The Fund maintained positive momentum in May, recording a gain of 0.80% during the period (C Accumulation GBP) and marking four consecutive months of positive returns for the strategy. The Bank of England reduced interest rates by a further 25bps, leaving the base rate at a two year low of 4.25%. Lower interest rates provide a tailwind to the listed infrastructure sector. However, inflation data published during the month showed that pricing pressures were ahead of economists’ expectations, which prompted capital markets to pare back expectations around the quantum of interest rate cuts over the remainder of the year.

A majority of underlying portfolio companies contributed positively to performance. Sequoia Economic Infrastructure, The Renewables Infrastructure Group and Cordiant Digital Infrastructure provided the greatest positive contributions during the period. Conversely, among the main detractors were the cohort of UK-listed solar generators; Bluefield Solar, Foresight Solar and NextEnergy Solar.

The takeover of the Care REIT completed in May. The shares were delisted, and cash proceeds were received into the Fund. The Fund sold its very small remaining position in Digital9 Infrastructure (~4bps at Fund level immediately prior to exit) and small sales of GCP Infrastructure, Pennon Group and Sequoia Economic Infrastructure were executed.

The Board of RM Infrastructure Investments announced its intention to tender another tranche of shares (potentially up to £20m worth) as the process of winding down and returning capital to shareholders continues. The tender price will be equivalent to the company’s end of May NAV per share (to be announced), which should be materially higher than the prevailing share price.

Towards the end of the period, press reports suggested that 3i Infrastructure was accepting bids for its airport ground support business, TCR. The asset is the largest position in 3i Infrastructure’s portfolio accounting for ~17% of assets, and the company has a strong record of exiting platform companies at sizeable premiums to carrying value. While only speculation at this stage, a successful transaction could add significant value for shareholders.

Competitive tension stepped up in the tussle for Assura Group as direct peer Primary Health Properties improved the basis of its original cash-plus-shares bid in an attempt to trump an all-cash bid from private equity firm KKR. At the time of writing, Assura’s Board is deliberating on the options. Based on what is on offer, Gravis presently sees the bid from PHP – and the opportunity to remain invested and exposed to Assura’s high quality platform of healthcare real estate – as more favourable than KKR’s, which we perceive to be low and opportunistic.

It was interesting to see reports that water regulator Ofwat has plans for £50bn of water related PFI schemes to support 30 projects (targeting water recycling, transfer between regions, and new reservoirs) over the next 15 years. The new infrastructure is meant to address a projected water shortfall of nearly 5bn litres per day by 2050, according to Ofwat. The PFI framework had been ruled out as a mechanism through which to deliver new infrastructure assets, but a resurgence could provide attractive opportunities for listed infrastructure companies in future.