Saba buys into alts with stake in struggling SDCL Efficiency Income

Saba Capital has revealed a stake in SDCL Energy Efficiency Income Trust (SEIT ), marking one of its first forays into the alternative investment companies sector. 

Saba, which has become a leading activist in the investment trust space with stakes in 30-plus London-listed funds, disclosed a 5% holding in SEIT in a stock exchange filing yesterday. 

As is typical for the Boaz Weinstein-led hedge fund, the position has largely been built through total return swaps, a type of derivative. 

SDCL Energy Efficiency Income launched in 2018 and holds efficiency-focused infrastructure assets, rather than pure renewables. 

The trust, which is led by Jonathan Maxwell and has a market capitalisation of £642m, has struggled in recent years as a result of higher interest rates reducing demand for its shares, as well as uncertainty over asset valuations in its diverse and complex portfolio. 

SEIT shares closed yesterday at a 38% discount to the reported net asset value (NAV) of its portfolio.

That is considerably wider than the 29% average in the Renewable Energy Infrastructure sector tracked by the Association of Investment Companies (AIC). While the whole sector has struggled, with average shareholder losses 0f 9.4% over the past five years, SEIT shareholders have come in for a particular drubbing and are down 27.5% over the same time. 

Saba’s entry into SEIT marks a potential change of strategy for Weinstein’s firm. 

‘This is probably Saba taking a view on the relative value of the assets, similar to Hipgnosis,’ said Panmure Liberum sector analyst Shonil Chande, referring to Saba’s previous investment in music royalties trust Hipgnosis, which was sold last year.

Ordinarily, Saba’s strategy in the UK so far has been to hedge many of the underlying holdings of equity trusts it buys – that means its exposure is primarily to closing discounts rather than the performance of the trusts’ underlying portfolios. That strategy would not work with SDCL Energy Efficiency Income, due to the unlisted nature of its assets. 

Early last month, Saba also revealed a 5.1% position in Workspace Group. The real estate investment trust has seen considerable merger and acquisition activity, taking out a number of its peers. 

According to Deutsche Numis analyst in July, Saba had publicly disclosed stakes in around 30 London-listed investment trusts, after shifting to an approach of ‘behind-the-scenes negotiations’. That contrasts with its aggressive and high-profile campaign against seven names, including three Baillie Gifford trusts, launched last December. 

Since that time, there has been a falling number of equity trusts trading on double-digit discounts – natural targets for the likes of Saba – partly due to boards of lowly-rated trusts taking more action, such as upping share buybacks. 

SEIT’s largest holdings include Primary Energy, which serves US steel mills with waste heat recovery and energy generation facilities, solar developer Onyx, and Olivia, which provides integrated energy generation and waste treatment facilities servicing Spain’s olive industry.