Diversified
Sustainable
Income
Annual Report and Accounts
2022
Sequoia Economic Infrastructure Income Fund LimitedAnnual Report and Accounts 2022
Our purpose
Our purpose is to
generate attractive and
sustainablereturns for
a wide range of investors
through responsible and
disciplined investment into
agrowing portfolio of diverse
economic infrastructure debt.
Theseassets would otherwise
be difficult for investors to
access, given the specialist
nature of theorigination
and creditassessment
skillsneeded.
Our investments support the
provision of infrastructure
on a sustainable basis
and create social and
economic benefits across
the range ofgeographiesin
whichweinvest.
Find out more at www.seqifund.com
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
01
TOTAL RETURN SINCE THE INCEPTION OF THE COMPANY TO 31 MARCH 2022
85%
95%
105%
115%
125%
135%
145%
165%
Mar
16
Mar
17
Mar
18
Mar
19
Mar
20
Mar
21
Mar
22
Share price total return of 48%
SEQI NAV total return of 48%
GBP-hedged HY bonds
total return of 21%
155%
Contents
FINANCIAL STATEMENTS
Pages 82 to 119
Independent Auditor’s report 82
Statement of
comprehensive income 92
Statement of changes in
Shareholders’ equity 93
Statement of financial position 94
Statement of cash flows 95
Notes to the Financial
Statements 96
Officers and advisers 120
Disclosure of directorships in
publiccompanies listed on
recognised stock exchanges 121
Appendix – Alternative
PerformanceMeasures 122
Contacts 124
At a glance 02
Objectives and policies 04
Future strategic direction 05
Key performance indicators 06
Highlights 08
Chair’s statement 10
Market opportunity 16
Business model 18
Q&A with the
Investment Adviser 20
Investment Adviser’s report 23
Sustainability 34
Stakeholders 48
Principal and emerging
risks and uncertainties 53
Board of Directors 58
The Sequoia Investment
Management Company team 60
Independent consultants 61
Corporate governance 62
Report of the Management
Engagement Committee 68
Report of the Audit Committee 70
Report of the Remuneration
and Nomination Committee 73
Directors’ remuneration
report 75
Directors’ report 77
Statement of Directors’
responsibilities 81
GOVERNANCE
Pages 57 to 81
STRATEGIC REPORT
Pages 02 to 56
ADDITIONAL INFORMATION
Pages 120 to 124
MARKET
OPPORTUNITY
Read more about our
diversification on pages
16 and 17
SUSTAINABILITY
Read more about our
newESG policy on pages
34 to 47
02
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
ABOUT SEQUOIA ECONOMIC INFRASTRUCTURE INCOME FUND LIMITED
The Company seeks to provide investors with regular, sustained, long-term distributions and capital appreciation from
adiversified portfolioof senior and subordinated economic infrastructure debt investments. The Company is advised by
SequoiaInvestment Management Company Limited.
At a glance
Diversified infrastructure fund with 66 private
debtinvestments and 10 bonds across 8 sectors,
29sub-sectors and 12 jurisdictions.
TMT
Transport
Power
Transport assets
Renewables
Accommodation
Utility
Other
1
Global/nationwide
assets not
plottedon US map.
NORTH AMERICA
1
AUSTRALIA/NEW ZEALANDUK AND EUROPE
50.5% 17.5% 27.1% 4.9%
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
03
76
Investments
£64.7m
Largest investment
£23.7m
Average investment
8.4%
Portfolio yield-to-maturity
SECTORS
TMT TRANSPORT POWER
TRANSPORT
ASSETS
Data centres|10.5%
Broadband|7.4%
Telecom towers|6.3%
Undersea cables|3.2%
Satellite services|0.4%
Ferries|2.9%
Rail|2.8%
Port|2.4%
Road|0.1%
Electricity
transition|8.2%
Base load|7.8%
Energy efficiency|2.1%
PPA|0.7%
Specialist
shipping|6.5%
Rolling stock|3.2%
Aircraft|1.3%
27. 8% 8.3% 18.9% 11.0%
RENEWABLES ACCOMMODATION UTILITIES OTHER
Solar and wind|4.6%
Landfill gas|3.5%
Hydro|1.0%
Healthcare|3.6%
Student
housing|1.5%
Midstream|5.1%
Electricity supply|1.5%
Residential
infrastructure|4.4%
Hospitality|2.2%
Refinery|2.1%
Agricultural
infrastructure|1.7%
Private schools 1.7%
Smart metering 1.1%
9.1% 5.1% 6.6% 13.2%
04
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Objectives and policies
Sequoia Economic Infrastructure Income Fund Limited (the “Company”) invests in a diversified portfolio of
senior and subordinated economic infrastructure debt investments through its immediate subsidiary Sequoia
IDF Asset Holdings S.A. (the “Subsidiary”, together the “Fund”). The Company controls the Subsidiary through
a holding of 100% of its shares.
The Company’s investment objective is to provide investors with regular, sustained, long-term distributions and capital
appreciation from a diversified portfolio of senior and subordinated economic infrastructure debt investments, subject to the
investment criteria as set out in the investment policy.
