By Daniel Lanyon on Monday 31 October 2016
The alternative credit investment trust specialising in equipment leasing sees plenty of opportunities in the coming years as well as ample demand from investors.
The £353m SQN Asset Finance Income fund is seeking to raise £150m via a C share issue, with the ability to increase the issue to £180m before the end of 2016.
This follows the full investment of the £180m raised via a C share in November 2015, which converted into ordinary shares on 25 October.
Interest in alterative credit funds such as this one has been steadily rising for the past few years, particularly among wealth managers and family offices who have been searching for income paying assets with higher yields and lower volatility to bond and equity markets.
Demand has been met due to asset managers seizing the opportunity of a void left by the ongoing unwillingness of banks to lend or provide credit to firms, hungry for credit in the years following the financial crisis.
The closed-ended SQN Asset Finance Income fund, launched in June 2014, is the only diversified equipment leasing and asset finance investment company traded on the London Stock Exchange. Its objective is to generate regular income for investor through collateralised investments in business-essential equipment and hard assets and in asset-and-equipment-based project financings.
The fund invests in equipment leasing and asset finance arrangements, targeting returns of 8-10 per cent per year including a monthly dividend equivalent to annualised dividend pay outs of 7.25 per cent.
At 30 June, the weighted average yield was 9.83 per cent and average remaining term of 82.7 months. The largest exposures including 17.8 per cent in Manufacturing, 15.4 per cent in Anaerobic Digestion, 8.9 per cent Marine Vessel and 6.7 per cent in Combined Heat and Power plants. The average size of the investment is around £6m
A prospectus is expected in early November and the issue is expected to close in early December. The fund is sitting on a premium of 12.3 per cent, giving it a current yield of 6.5 per cent. It has an ongoing charge of 1.51 per cent.
Demand for its shares has been sufficiently strong enough since its launch so that the portfolio has seen its share price tick up in the past two years alongside its so far steady income pay-outs, as shown in the graph below.
SQN Asset Finance Income's share price since launch