Thousands of small investors who piled into one of London’s best-known green investment vehicles are staring down the barrel of losses running well beyond 50 per cent, after the board of SDCL Efficiency Income Trust (SEIT) bowed to pressure from a New York activist and abandoned its rescue plan in favour of a managed wind-down.
The FTSE 250 trust, which has raised more than £1.1 billion from retail backers since its 2018 launch, confirmed today that it has shelved plans to convert itself into a conventional operating company and will instead begin selling off its portfolio of energy-efficiency assets.
SEIT becomes the latest London-listed trust to change course under the gaze of Saba Capital, the aggressive New York hedge fund run by Boaz Weinstein, which is understood to hold a stake of more than 10 per cent. Saba has built positions in dozens of British investment trusts over the past eighteen months, agitating for boards to be replaced and cash to be returned to shareholders.
For the army of private investors who subscribed to SEIT’s nine capital raisings between 2018 and 2022, the decision marks the bitter end of a story that once looked like a copper-bottomed route into the green transition. They were lured by an anticipated yield of 5 per cent or more at a time when base rates were on the floor, and placings were frequently several times oversubscribed. Their money went into projects ranging from rooftop solar arrays at Tesco supermarkets to electric-vehicle charging infrastructure and district heating schemes.
The trust’s fortunes reversed sharply once interest rates began their steep climb, and the market has grown increasingly sceptical about the values SEIT has placed on its unquoted holdings. The shares, which were issued at £1 or more, closed at 45p yesterday, a punishing 49 per cent discount to stated net asset value. If the portfolio is eventually liquidated anywhere close to recent market prices, the collective hit to shareholders could exceed £500 million.
Tony Roper, SEIT’s chairman, said the board had held intensive talks with wealth managers, retail platforms and other large holders, and that the feedback had been clear. Many had expressed what he described as “a clear preference for liquidity” over the proposed run-on plan. Saba is believed to have been among those consulted.
The directors, he said, had “unanimously concluded” that a managed wind-down of the portfolio was now in the best interests of shareholders taken as a whole. Roper acknowledged the pain felt by loyal backers, saying the board was “acutely aware of the reduction in share price in recent years” and recognised the frustration and uncertainty that had caused.
The alternative on the table had been to delist the investment trust wrapper, retain the stock market listing as an ordinary trading company and carry on running the assets. Roper conceded that, in theory, such a route “could have created value significantly in excess of the current share price”, but said it carried meaningful execution risk that shareholders were unwilling to stomach.
SDCL, the manager founded and led by energy-efficiency evangelist Jonathan Maxwell, has agreed to what the trust described as minimised termination fees, a nod to the sensitivity around what retail backers might otherwise regard as rewards for failure.
Analysts at Barclays said the activist presence on the shareholder register had made an orderly wind-down the more probable outcome all along. In their view, the shift “provides clearer line of sight to value realisation”, though they warned that the process would stretch out over an extended period and that disposal pricing remained a live risk.
There is already a cautionary data point. SEIT recently offloaded a batch of assets for £105 million, a 9 per cent discount to the value at which they had been carried in the books, a reminder that the private market for infrastructure assets remains sticky and that further haircuts are likely as the wind-down gathers pace.
The SEIT decision lands squarely within a broader assault by Saba on the £270 billion investment trust sector. Edinburgh Worldwide Investment Trust and Impax Environmental Markets are both midway through exit tender offers that their boards have argued are necessary to prevent ordinary shareholders being trapped in vehicles increasingly controlled by the American fund. Several other trusts have pre-emptively announced buybacks, continuation votes or strategic reviews in an attempt to keep Saba at bay.
For SME owners and retail savers who were encouraged to view specialist investment trusts as a low-drama way of backing the energy transition, the unravelling of SEIT is a sobering lesson. A yield that looks generous in a zero-rate world can evaporate quickly when gilts start paying 4 per cent, and unlisted infrastructure values that held up well on paper do not always survive contact with a real buyer. With Saba now a fixture on share registers from Leith Walk to Bishopsgate, more boards are likely to find themselves weighing whether to fight, fold or hand the cheque book back to investors.
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Retail backers of SEIT face wiping out half their money as green trust raises the white flag