Sequoia Economic Infrastructure H2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
June 25, 2025

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.
AI Generated. May Contain Errors.
Earnings Conference Call
Sequoia Economic Infrastructure H2 2025
00:00 / 00:00

Transcript Sections

Skip to Participants
Randall Sandstrom
CEO and CIO at SEQI

Good morning, everyone. Welcome to our Fiscal Year 2025 Results Call for SEQI. This covers the period 1 April, 2024 through 31 March, 2025. I'm Randall Sandstrom, and with me this morning is Steve Cook, a Partner and Head of Portfolio Management at SIMCo, and Matt Diamond, Managing Director and Head of Client Capital. If we turn right to the introduction on page one, SEQI is a platform with scale, and it's been proven through the cycles. We have a 10-plus year track record of meeting dividend targets in volatile market conditions. SEQI is a market-leading listed credit fund with scale and a NAV of GBP 1.4 billion. The shares are liquid, with an average of 3 million shares traded per day, and we have a low-cost structure. We've had a resilient performance this year, and there's upside potential.

Randall Sandstrom
CEO and CIO at SEQI

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 million shares since July 2022. 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 yields right now.

Steve Cook
Partner and Head of Portfolio Management at SIMCo

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. 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. Total gross assets have been constant at GBP 1.5 billion. Total net assets are slightly lower, mainly as a result of the share buyback at GBP 1.4 billion versus GBP 1.5 billion previously. The net asset value per share of the fund has slightly declined, and we will go through a NAV attribution bridge on the next slide.

Steve Cook
Partner and Head of Portfolio Management at SIMCo

That resulted, once you take account of dividends, in a NAV total return of 6.1% over the year, which is slightly beneath our target return of 7%-8%. Over the year, we also saw the fund's discount to NAV widen fractionally from 13.5%-15.4%. That has, since year-end, partially reversed, although it's still obviously at a discount, and we'll talk again about that later on in the presentation. Finally on this page, the portfolio's ESG score has improved, and 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 GBP 0.9377 per share. Interest income added GBP 0.0817, and then against that, there were negative adjustments of GBP 0.0145, including the effect of FX hedging.

Steve Cook
Partner and Head of Portfolio Management at SIMCo

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 non-cash cost, obviously. 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 mark on the loan, will typically be at a discount to par.

Steve Cook
Partner and Head of Portfolio Management at SIMCo

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? That's called pull-to-par. It's a mathematical or consequence of the way the loans are valued. What you can see is that over the next four years, that adds up to about 4 pence per share. Interestingly, that's quite front-loaded. 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 income.

Randall Sandstrom
CEO and CIO at SEQI

Thank you, Steve. If we turn to page five and look at the portfolio as of fiscal year-end, things have not really changed that much since fiscal 2024 year-end. 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 subsectors, which are shown across the bottom of the page. You can see the average life remains a pretty short 3.4 years. The construction bucket has ticked up a little bit. That is 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. Over on the right-hand side, you can see that our senior secured exposure is at 60%, and that, of course, is the lowest point of risk in the capital structure.

Randall Sandstrom
CEO and CIO at SEQI

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
Partner and Head of Portfolio Management at SIMCo

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. When we look at our portfolio, we've got good reasons to expect outperformance versus high-yield bonds and leveraged loans. 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, D.C..

Steve Cook
Partner and Head of Portfolio Management at SIMCo

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. 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 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.

Steve Cook
Partner and Head of Portfolio Management at SIMCo

The loan on Clyde Street has been exited. We've got some further earn-out potential, but the actual loan has been sold, and we also finally fully exited the Salt Lake transaction in Australia, where we had a small, very small residual piece, which we sold during the year.

Matt Dimond
Managing Director and Head of Client Capital at SIMCo

Thanks, Steve. We'll now turn to the SEQI total return performance. On this slide, you can see three lines. One is the SEQI NAV total return. That's the black line. The second is the SEQI share price total return, the dark blue line, and the light blue line is the high-yield bond benchmark. Some key features of this, firstly, 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 3% and 4% per annum. It's closer to 4% 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.

Matt Dimond
Managing Director and Head of Client Capital at SIMCo

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%. What else does that mean? Obviously, we've got the challenge of the discounts, and I'll come to that more in a second. A key statistic that we'd 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 GBP 750,000,000 of dividends paid since IPO, which really does represent an extraordinary measure of cash flow performance. On discount control, I mean, this is a major point for us as it is for other players in the London-listed alternatives industry. There are several things we're doing to continue to maintain pressure on that discount and narrow it.

