, both low carbon, but also digitally connected economy. And they provide a range of infrastructure services across a number of different sectors, including fiber, energy, and water networks.

[Matt Diamond, Managing Director - Client Capital at Sequoia Economic Infrastructure Income Fund Limited]

Thanks, Steve. Turning to some market, prospect related issues. Firstly, on the the next page, we've got an overview of some of the megatrends and the impact on the growth of the market in which we operate. There are lot of words for these megatrends and there are some overlaps between them, but there's no doubt that each of them has undoubted, power and impact on, on our business as well as, life in in general, across economies. The first is decarbonization.

[Matt Diamond, Managing Director - Client Capital at Sequoia Economic Infrastructure Income Fund Limited]

This is also known as energy transition, and we've seen that in not just in renewables, but we've seen that in backup power. We've seen it in, the LNG market in particular, which is a critical supporter of renewables in the way that it provides, the fill in, for the variability in the output of typical renewable generation sources. On digitalization, a day doesn't go by without us seeing headlines on this, whether it's related to, Bitcoin or to, the impact of AI, that's all around us. And that feeds back into the requirements for infrastructure. That's data centers, its towers, its wires, and all of the connective tissue of the digital world.

[Matt Diamond, Managing Director - Client Capital at Sequoia Economic Infrastructure Income Fund Limited]

Demographics, this has probably been the one, around for many decades, particularly in developed economies with aging populations with the need to renew and refresh, older infrastructure. It includes urbanization and obviously advances in health care, and other trends that demographic, demographically related. And finally, what people are beginning to call deglobalization. This may be something that is perhaps a shorter trend, but it is nevertheless significant, and it somehow backs up some of the other ones in terms of requiring, a more sort of defensive, infrastructure setup, whether that's energy security or other backups for digital and elsewhere, which means that more money is being spent on, duplicating or reinforcing infrastructure in many different ways. Now, what impact does that have on the growth of our market?

[Matt Diamond, Managing Director - Client Capital at Sequoia Economic Infrastructure Income Fund Limited]

We investing in private credit and a good example for the growth of that can be seen in the global infrastructure private funds market, which essentially was created, in the mid 2000s and has grown, spectacularly since then. It's now comfortably over $1,000,000,000,000 in terms of, infrastructure equity, GP funds under management. Now what's interesting is actually debt is really playing catch up here. It's less than one seventh of the size of the equity equivalent and really is in high demand. So there are relatively few cross border global infrastructure debt providers compared to the number of infrastructure equity providers in the market.

[Matt Diamond, Managing Director - Client Capital at Sequoia Economic Infrastructure Income Fund Limited]

This is a huge opportunity for the SECI fund. Turning specifically to The US, listeners will be aware that about half of our portfolio has typically been in The US market. Clearly, it's a market that's seen a lot of headlines over the last year or so. So we felt we should just give it a little bit of a focus here. Now, while the broader political and economic outlook for The US remains challenging for broader investment, given some of the additional uncertainties provided by tariffs and other potential new policies that are underway in The US, We believe that infrastructure is, relatively protected, and defensive in this regard.

[Matt Diamond, Managing Director - Client Capital at Sequoia Economic Infrastructure Income Fund Limited]

Infrastructure, is fundamentally, domestic in terms of operations and the client market. And in terms of the supply as well, US banks have been notoriously underinvested in infrastructure. So there's strong demand for it from the domestic requirements, and this is a bipartisan priority, perhaps putting renewables aside. But in terms of transportation, in terms of broader energy, health care and so on, it really is a not just a national but regional and local priority to improve and expand, infrastructure in The US. This is proven also by, some reports, for example, by the American Society of, Civil Engineers that does a report card every four years.

[Matt Diamond, Managing Director - Client Capital at Sequoia Economic Infrastructure Income Fund Limited]

The latest one came out in March. They give themselves, a C grade and the reason that they give themselves that relatively low score, is partly down to the challenges in terms of financing. So they've identified a financing gap between what is planned over the current decade, to be put into infrastructure versus what infrastructure requires in The US and they've identified that as a minimum of $3,700,000,000,000 with various other factors perhaps, contributing to a much larger number. So that really does feed into an enormous continued opportunity for, the likes of SECI, over the years ahead. I would say also on the credit side, and this is not just for infrastructure credit, for broader credit as well, The US market typically represents half or more, of global, high yield credit transactions.

