Infrastructure Investment Trusts Premiums

Albermarle

I was looking at Infrastructure investment trusts  as a possible diversifier but was surprised by the high premiums . For example 
HICL Infrastructure - 15% and The Renewables Infrastructure Group ( TRIG) - 22% .
Looking back at the historical data it seems they usually carry a largish premium, but current premiums are definitely above average and I was just wondering if anyone knew what the reason was ? Rightly or wrongly it has made me hesitate to invest in them. 

Thrugelmir

Attractive increasing yields in the current environment.
Provide diversification for portfolios. 

Premiums are driven by the demand for the stock. As with any equity there's a decision to be made when the stock offers fair value. 

bowlhead99

One factor will simply be that their portfolios of privately held assets are not valued very frequently. For example HICL did a valuation of 152p at 31 March, and raised money in a well-supported fundraising at 164p in July (announced when the share price was 175p) and are still priced about 170p after paying some dividends along the way.

To note that the current 170p is 12% higher than the March reported NAV (or 15% higher than that NAV adjusted for dividends) is not really an apples to apples comparison. The current price is pretty much where it was at the start of the year.  We know that some of their assets will be doing just fine and might be in great demand for the uncertain times to come with market interest rates on the floor, even though there will be risks with some doing less fine (not as many people travelling on HS1 at the moment, for example). They have a broad portfolio of equity- and debt- type returns, with finance secured by individual portfolio holdings not having recourse to the other assets and a proven ability to tap up new shareholders for funds to support follow-on investing for existing assets or for new deals in the pipeline, without giving away huge discounts when doing so.

I'm happy with my holdings in the sector (I have a small amount of TRIG and some other dabbles, but more HICL and INPP). There are other specialist private assets funds where similar effects can be seen - e.g. Gore Street Energy which I know Thrugelmir also holds has maintained a broadly similar NAV since end of 2018 having been paying dividends along the way; the share price is now 13% higher than the NAV having moved from discount in the March crash to a reasonable premium now; but when you look at it the NAV that's being compared to today's share price is 30 June and the world has moved on almost four months since then.

Albermarle

Thanks for the info . One thing still confusing me a little.
Both of these trusts should have updated their NAV at the end of September, but are still using the old NAV ( which maybe part of the reason for the high premiums ) according to info on HL and Fidelity .
HICL NAV was last updated 31st March and should be updated every 6 months 
TRIG NAV was last updated 30/6/20 and should be updated every 3 months 
Any idea why this should be ?

Prism

Albermarle said:

Thanks for the info . One thing still confusing me a little.
Both of these trusts should have updated their NAV at the end of September, but are still using the old NAV ( which maybe part of the reason for the high premiums ) according to info on HL and Fidelity .
HICL NAV was last updated 31st March and should be updated every 6 months 
TRIG NAV was last updated 30/6/20 and should be updated every 3 months 
Any idea why this should be ?

It takes them a while to create the report and release the information. For example JLEN released their NAV for 30th June in a report on 18th August. Its a bit harder to tell when the HICL reports are released as they don't seem to be dated but I have a feeling its also about 6 weeks delay.

Edit: HICL released their annual report containing the NAV as of the 31st March on the 20th May.

bowlhead99

Albermarle said:

Thanks for the info . One thing still confusing me a little.
Both of these trusts should have updated their NAV at the end of September, but are still using the old NAV ( which maybe part of the reason for the high premiums ) according to info on HL and Fidelity .
HICL NAV was last updated 31st March and should be updated every 6 months 
TRIG NAV was last updated 30/6/20 and should be updated every 3 months 
Any idea why this should be ?

They're holding a big portfolio of privately-held assets and unquoted companies or SPVs, not a list of stocks which have a market price they can read off a screen. So on 1 October they would know how much cash was in the bank at 30 September and after a bit of calculation time they'll know what they owe for fees and expenses of the fund itself and figure out most of the easy parts of the balance sheet- but all the underlying portfolio businesses need to be valued.

To value the companies they need to get up to date financial info from those businesses they own and run them through the 'fair value' models to figure out what someone would pay for the respective business ; this can't happen in one day as it will take a while to even receive the info from those portfolio companies. It's not unusual for private equity funds to take 1-3 months to publish NAVs.

Albermarle

Ok thanks both for clearing that up.