ORIT switches manager fees to align with share price success

Octopus Renewables Infrastructure (ORIT ) has become the latest trust to reduce fees by aligning them with the success of the share price.

The £530m portfolio of wind and solar farms has renegotiated its fees with manager Octopus Investments, switching from charges based on net asset value (NAV) to a combination of portfolio NAV and share price.

This has been an ongoing trend among investment companies this year, and particularly green infrastructure funds, as heavy discounts blight the sector. By using both NAV and share price to calculate the fees, not only does it reduce charges but instils greater investor confidence that managers are aligned with delivering the best returns for shareholders.

Under the previous fee arrangement, ORIT paid 0.95% of NAV up to £500m and 0.85% over this, paid quarterly. From 1 November, the trust will pay the same percentage-based fees but applied to an equal weighting of NAV and market cap.

There is a fee cap in place so that the trust will only pay ‘the lower of the new fee arrangement and a calculation based solely on NAV, as per the previous [fee] agreement’.   

Based on the second quarter of this year, the new arrangement would reduce fees levied by £700,000.

ORIT chair Phil Austin said the fee revision was in the best interests of shareholders and ‘reflects our recognition of the broader challenges facing listed renewables infrastructure companies alongside our commitment to improving cost efficiency and enhancing shareholder value’.

‘We believe this step better aligns the investment manager’s interests with those of shareholders, with a clear focus on enhancing the company’s share price performance,’ he said.

Among the biggest names in the sector, Renewables Infrastructure Group (TRIG ) has shifted to levy fees on an equal mix of portfolio value and market capitalisation, while Greencoat UK Wind (UKW ) charges fees entirely on the basis of market cap. 

ORIT shares currently trade on a chunky 30% discount to NAV, in line with its renewable peers, which have all been hit in recent years by rising interest rates that have made the trusts less appealing as an income source as well as increasing financing costs. 

ORIT has recently been hindered by lower power market price forecasts, although some of this will be offset by its contracted revenues.

While the NAV of the trust has only grown 0.4% over the past year, that is one of the better performances in the renewables infrastructure sector, according to Deutsche Numis data. Over three years it slips into fifth place in the 14-strong sector with gains of 5.7%.

The shares have failed to make any gains over one and three years, sliding 1.5% and 26.4%, respectively, including dividends reinvested, which prompted the launch of a share buyback programme this week.