[Randall Sandstrom, CEO & CIO at Sequoia Economic Infrastructure Income Fund Limited]

Thank you, Matt. If we turn to page 13, we we thought that this yield graph was quite interesting and what it shows is where U. S. Dollar and Euro corporate bond yields have been over the life of SECI and it really highlights the many cycles and in some cases quite profound cycles that we've been through and the ups and downs in bond market yields, and I think that this volatility is in contrast to SECI's steady performance and consistent returns over the life of the fund. If we now turn to page 14, we'll give some closing remarks.

[Randall Sandstrom, CEO & CIO at Sequoia Economic Infrastructure Income Fund Limited]

SECI has had and is expected to have attractive long term performance. It's had ten years of paying steady dividends and its NAV total return has been well ahead of high yield corporate bonds. The fund is agile because it's very cash generative, which we've talked about, and this is due to the short average loan life in the portfolio and also the portfolio high yield, and this high portfolio cash generation has allowed us to fund the buyback and make new investments while tracking the thematic evolution of global infrastructure, such as the increasing importance of energy transition and digitalization. The fund is transparent with fresh monthly NAVs and valuations by PwC, and it's been resilient in what's been a pretty volatile world. It's infrastructure, which is typically essential and this makes it less correlated to the business cycle.

[Randall Sandstrom, CEO & CIO at Sequoia Economic Infrastructure Income Fund Limited]

It's credit with structural protections built in through covenants in our loan agreements, which protects our shareholders, and this is compared to and in contrast to equity, which represents first loss risk and at the bottom of the capital structure. It's income, and we have a long term track record of earning a premium yield over high yield corporate bonds. And then finally, it's highly diversified by sector, sub sector, counterparty, and jurisdiction, and this high diversity reduces the portfolio risk in SECI. This ends the presentation part of today's results call, and we'd now like to turn it over to Q and A. Yes, we've got our first question and the question is, does the board intend to appoint another consultant to replace Kate Thurman?

[Randall Sandstrom, CEO & CIO at Sequoia Economic Infrastructure Income Fund Limited]

The SECI itself pay for the consultants, or is there any contribution by the manager toward the cost of implying the consultants? The answer to that is that there's no current immediate plans to replace Kate. Currently, the board has six board members. It's well diversified with three women on the board, three men on the board, all top professionals in their own right and the consultants they were paid by the fund. They worked for the board and there was not a contribution by the investment manager or the investment advisor.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

Next question has come in. Which countries are you currently seeing opportunities in? And I think part of the answer is we want to maintain a very diversified portfolio. So we do look, globally in in developed markets. You know, just to remind people, we don't do emerging markets and, various other parts of the world.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

The US remains our largest single market, although it has come down a little over the last twelve to twenty four months, let's say, from probably over 50% to more like 45%. And I think there's some some reasons for that, but not least of which is it's obviously got quite hard to invest in things like renewable energy, Things like ports, you know, transport infrastructure in The States are are difficult because of tariffs, etcetera. So perhaps that's led to a slight sort of reduction in The US exposure. We're still obviously very active in The UK and Europe. Within Europe, our focus historically has been, sort of Northern Western Europe and that remains the case.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

That is still our focus, but we have just started to look at a few more things in Southern Europe. Still you know, we're not looking to do, any of what you might call the higher risk jurisdictions in Europe, but, you know, so it's core Europe, but broadly based. And then we remain obviously very interested in Australia and New Zealand as attractive markets to provide leverage. Maybe I'll roll into the next question, which is I sort of touched on very slightly, which is how have tariffs affected the portfolio? And I guess the short answer is we haven't had any sort of direct effects.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

I think there's two reasons for that. One is, obviously, with the exception well, with a few exceptions, we haven't seen a huge wave of very high tariffs. So there's definitely been an effect on global trade volumes, for example, but we're not exposed to that directly. We don't do container ports or container ships or dry bulk or anything like that. So there's no direct exposure.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

I think the thing that we need to think carefully about is, you know, will there be sort of indirect effects, whether that's, you know, lower economic growth, whether it's inflation, you know, whether it's, changes to interest rate environments and that they're all obviously very relevant to debt portfolios. That we we spend a lot of time thinking about, you know, these sort of second order effects of how political and and fiscal decisions can affect the investment outlook for what we do. But the short answer is no no direct effect.

