Investment trust insider on GCP Asset Backed Income – James Carthew: Good funds like GABI shouldn’t wind up at a market low
Last week I speculated about the possibility of Abrdn Property Income (API) shareholders opting to continue as a real estate investment trust rather than proceeding with a managed wind-down after its proposed merger with Custodian Property Income (CREI) failed to attract sufficient shareholder support.
That got me thinking about other similar situations. One that is topical is debt fund GCP Asset Backed Income (GABI).
GABI’s future has been up in the air since last summer. Like many investment companies, its fortunes have been somewhat tied to the direction of interest rates, as rising rates made its yield look relatively less attractive when compared with yields on ‘risk-free’ assets government bonds and cash deposits. In addition, signs of recession led to fears of defaults given there were already some problem loans in the portfolio that have depressed returns in recent years.
With all of this going on, it has been easy to forget that GABI was still growing net asset value each year and was still a decent size at more than £400m. In fact, a year ago, the board seemed quite excited about the fund’s prospects.
As older lower-yielding loans matured, they were being replaced by loans offering a better risk/reward profile. The fund managers were making new loans offering returns of about 8.6% on average and said that they had an attractive pipeline of potential investments. Institutional investors were also…
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