A pathway for the people

With sovereign debt at its highest levels and the banks still reluctant to lend money for infrastructure projects, Gravis Capital Partners hopes to plug a gap in the market with its latest launch.

The GCP Infrastructure fund is the first of its kind available to retail investors, which will provide funding to companies involved in some of the country's major public sector construction projects, such as hospitals, schools, prisons, roads and transport services.

Domiciled in the Channel Islands, the OEIC fund will purchase subordinated loan notes, which will be used for the Government's Private Finance Initiative contracts, with the interest on the loans returned to the investor as a dividend. GCP expects returns of 5.5% in the first year of investment, increasing to an annual return of 8% thereafter, although GCP provides no guarantee for this.

GCP has already acquired a 30 year loan note, for £20m, to provide finance for a mental health facility and community hospital in Essex, as well as a primary healthcare unit and another mental health facility in the North East of England.

Minimum investment in the fund is £25,000, and available through SIPPs, SSASs and offshore bond wrappers. The annual administration fee, payable to fund registrar Capita Financial, is 0.15%, subscription fee of 4%, of which 2.5% will be available to IFAs. In addition to this, GCA charges an investment advisory fee of up to 0.90% on NAV per annum and an acquisition charge of up to 1% on new asset purchases.

www.gcpuk.com

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There has been a significant increase in concern over the current state of funding for PFI projects. The number of PFI deals has decreased from an average of 60 per year to just 34 in 2008, a 43% drop. The problems hit the front pages when the Government announced in March this year that it would be providing around £2bn in public money to ensure that vital services are built in the absence of bank involvement.

Potentially, the Government stands to make a substantial amount in interest when its loans are repaid, and the prospective return for the retail investor is the same and yet, so are the risks. If the borrowing companies go bust, a possibility in the current climate, investors risk losing their entire investment if debts cannot be recovered.

There is further risk to the investor as Channel Island funds are not EU regulated. However, The Recognised Fund legislation, modelled on the corresponding UK legislation, was introduced in order to demonstrate that the regulation of Recognised Funds in the Channel Islands ensures investor protection at least equivalent to that afforded to investors in the UK under the Financial Services and Markets Act 2000.

The major upswing is that consistent returns from loan repayments and inflation protection (the fund invests in index-linked assets), plus investment in a tangible asset that will continue to grow - there are another 110 PFI projects in the pipeline with a capital value of £13bn - infrastructure investment may be a suitable alternative to equity based plans.

gareth.shaw@ft.com