[Randall Sandstrom, CEO & CIO at Sequoia Economic Infrastructure Income Fund Limited]

Yes. Thank you, Steve. The next question is about oil prices, and it says or it asks rather how exposed are we to oil price volatility. It's a good question. Oil's been in the news recently.

[Randall Sandstrom, CEO & CIO at Sequoia Economic Infrastructure Income Fund Limited]

It's hovering around 60 to $65 a barrel for WTI right now. The answer to that is that we're not very exposed, and the reason I say that is that this is something you know that we think about when we construct the portfolio, We like to have a natural hedge for things like inflation risk, business cycle risk, including oil price risk. So an example of this would be transport where we have about 20% exposure. Yes, that sector could be hurt, everything else being equal, by higher oil prices, but that's offset to some extent by our exposure to power, which, depending on the business model, in some cases, is helped by higher energy prices, because there is generally positive correlation between energy prices and power prices. And we've been through oil price volatility over the life of SECI, I just looked this up, oil in the spot market has been between $25 and $80 a barrel, that's for WTI, and if you remember back in COVID in the futures market, it actually went negative for a very short time, so we've been through oil price volatility and we're not overly exposed to that.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

Thanks, Randy. Next two questions are linked. There's a question about the current dividend cover, but then also the the outlook, especially in the context of, potentially declining interest rates in in various countries. So, guess a couple of things. Dividend, did remain cash covered, obviously, during the last year, but it was it was very tight.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

It was one one times. And typically, historically, we've seen a range of perhaps, 105 to 110%, cash cover. You do find, I'd say, in debt portfolios, you'd expect dividend cash cover to be tighter than equity, portfolios just because, obviously, in debt, most of your income is is contractual and therefore predictable. So, we are beneath our sort of long term average or run rate and, you know, we set out in the accounts. There's a couple of reasons for that.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

One is, we did have some cash drag, and that's, you know, obviously a little bit expensive. There's an opportunity cost to having cash in the portfolio. We've now eliminated that. Secondly, some, PIK interests. So some rolled up, the jargon is PIK, which means paid in kind interest, has fallen into this current financial year rather than being received the last financial year.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

So there's a timing effect on when you receive these things. It can create a bit of uncertainty and unpredictability. So there's a timing effect. And then thirdly, the share buyback program is obviously incredibly important, and we've been a leader in that, but it does have a negative effect on cash because although you, you create some accretion, obviously, to the share buybacks, you do obviously save on the dividends. Accretion isn't counted towards dividend cover.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

It's a non non income item on the on the p and l statement. So the combination of those three things pushed our dividend cover, you know, below its sort of historical range. It is still cash covered. I think the accounts are very clear that there's a, a very clear statement that the dividend is is sustainable going forward. You know?

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

And that takes account of, obviously, a very careful analysis of the interest rate outlook. So it's clear that, you know, as interest rates fall, you know, that will mean you get low less interest. However, couple of things. One is 60% of the portfolio is fixed rate loans or or hedged into fixed rate. So we've got a level of, you know, insurance or hedging against interest rates falling.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

Secondly, as I mentioned, there's, accrued interest that we're expecting to receive. But thirdly, fee income is also a very, very important driver of income. And I would I would remind people that for most of the life of the fund, most of the last ten years, rates have been a lot lower than where they are today, and we still cover the dividend. So that shows that margin and fee income is, you know, is is a really important driver of cover, I would say.

