Sequoia Economic Infrastructure Income (SEQI)

Sequoia Economic Infrastructure Income (SEQI) generates a very high yield (8.2% at the time of writing) by lending money to infrastructure projects, from roads, railways and ports, through to data centres, renewable power generation and broadband networks. Its loans are heavily backed by real assets, with an average loan-to-value of 68%, and made to borrowers which typically receive steady and contractual cashflows, spread across a broad variety of sectors and geographies to provide diversification.

Over the last year the discount has steadily marched in, but remains in double digits at 10.1%. Despite cuts to base rates in the UK, US and EU over the past few years, SEQI has held its dividend target for 2027 where it has been since 2023. With the board committed to a significant buyback programme, and with the prospect for rates to fall further in this cycle, we think yield and the Discount are increasingly attractive.

In order to broaden the geographical diversification and take advantage of the growing opportunities in private debt in Asia-Pacific, the board is proposing to amend the investment policy to allow up to 30% to be invested in that region and 10% in other jurisdictions (including Canada and Latin America), so long as the country of origin is in the OECD or has an investment grade credit rating. There is no intention to alter the current defensive, cautious approach to lending, or make a dramatic near-term re-allocation to Asia, but the change should bring SEQI’s policy into line with the rapidly developing market for opportunities in developed jurisdictions such as Japan, Korea or Singapore (in addition to Australia and New Zealand, where SEQI has previously invested), in which major infrastructure private equity managers are making investments in sectors such as digitalisation and energy transition.