With discounts across the UK listed infrastructure company sector narrowing and the Budget approaching, the AIC's Investment Editor Nick Gardner spoke to Gravis’s Robyn MacHugh, investment adviser to GCP Infrastructure Investments (GCP), about what's behind the Company's recent strong performance.

Robyn explains how a run of disposals and refinancings has allowed GCP to clear its revolving credit facility and return capital to shareholders through buybacks. She also highlights a standout long-term holding, sets out how infrastructure can help protect investors against inflation, and gives her view on what the Government needs to deliver for private capital to help close the UK's £250bn-plus infrastructure funding gap.

GCP's strong recent performance reflects real progress on the capital allocation policy at portfolio level, as well as a more supportive market backdrop. We've completed a run of disposals and refinancings, including the anaerobic digestion sale, £40m solar refinancing, onshore wind disposal and a c.£31.5m prepayment.

The proceeds have been used to reduce GCP’s revolving credit facility balance to nil and return capital to shareholders through buybacks. This has been well received by the market with positive feedback from investors and a narrowing discount to NAV.

Discounts across the UK listed infrastructure space as a whole have been narrowing steadily for the past 6-12 months, driven mainly by returning investor demand. Gilt yields, if anything, have been working against the sector for most of that period, hitting a 19-year high early this month before easing only when the Bank of England decided to hold.

Our investment in A Shade Greener has been a standout example of what long-term, contracted infrastructure investing can deliver. As one of the earliest institutional entries into UK rooftop solar, we provided £167m in senior-secured loans back in 2011 to fund around 50,000 domestic installations with 184MW of capacity. The portfolio was refinanced in 2016-2017, introducing Aviva and BlackRock as new senior lenders, while GCP retained a subordinated position returning 9 - 13%. The underlying revenue is almost entirely Feed-in Tariff income, fixed for 25 years and linked to CPI. And the scale and diversification of the portfolio, spread across tens of thousands of individual rooftops, significantly de-risks the investment. It's a great example of diversification and early-mover advantage translating into stable, resilient returns.

Infrastructure is a naturally defensive asset class as the underlying projects are usually highly contracted, with long-term, stable cash flows that are often linked to inflation. Therefore, in a high inflation environment, infrastructure companies are well placed to protect the real value of investors' capital, where more conventional fixed-income or equity holdings might otherwise be eroded.

49% of the loans in GCP’s portfolio currently benefit from some form of inflation protection, through three distinct mechanisms:

• Coupon indexation: The interest rate charged for the loan is directly linked to inflation;
• Principal indexation: When RPI, CPI or interest rates rise above an agreed strike price, the loan principal outstanding is increased using a formula; and
• Direct linkage: Where investments have more equity-like characteristics and the underlying cash flows are inflation-linked, and therefore GCP has the benefit of this linkage in cash flows it receives.

It's just over a year since the Government's 10-Year Infrastructure Strategy promised £725bn of public and private funding, and progress has been too slow. What we need from this Budget is clarity: a delivery plan for the new PPP (public-private partnership) model and, building on last year's 250 neighbourhood health centres announcement, confirmation of the wider pipeline, clear risk allocation and a realistic procurement timetable, so institutional capital can be deployed with confidence.

Separately, we're watching DESNZ's work on the Wholesale CfD (Contract for Difference), which was flagged a possible launch by late 2026, with an allocation process following in 2027. It’s particularly relevant given the Government's confirmation this month that there will be no successor subsidy for small-scale biomass generators, including waste wood plants, once Renewables Obligation support begins expiring from April 2027. With that route ruled out, we'd like clarity on whether the Wholesale CfD, or another mechanism, will give these plants a genuine route to market, rather than forcing early closures.

Yes, this is a genuine opportunity for listed infrastructure companies. The Government can't close a £250bn-plus shortfall through public spending alone, and the schemes it's been designing reflect that: they're built specifically to draw in the long-term capital that listed infrastructure companies provide.

The Government has announced several schemes aimed at directing private capital to close the gap, including:

• the proposed Wholesale CfD that will give non-gas generators a fixed price for output instead of merchant exposure to gas-driven wholesale prices. This will give revenue-certainty to renewable energy projects that will attract more capital from infrastructure companies;
• the Direct Procurement for Customers model for water and proposed partial government debt guarantees bring third-party capital into major projects such as reservoirs and wastewater treatment, while keeping ownership with the utility; and
• The new PPP model for social infrastructure extends the same logic to healthcare and housing.

What unites these schemes is revenue certainty and genuine risk transfer – the conditions that listed infrastructure companies need to deploy capital at scale. With the right execution, this shortfall becomes a substantial pipeline of investable assets rather than just a funding gap. It will, however, take time for models such as the new PPP framework to become fully established and for projects to reach procurement.

Important Information

This article has been prepared by Gravis Capital Management Limited (the "Investment Adviser” or “Gravis”) and is for information purposes only. It is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. Any recipients of this article outside the UK should inform themselves of and observe any applicable legal or regulatory requirements in their jurisdiction and are treated as having represented that they are able to receive this article without contravention of any law or regulation in the jurisdiction in which they reside or conduct business.

This article should not be considered as a recommendation, invitation or inducement that any investor should subscribe for, dispose of or purchase any such securities or enter into any other transaction in the GCP Infrastructure Investments Ltd (the “Company”) or any other fund affiliated with Gravis.  The merits and suitability of any investment action in relation to securities should be considered carefully and involve, among other things, an assessment of the legal, tax, accounting, regulatory, financial, credit and other related aspects of such securities.

No undertaking, representation, warranty or other assurance, express or implied, is made or given by or on behalf of the Company, the Investment Adviser or any of their respective directors, officers, partners, employees, agents or advisers or any other person as to the accuracy or completeness of the information or opinions contained in this article and no responsibility or liability is accepted by any of them for any such information or opinions or for any errors, omissions, misstatements, negligence or otherwise for any other communication written or otherwise. In addition, neither the Company or the Investment Adviser undertake any obligation to update or to correct any inaccuracies which may become apparent. The information in this article is subject to updating, completion, revision, further verification and amendment without notice.

Past performance is no guarantee of future performance.

Gravis Capital Management Ltd is authorised and regulated by the Financial Conduct Authority; registered in England and Wales No: 10471852 and its principal place of business is 24 Savile Row, London W1S 2ES.