Matt Dimond
Managing Director and Head of Client Capital at SIMCo

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 a program such as this. Since July 2022, we have repurchased about GBP 213 million of stock. That is nearly 13% of the original or the previous issued capital. However, we are very keen to continue to balance this with new transactions. Now, why do we do this? 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 is very important to stay thematic and fresh. With an average life of less than four years, we are able to roll over the portfolio into these strong themes.

Matt Dimond
Managing Director and Head of Client Capital at SIMCo

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. 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 SEQI shares, which aligns the interests with our shareholders.

Matt Dimond
Managing Director and Head of Client Capital at SIMCo

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. Finally, we are working very closely with other advisors to SEQI, both in the U.K. and overseas. That is with Jefferies and JPMorgan, with Kepler, and our PR advisors, Teneo, to enhance the understanding and appeal of SEQI's very strong proposition.

Steve Cook
Partner and Head of Portfolio Management at SIMCo

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 the fund in a number of ways. One is clearly the high level of reporting and transparency that we pride ourselves on.

Steve Cook
Partner and Head of Portfolio Management at SIMCo

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. That's one element. Secondly, obviously, asset allocation needs to reflect our ESG priorities. There remains a number of sectors where we have negative screening where we simply don't invest. There will be things like coal-fired power stations, upstream oil and gas. We don't do military infrastructure, etc. At the same time, we also look to prioritize positive screening for infrastructure with social benefits or which are focused on renewable energy or help energy transition, etc.

Steve Cook
Partner and Head of Portfolio Management at SIMCo

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. 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. 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. They're all very different.

Steve Cook
Partner and Head of Portfolio Management at SIMCo

The first one is Community Fiber, which is a fiber-to-the-home broadband business in the U.K.. It's been a very strong business. 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 the transactions that we do. The second is a German transaction. It was just shy of EUR 30 million loan as part of a EUR 112 million transaction. So we were about a third of the overall financing.

Steve Cook
Partner and Head of Portfolio Management at SIMCo

It's a club deal where we refinanced existing debt and provided funding for growth. 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. The third one is an infrastructure services business in the U.K.. We provided GBP 40 million of senior secured financing. This is a company which is really helping the U.K. transition to both low carbon, but also a digitally connected economy. They provide a range of infrastructure services across a number of different sectors, including fiber, energy, and water networks.

Matt Dimond
Managing Director and Head of Client Capital at SIMCo

Thanks, Steve. Turning to some market prospect-related issues. Firstly, on 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.

Matt Dimond
Managing Director and Head of Client Capital at SIMCo

There are a 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 our business as well as life in general across economies. The first is decarbonization. This is also known as energy transition, and we've seen that 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.

Matt Dimond
Managing Director and Head of Client Capital at SIMCo

That is data centers, its towers, its wires, and all of the connective tissue of the digital world. 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 healthcare and other trends that are demographically related. 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 is 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 Dimond
Managing Director and Head of Client Capital at SIMCo

We're 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 trillion 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. There are relatively few cross-border or global infrastructure debt providers compared to the number of infrastructure equity providers in the market. This is a huge opportunity for the SEQI fund. Turning specifically to the U.S., listeners will be aware that about half of our portfolio has typically been in the U.S. market. Clearly, it's a market that's seen a lot of headlines over the last year or so.

Matt Dimond
Managing Director and Head of Client Capital at SIMCo

We felt we should just give it a little bit of a focus here. Now, while the broader political and economic outlook for the U.S. remains challenging for broader investment, given some of the additional uncertainties provided by tariffs and other potential new policies that are underway in the U.S., we believe that infrastructure is relatively protected and defensive in this regard. Infrastructure is fundamentally domestic in terms of operations and the client market. In terms of the supply as well, U.S. banks have been notoriously underinvested in infrastructure. There is strong demand for it from the domestic requirements. This is a bipartisan priority, perhaps putting renewables aside. In terms of transportation, in terms of broader energy, healthcare, and so on, it really is not just a national, but regional and local priority to improve and expand infrastructure in the U.S..

Matt Dimond
Managing Director and Head of Client Capital at SIMCo

This is proven also by some reports, for example, by the American Society of Civil Engineers that does a report card every four years. The latest one came out in March this year. They give themselves a C grade. The reason that they give themselves that relatively low score is partly down to the challenges in terms of financing. They have identified a financing gap between what is planned over the current decade to be put into infrastructure versus what infrastructure requires in the U.S.. They have identified that as a minimum of $3.7 trillion, with various other factors perhaps contributing to a much larger number. That really does feed into an enormous continued opportunity for the likes of SEQI over the years ahead.

Matt Dimond
Managing Director and Head of Client Capital at SIMCo

I would say also on the credit side, and this is not just for infrastructure credit, but for broader credit as well, the U.S. market typically represents half or more of global high-yield credit transactions.

