The managers of HydrogenOne Growth (HGEN ) anticipate the fund will make its first two exits in 2024 and will use the cash generated to participate in future capital raises from their current holdings. 

Managers Richard Hulf and JJ Traynor told Citywire they had appointed business advisers to two holdings – although they could not say which. 

The sales would generate much needed cash for the £130m portfolio, which had £6.5m in cash and £2.5m in listed hydrogen companies as at the end of September, according to third-quarter results.

This money will be used to protect the portfolio from dilution, or the event that one of its 10 private holdings raises more money at a lower valuation than HGEN paid. 

The portfolio will be further boosted by some of their largest holdings, such as Strohm, a Netherlands-based hydrogen pipeline company that makes up 15.1% of assets, becoming cash-generative by next year.

‘There are levers to pull within the fund, there are potential exits and in terms of funding the portfolio, there may be some dilution where we can’t step in because some of our companies will be raising funds over the next year, but the effect of that dilution compared to the exit return is minimal,’ they said.

The third-quarter results showed underlying returns of 0.7%, driven primarily by valuation uplifts to the private portfolio. The discount rate was reduced by 30 basis points to 13.5%, reflecting a small gain in the EU 5-year government bond yield, offsetting the small drop in the UK 5-year government bond.

Given the strength of market interest in other regions, Hulf (pictured left) and Traynor believe it’s only a matter of time before markets improve.

They pointed to portfolio holding HH2E, a German project developer, which engaged BNP for a $300m debt raise and has seen ‘a very positive response from the market’.

Over the quarter, HGEN published a flurry of good news from three portfolio companies accounting for almost a third of assets, including UK-based aviation pioneer Cranfield Aerospace Solutions (CAeS) supplying its hydrogen fuel cell propulsion systems to Dronamics, which claims to be the world’s first cargo drone airline.

However, there is investor scepticism as shares in the trust have dropped 41% year to date to 46.6p, and is sitting on a discount of 56%. 

The pair emphasised that there would be no share buybacks because of cash constraints and noted that even if they had the capital, there were much better opportunities in cheaper, discounted hydrogen projects.

‘There’s a lot of headwinds for renewables at the moment, people are getting nervous about hydrogen. These are very company specific things. It’s our job to be razor sharp on the logic and what’s actually driving the revenues of these businesses and how well-funded through governments the hydrogen sector is. The companies are doing well and so is the sector,’ Hulf concluded.