[Randall Sandstrom, CEO & CIO at Sequoia Economic Infrastructure Income Fund Limited]

Thank you, Steve. We have a question about the share about the the discount to NAV and what are we doing to address that. So first, just to put a few numbers around that, the This discount at the end of the fiscal year stood at just over 15%. You can see in the in the annual results was 15.4%. It's recently narrowed is currently about 13%, But to put those numbers in contrast, renewables finished the fiscal year at 35% discount and infrastructure equity on average was at about a 25% discount to NAV.

[Randall Sandstrom, CEO & CIO at Sequoia Economic Infrastructure Income Fund Limited]

If you look at broadly at before, sorry, the 40 investment trusts out there that we would consider to be competitors or comparables rather, the average is about 22%. So at a 13% discount, although we're not happy with that, we are happy that we're at least at the narrow end of that range. What are we doing about that? We obviously have a share buyback program in place. We've bought back or the fund has rather over 200,000,000 shares since we started the program back in summer of twenty twenty two.

[Randall Sandstrom, CEO & CIO at Sequoia Economic Infrastructure Income Fund Limited]

The investment advisor, Simcoe, also owns about 8,000,000 shares. We also are very active in investor engagement. We've just finished our Capital Markets Day recently. We do that every year. We have investor events.

[Randall Sandstrom, CEO & CIO at Sequoia Economic Infrastructure Income Fund Limited]

We're gonna be doing a results roadshow just after this call starting very shortly. We've also recently appointed a second broker. Think as most people know, JP Morgan is now working with Jefferies, and we got a real focus at getting our shares to be more widely held. That's by hopefully overseas investors and just more broadly across the investor universe. So a lot of focus right now on marketing the secondary shares to help the share price.

[Randall Sandstrom, CEO & CIO at Sequoia Economic Infrastructure Income Fund Limited]

We've also, I think as most folks know, engaged Kepler to help us increase our retail exposure for investors. And lastly, would just say that, you know, we personally feel that the discount is not justified. We don't think it represents true value. One of the reasons I say that is that we're a pretty simple loan fund. It's not that complicated.

[Randall Sandstrom, CEO & CIO at Sequoia Economic Infrastructure Income Fund Limited]

You know, interest is contractual, assuming no default and principal is contractual. That's unlike an equity fund, where in order to get income from the project, you need to rely on a discretionary dividend being declared by the project. Our fund is much more simple than that. We also have a very short average life of less than four years. So there's really, really good visibility on the expected cash flow to investors. We're not investing in long dated complicated equity projects.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

Got two questions here, which probably relatively, short answers. So one is, do we have any, excuse me, businesses we lend to which are directly sensitive to tensions in The Middle East? And I think the answer terms of direct exposure is probably no. We don't invest in, excuse me, that part of the world, obviously. We don't do things like oil tankers, so I don't think there's a direct, exposure.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

Clearly, we might see higher oil prices, although right now they're more volatile than necessarily higher. That would probably be positive for many companies in the power sector. You know, it might have been negative for more companies, some companies in the in the transport sector. But overall, I think these are, again, sort of second order indirect things. And most of the companies that we lend to have got hedging on energy prices as well.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

So it's it's probably doesn't have any an immaterial effect. Second question is why has construction risen, recently? As Randy said, this isn't a a change in strategy at all. We're capped at 20%. We're nowhere near that in terms of the portfolio.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

What does tend to happen is if you make a loan to a project in construction, that loan very often gets drawn down over time. So you see the construction exposure increase as the loan is being drawn down. And then at some point, the project will become operational. Right? It will construction will stop, and you'll reclassify the loan as an operational loan, and then the balance goes down.

[Steve Cook, Director & Head of Portfolio Management at SIMCo at Sequoia Economic Infrastructure Income Fund Limited]

So you end up with, I think engineers call it a sawtooth function, which goes up gradually and then comes down suddenly. And that's what we would expect to see typically in a exposure to construction risk.

[Randall Sandstrom, CEO & CIO at Sequoia Economic Infrastructure Income Fund Limited]

Okay, everybody. That is the end of the question. So that wraps up our fiscal year twenty five second results call, and we'd like to thank everyone for listening in.

Participants

Executives

• Randall Sandstrom, CEO & CIO
• Steve Cook, Director & Head of Portfolio Management at SIMCo
• Matt Diamond, Managing Director - Client Capital