Randall Sandstrom
CEO and CIO at SEQI

Thank you, Matt. If we turn to page 13, we thought that this yield graph was quite interesting. What it shows is where U.S. dollar and euro corporate bond yields have been over the life of SEQI. It really highlights the many cycles and in some cases, quite profound cycles that we have been through and the ups and downs in bond market yields. I think that this volatility is in contrast to SEQI's steady performance and consistent returns over the life of the fund. If we now turn to page 14, we will give some closing remarks. SEQI has had and is expected to have attractive long-term performance.

Randall Sandstrom
CEO and CIO at SEQI

It's had 10 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. This is due to the short average loan life in the portfolio and also the portfolio high yield. 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. It's been resilient in what's been a pretty volatile world. Its infrastructure, which is typically essential, and this makes it less correlated to the business cycle. Its credit with structural protections built in through covenants in our loan agreements, which protects our shareholders.

Randall Sandstrom
CEO and CIO at SEQI

This is compared to and in contrast to equity, which represents first loss risk and is at the bottom of the capital structure. Its income, and we have a long-term track record of earning a premium yield over high-yield corporate bonds. Finally, it is highly diversified by sector, subsector, counterparty, and jurisdiction. This high diversity reduces the portfolio risk in SEQI. This ends the presentation part of today's results call, and we would now like to turn it over to Q&A.

Randall Sandstrom
CEO and CIO at SEQI

Yes, we have our first question. The question is, does the board intend to appoint another consultant to replace Kate Thurman? Does SEQI itself pay for the consultants, or is there any contribution by the manager toward the cost of employing the consultants? The answer to that is that there is no current plan, no current immediate plans to replace Kate.

Randall Sandstrom
CEO and CIO at SEQI

Currently, the board has six board members. It is well diversified. We have three women on the board, three men on the board, all top professionals in their own right. 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
Partner and Head of Portfolio Management at SIMCo

Next question has come in. Which countries are you currently seeing opportunities in? I think part of the answer is we want to maintain a very diversified portfolio. We do look globally in developed markets. Just to remind people, we do not do emerging markets and various other parts of the world. The U.S. remains our largest single market, although it has come down a little over the last 12-24 months, let's say, from probably over 50% to more like 45%. I think there are some reasons for that, not least of which is it has obviously got quite hard to invest in things like renewable energy. Things like ports, transport infrastructure in the States are difficult because of tariffs, et cetera. Perhaps that has led to a slight sort of reduction in the U.S. exposure. We are still obviously very active in the U.K. and Europe.

Steve Cook
Partner and Head of Portfolio Management at SIMCo

Within Europe, our focus historically has been sort of northern Western Europe, and that remains the case. That is still our focus, but we have just started to look at a few more things in Southern Europe. Still, we're not looking to do any of what you might call the higher risk jurisdictions in Europe, but it's core Europe, but broadly based. 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 I sort of touched on very slightly, which is how have tariffs affected the portfolio? I guess the short answer is we haven't had any sort of direct effects. I think there are 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.

Steve Cook
Partner and Head of Portfolio Management at SIMCo

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 sort of container ships or dry bulk or anything like that. There's no direct exposure. I think the thing that we need to think carefully about is will there be sort of indirect effects, whether that's lower economic growth, whether it's inflation, whether it's changes to interest rate environments. They're all obviously very relevant to debt portfolios. We spend a lot of time thinking about these sort of second-order effects of how political and fiscal decisions can affect the investment outlook for what we do. The short answer is no direct effect.

Randall Sandstrom
CEO and CIO at SEQI

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 has been in the news recently. It's hovering around $60-$65 a barrel for WTI right now. The answer to that is that we're not very exposed. The reason I say that is that this is something that we think about when we construct a portfolio, and we like to have a natural hedge for things like inflation risk, business cycle risk, including oil price risk. An example of this would be transport, where we have about 20% exposure.

Randall Sandstrom
CEO and CIO at SEQI

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 a positive correlation between energy prices and power prices. We have been through oil price volatility over the life of SEQI. I just looked this up. Oil in the spot market has been between $25 and $80 a barrel. That's for WTI. If you remember back in COVID in the futures market, it actually went negative for a very short time. We have been through oil price volatility, and we're not overly exposed to that.

Steve Cook
Partner and Head of Portfolio Management at SIMCo

Thanks, Randy. Next two questions are linked. There's a question about the current dividend cover, but then also the outlook, especially in the context of potentially declining interest rates in various countries. I guess a couple of things. Dividend did remain cash covered, obviously, during the last year, but it was very tight. It was 1 times. Typically, historically, we've seen a range of perhaps 105%-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 contractual and therefore predictable. We are beneath our sort of long-term average or run rate. We set out in the accounts, but there's a couple of reasons for that. One is we did have some cash drag, and that's obviously a little bit expensive.

