Thousands of retail investors who piled into one of London’s best-known green investment vehicles face losses of well over 50 percent after the board of SDCL Efficiency Income Trust (SEIT) bowed to pressure from a New York activist and abandoned its rescue plan in favor of a controlled wind-up.
The FTSE 250 Trust, which has raised more than £1.1 billion from private lenders since it was founded in 2018, today confirmed it has put on hold its plans to convert to a conventional operating company and will instead begin selling its portfolio of energy efficiency assets.
SEIT is the latest London-listed trust to change course under the supervision of Saba Capital, Boaz Weinstein’s aggressive New York hedge fund, which reportedly holds a stake of more than 10 percent. Saba has built positions in dozens of UK investment funds over the past eighteen months, lobbying for board changes and cash returns to shareholders.
For the army of private investors who underwrote SEIT’s nine capital raisings between 2018 and 2022, the decision marks the bitter end to a story that once looked like a path to green transition. They were attracted by an expected return of 5 percent or more, while key interest rates were low and placements were often many times oversubscribed. Their money went into projects ranging from solar panels on Tesco supermarket roofs to electric vehicle charging infrastructure and district heating systems.
The trust’s fortunes changed dramatically when interest rates began to rise steeply and the market became increasingly skeptical of the values SEIT placed on its unlisted holdings. The shares, issued for £1 or more, closed at 45p yesterday, a whopping 49 per cent discount to the stated net asset value. Should the portfolio ultimately be liquidated at anywhere near current market prices, the total loss to shareholders could exceed £500m.
SEIT chairman Tony Roper said the board had had intensive discussions with asset managers, retail platforms and other large holders and the feedback had been clear. Many had expressed what he described as a “clear preference for liquidity” over the proposed follow-on plan. Saba is believed to have been among those interviewed.
Directors, he said, had “unanimously concluded” that a controlled wind-down of the portfolio was now in the best interests of shareholders as a whole. Roper acknowledged the pain felt by loyal supporters, saying the board was “very aware of the decline in the share price in recent years” and recognized the frustration and uncertainty it had caused.
The alternative on the table was to delist the investment trust wrapper, maintain the listing as a normal trading company and continue to manage the assets. Roper acknowledged that such an approach could theoretically have “created value significantly above the current share price,” but said it carried significant execution risk that shareholders were unwilling to accept.
SDCL, the manager founded and led by energy efficiency evangelist Jonathan Maxwell, has agreed to what the trust described as minimized termination fees, a nod to sensitivity to what retail supporters would otherwise see as rewards for failure.
Analysts at Barclays said the presence of activists on the shareholder register made an orderly unwind more likely from the start. They said the shift offered “a clearer view of value realization,” but warned that the process would be drawn out over a longer period of time and that disposal prices remained a vital risk.
There is already a cautionary data point. SEIT recently offloaded a number of assets for £105 million, a 9 percent discount to the value at which they were carried on the books. This is a reminder that the private market for infrastructure assets remains difficult and that further discounts are likely as mining gains momentum.
The SEIT decision fits squarely into a wider attack by Saba on the £270bn investment fund sector. Edinburgh Worldwide Investment Trust and Impax Environmental Markets are both in the midst of executing exit offers that their boards say are necessary to prevent common shareholders from becoming trapped in instruments increasingly controlled by the American fund. Several other trusts have preemptively announced buybacks, continuation votes or strategic reviews to keep Saba in check.
For SME owners and retail savers who have been encouraged to look at specialist investment funds as a straightforward way to support the energy transition, the dissolution of SEIT is a sobering lesson. A return that seems generous in a zero interest rate world can quickly evaporate when British government bonds start paying 4 percent, and unlisted infrastructure stocks that have done well on paper don’t always survive contact with a real buyer. With Saba now a permanent fixture on share registers from Leith Walk to Bishopsgate, more boards are likely to weigh up whether to fight, give up or hand the checkbook back to investors.
