Menhaden – Focus for Change

The latest member of the Social Stock Exchange is the investment trust Menhaden, which also floated on the London Stock Exchange at the end of July. Menhaden, which is chaired by Sir Ian Cheshire, former CEO of Kingfisher, is the brain child of the fund manager Ben Goldsmith, who co-founded in 2002 the asset management firm WHEB. Goldsmith is stepping back a little from WHEB although he will remain on its board. Menhaden will focus its investments on companies and other assets that are aimed at improving energy efficiency – Goldsmith also chairs the Conservative Environment Network, a forum for those Conservatives interested in promoting green policies.

I spoke to Goldsmith before Menhaden’s float and asked him the most obvious question: why join the Social Stock Exchange? “I just love the concept,” he said. “There are lots of places where you can find businesses that are focused on not making a negative impact. But to create a place where you can invest in businesses deliberately aimed at making a positive impact is a very powerful idea.”

Big guns at the rear

Goldsmith’s successful experience at WHEB, together with the persuasive power of Menhaden’s tightly focused aim on energy efficiency – a rising trend if ever there was one – have secured the backing of some very big guns indeed. The venture capitalist Jon Moulton; Deborah Meaden of “Dragon’s Den” fame; and Michael Spencer, CEO of ICAP, the global broker/dealer are just a few of those who have pledged their wallets to get Menhaden motoring. Such wealthy individuals are not moved by sentiment when it comes to investment; they can see the future. Driven by policy, high and rising financial costs, widening public protest, and depleting reserves, fossil fuels are increasingly being seen as last century’s energy source; in the 21st century, renewable energy and energy efficiency are the new mantra. In 2014, investment trusts that focus on renewable energy infrastructure raised £773m from new shares issued, against £93m in 2013, according to figures from the Association of Investment Companies (AIC).

Part of the incentive for investing in renewable energy is that it has government backing in the UK at least. Even though subsidies are being slimmed down, the UK has committed to have 27% of its energy supply from renewable sources by 2030. In April 2015 solar energy came under a new regime: the current Renewables Obligation Certificate structure will be replaced with a ‘Contracts for Difference’ (CFD) scheme. The ROC structure was enacted in 2002 to encourage the generation of electricity from renewables. It placed an obligation on licensed electricity suppliers in the UK to source an increasing proportion of electricity from renewable sources. Under the new CFD regime the government pays the difference between the variable wholesale electricity price and the fixed “strike” price of the technology for 15 years. This changeover will happen for other renewables, including wind power in 2017. Investors have more certainty under the new CFD regime, as the companies generating the power should receive more stable returns and will not be exposed to market price for the first 15 years of the project.

In the UK – given a leg-up by government subsidies – off-shore wind power currently generates more than 3% of the country’s electricity, with as much capacity installed off UK coasts than in the rest of the world combined, according to the industry body RenewableUK. The latest figures from the Department for Energy and Climate Change show that renewables’ overall share of electricity generation was more than 18% last year; in 2003, it was barely 3%.

Investors not yet spoiled for choice

There were (at the last count) six existing UK-based investment trusts that focus on renewable energy, particularly solar and wind energy: Bluefield Solar Income, Foresight Solar fund, Greencoat UK Wind, John Laing Environment Assets, Next Energy Solar, and Renewable Infrastructure Group. Given this is such a rapidly expanding field this is hardly a wide array of choice. It’s also a field where taking a long-term view will be critical.

Goldsmith expects Menhaden to have “an average holding period of five years” for a particular investment, with a total expense ratio for the trust of about 1.8% which, he says, “is not outlandish in investment trusts”. Menhaden’s targeted return for investors is in “the high single digits”. The portfolio will be 20-25 “yield assets, listed equity and special situations” and the aim is to invest more than 75% of the capital raised by the end of the first full financial year; the downside risk will be mitigated by investing only in assets that are operating – not those that are in development.

Oh, and for those of you interested in names: Menhaden is a type of fish – also known as mossbunker, bunker, and pogy. According to Wikipedia, they “travel in large, slow-moving and tightly packed schools with open mouths.”

Funds that can be used to access these themes include the Guinness Alternative Energy, Old Mutual Ethical fund, Premier Ethical fund, Ecclesiastical Amity European fund, Standard Life Investments UK Ethical fund and the Alliance Trust Sustainable Future UK Growth fund.

 

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