Steve Cook
Partner and Head of Portfolio Management at SIMCo

There's an opportunity cost to having cash in the portfolio. We've now eliminated that. Secondly, some PIK interest, 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 in the last financial year. There is a timing effect on when you receive these things. It can create a bit of uncertainty and unpredictability. There is a timing effect. 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 create some accretion, obviously, through the share buybacks, and you do obviously save on the dividends, accretion isn't counted towards dividend cover. It's a non-income item on the P&L statement. The combination of those three things pushed our dividend cover below its sort of historical range.

Steve Cook
Partner and Head of Portfolio Management at SIMCo

It is still cash covered. I think the accounts are very clear that there's a very clear statement that the dividend is sustainable going forward. That takes account of, obviously, a very careful analysis of the interest rate outlook. It is clear that as interest rates fall, that will mean you get less interest. However, a couple of things. One is 60% of the portfolio is fixed-rate loans or hedged into fixed rate. We have a level of insurance or hedging against interest rates falling. Secondly, as I mentioned, there's accrued interest that we're expecting to receive. Thirdly, fee income is also a very important driver of income. I would remind people that for most of the life of the fund, most of the last 10 years, rates have been a lot lower than where they are today, and we still cover the dividends.

Steve Cook
Partner and Head of Portfolio Management at SIMCo

That shows that margin and fee income is a really important driver of cover, I would say.

Randall Sandstrom
CEO and CIO at SEQI

Thank you, Steve. We have a question about the discount to NAV and what are we doing to address that. First, just to put a few numbers around that, the discount at the end of the fiscal year stood at just over 15%. You can see in the annual results it was 15.4%. It's recently narrowed. It's currently about 13%. To put those numbers in contrast, renewables finished the fiscal year at a 35% discount and infrastructure equity on average was at about a 25% discount to NAV. If you look broadly at the 40 investment trusts out there that we would consider to be competitors or comparables, rather, the average is about 22%. 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?

Randall Sandstrom
CEO and CIO at SEQI

We obviously have a share buyback program in place. We have bought back, or the fund has rather, over 200 million shares since we started the program back in summer of 2022. The investment advisor, SIMCo, also owns about 8 million shares. We also are very active in investor engagement. We have just finished our capital markets day recently. We do that every year. We have investor events. We are going to be doing a results roadshow just after this call, starting very shortly. We have also recently appointed a second broker. I think, as most people know, JPMorgan is now working with Jefferies. We have got a real focus at getting our shares to be more widely held. That is by hopefully overseas investors and just more broadly across the investor universe. A lot of focus right now is on marketing the secondary shares to help the share price.

Randall Sandstrom
CEO and CIO at SEQI

We've also, I think, as most folks know, recently engaged Kepler to help us increase our retail exposure for investors. Lastly, I would just say that 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. 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. 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
Partner and Head of Portfolio Management at SIMCo

Got two questions here, which are probably relatively short answers. One is, do we have any, excuse me, businesses we lend to which are directly sensitive to tensions in the Middle East? I think the answer in terms of direct exposure is probably no. We do not invest in, excuse me, that part of the world, obviously. We do not do things like oil tankers. I do not think there is a direct exposure. Clearly, we might see higher oil prices, although right now they are more volatile than necessarily higher. That would probably be positive for many companies in the power sector. It might be negative for some companies in the transport sector. Overall, I think these are, again, sort of second-order indirect things. Most of the companies that we lend to have got hedging on energy prices as well. It probably does not have any immaterial effect.

Steve Cook
Partner and Head of Portfolio Management at SIMCo

Second question is, why has construction risen recently? As Randy said, this isn't a change in strategy at all. We're capped at 20%. We're nowhere near that in terms of the portfolio. 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. You see the construction exposure increase as the loan is being drawn down. At some point, the project will become operational, right? Construction will stop, and you'll reclassify the loan as an operational loan, and then the balance goes down. You end up with, I think engineers call it a sawtooth function, which goes up gradually and then comes down suddenly. That is what we would expect to see typically in our exposure to construction risk.

Randall Sandstrom
CEO and CIO at SEQI

Okay, everybody, that is the end of the questions. That wraps up our Fiscal Year 2025 SEQI Results Call, and we'd like to thank everyone for listening in.

Analysts
    • Steve Cook
      Partner and Head of Portfolio Management at SIMCo
    • Matt Dimond
      Managing Director and Head of Client Capital at SIMCo
    • Randall Sandstrom
      CEO and CIO at SEQI
Powered by Quartr