Sequoia Economic Infrastructure Income (SEQI) has published its full-year results for the period ended 31 March 2025. While total net assets fell slightly to £1.44bn (from £1.52bn in 2024), the fund delivered a NAV total return of 6.1% over the year. This is modestly below its long-term target of 7–8%, but comes in a year marked by heightened macroeconomic volatility and wider challenges across the listed alternatives sector.

The NAV per ordinary share declined from 93.77p to 92.55p, after payment of dividends totalling 6.875p. The share price fell to 78.30p, widening the discount to NAV from 13.5% to 15.4%, despite continued efforts to address this through a significant buyback programme.

Share buybacks have been a central pillar of SEQI’s capital allocation strategy. During the year, 70.4m shares were repurchased, returning £55.9m to shareholders and generating 0.70p of NAV accretion. Since launching the programme in mid-2022, the trust has bought back over 213m shares – around 13% of the company’s issued capital.

The board remains committed to narrowing the discount and reiterated that buybacks will continue to be used as a tool to provide liquidity, enhance NAV and support shareholder value, while keeping flexibility to invest in attractive opportunities.

SEQI maintained its annual dividend at 6.875p per share (2024: 6.875p), providing an 8.8% yield on the year-end share price. However, dividend cash cover fell to 1.00x from 1.06x in the prior year, partly due to timing mismatches in the receipt of capitalised PIK interest and temporary cash drag as repayments preceded reinvestment.

The board remains confident in the sustainability of the current dividend, citing the portfolio’s strong income generation, a 9.9% yield-to-maturity, and an active pipeline of new deals. Management noted that the dividend cover would have been closer to 1.10x had NAV accretion from buybacks been treated as earnings.

During the year there was a marked reduction in the proportion of non-performing loans (NPLs), which fell to just 1.0% of NAV – their lowest level since 2020 – down from 5.4% at the prior year end. Positive resolutions were reached for several positions:

Only two NPLs remain: one relating to a former educational facility in Washington D.C. (0.4% of NAV), impacted by US federal spending cuts; and another undisclosed loan (0.6% of NAV) now subject to legal proceedings. These have been marked down to reflecting what SEQI describes as conservative recovery assumptions.

SEQI committed £328m to new loans during the year, primarily in senior secured format (83% of new commitments), and mostly across the UK and Europe. The portfolio grew modestly, supported by partial drawdowns on the company’s revolving credit facility (RCF), which was utilised to a balance of £56.9m at year end (c.4% of NAV), in line with the fund’s target to avoid structural leverage but remain fully invested.

The number of holdings increased to 59 (from 55), with exposure diversified across 8 sectors and 29 sub-sectors. Private debt remained the core focus, accounting for 90.8% of the portfolio, though the fund did take selective opportunities in the secondary market to support liquidity and sectoral diversification.

The average investment size rose slightly to £23.7m, and the largest single investment accounted for 4.3% of NAV. 59.9% of the portfolio is now in senior secured debt, and 59.4% in fixed-rate instruments, a deliberate positioning to lock in attractive rates ahead of further expected central bank rate cuts.

Chair James Stewart noted the trust’s continued resilience in a difficult environment and confirmed that SEQI’s strategy remains unchanged. The trust aims to deliver a high level of risk-adjusted income through investment in economic infrastructure debt, with strong credit selection, active monitoring, and a conservative approach to risk.

Inflation has broadly eased, and market consensus is for further rate cuts from central banks, a scenario that would benefit SEQI’s portfolio through pull-to-par gains on fixed-rate loans and greater relative appeal versus traditional credit. Indeed, the portfolio’s short weighted average maturity (3.6 years) gives it flexibility to reinvest proceeds at prevailing high yields.

SEQI’s weighted average yield-to-maturity stands at 9.9%, and the portfolio also carries a pull-to-par of 4.0p per share. Management views this as a structural driver of future NAV uplift, provided credits continue to perform.

SEQI continues to invest in engagement with its shareholder base, expanding its outreach and improving transparency. The company has also made progress on ESG, with its average ESG score rising to 64.70 (2024: 62.77). Engagement rates on sustainability surveys reached 93%, and the number of sustainability-linked covenants in the portfolio increased to a record level.

The trust has achieved full TCFD alignment in its climate-related disclosures, with external support from AXA Climate. It is also preparing for the incoming UK SDR regime and the ISSB reporting standards.

March 2025 marked the trust’s 10-year anniversary. Since IPO, SEQI has grown from £150m to a FTSE 250 constituent with over £1.4bn in assets and, over that time, SEQI has delivered an annualised NAV total return of 7.3%.

[QD comment Matthew Read: While SEQI’s total return fell just short of its long-term target this year, the underlying portfolio has shown resilience. The sharp fall in NPLs, continued cash generation, and a stable dividend in the face of wider sector pressures are all helpful. SEQI has been positioned for a falling rate environment – with over half of its portfolio locked into fixed rates – creating the potential for pull-to-par gains if rates continue to fall. The continued buyback programme adds another lever to support NAV and help manage the discount.]