The Company’s investment policy is to invest in a portfolio of loans, notes and bonds in which no more than 10% by value
of the Fund’s net asset value (at the time of investment) relates to any one individual infrastructure asset. In addition, the
Company intends to invest directly or indirectly only in investments that satisfy the following criteria, such investments to
make up a minimum of 80% by value of the portfolio at the time of investment:
• all or substantially all of the associated underlying revenues to be from business activities in the following market
sectors: transport, transportation equipment, utilities, power, renewable energy, accommodation infrastructure and
telecommunications, media and technology infrastructure;
• all or substantially all of the revenues to derive from certain eligible jurisdictions, as defined in the Company’s Prospectus,
provided that any such jurisdiction is rated at least BBB- by Standard & Poors or Baa3 by Moody’s;
• at least 50% of the portfolio to be floating rate or inflation-linked debt;
• no more than 20% of the portfolio to comprise pre-operational projects (typically projects in construction);
• no single sector to represent more than 40% of total assets;
• no single sub-sector to represent more than 15% of total assets, other than a major sub-sector (as defined in the
prospectus), which may represent up to 25% of total assets;
• no more than 60% of the portfolio to be located in the United States;
• no more than 50% of the portfolio to be located in the Western Europe (ex-UK);
• no more than 40% of the portfolio to be located in the United Kingdom; and
• no more than 20% of the portfolio to be located in Australia and New Zealand combined.
The Company takes its corporate and social
responsibilities seriously. As part of its sustainability
strategy, it has established a number of appropriate
ESG policies which it takes into account at all stages of
its investment process. The guiding principles behind
its ESG programme are the United Nations Principles
for Responsible Investment (“UNPRI”), to which the
Investment Adviser is a signatory.
In the absence of any significant restricting factors,
the Board expects to pay dividends totalling 6.25p
per Ordinary Share per annum (increased from 6p per
Ordinary Share with effect from the quarter ended 30 June
2019). The Company pays dividends on a quarterly basis.
At an Extraordinary General Meeting of the Company
held on 25 February 2020, Shareholders approved the
implementation of a scrip dividend scheme. For further
details, please see note 4 to the Financial Statements.
INVESTMENT OBJECTIVE
INVESTMENT POLICY
ESG POLICY
DIVIDEND POLICY
PRINCIPAL ACTIVITY
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
05
While the core strategy remains the same, the Fund is constantly
evolving to reflect the economic and market environment it
operates in, and to achieve the goals of its ESG Policy.
Future strategic direction
As the Company enters its eighth year of operations, it will continue to focus on its core
mandate of delivering a stable NAV and predictable dividends to its investors, achieved
by investing in a diverse portfolio of loans backed by infrastructure projects. Like all
businesses, its strategy will reflect market conditions and the opportunities open to it.
Below we set out some of themes that will shape the Company in the future.
INCREASING
INTERESTINCOME
FUTURE DIRECTION OF
THE PORTFOLIO
MAKING A POSITIVE
IMPACT
As short-term interest rates
continue to rise in the currencies
that we invest in (mostly Sterling,
Euros and US Dollars), the income
that the Company earns from its
investment portfolio will increase.
This is because approximately
half of the portfolio is floating-rate
loans, where the interest rate will
increase contractually. The other
half, the fixed rate loans, will not
benefit directly, but over time
these loans will mature and will
be replaced by new loans whose
pricing will reflect today’s higher
interest rate environment.
These higher interest rates will,
all things being equal, result
in an improvement in the cash
dividend cover ratio. Over time,
this may lead to NAV growth, or
the opportunity toincrease the
dividend, or both.
The Company has a clear ESG
Policy – described elsewhere in
this report – that is a central part
of how we allocate our capital.
That will continue to be the case.
In the future, though, we also
want to engage more with the
companies that we lend money
to, encouraging them to improve
their corporate governance, to take
their social responsibilities seriously
and to reduce their impact on the
environment, including the emission
of greenhouse gases.
In addition, the Company itself will
have an increasing responsibility
to report on its own environmental
impact. This year, for the first time,
we include a report following the
recommendations of the Task
Force for Climate Disclosures
(“TCFD”). Wewere already
reporting our own in-house ESG
Score for our investment portfolio.
In the future we will widen the
scope of our reporting to include
additional quantitative measures.
Currently there are global
inflationary pressures which are
leading to higher interest rates.
Thiscreates economic uncertainty
and a heightened risk of recessions.
To address this we are looking to
position our investment portfolio
cautiously, by focusing on loans to
companies that have predictable
cash flows, often arising from
contractual income, regulation
or barriers to entry. We are also
prioritising senior ranking loans
over subordinated debt, as well
asfloating over fixed rate loans.
In terms of the sectors that we lend
to, we aim to maintain a diversified,
balanced portfolio. But that is not
to say there will be no changes.
We have already stopped lending
to some sectors (such as coal)
as the result of our ESG policy.
Instead we have invested in new
areas like energy efficiency projects
and high-speed broadband for
residential properties.
06
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Key performance indicators
MARKET CAPITALISATION
(£B)
SHARE PRICE
(P)
ANNUAL DIVIDEND PER
ORDINARY SHARE (P)
106.0
2018
113.0
2019
94.0
2020
104.2
2021 2022
102.8
6.00
2018
6.00
2019
6.19
2020
6.25
2021 2022
6.25
Description:
12-fold increase since IPO driven
by several over-subscribed capital
raises and stable share price
Description:
Share price total return of +48% since
IPO, outperforming GBP-hedged
high yield bonds (+21%)
Description:
Dividend target held at 6.25p per
annum for our financial year 2022/23
The set of measures below are considered to
betheCompany’s key performance indicators
0.8
2018
1.2
2019
1.6
2020
1.8
2021 2022
1.8
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
07
0.8
2018
1.1
2019
1.6
2020
1.8
2021
2022
1.8
101.3
2018
103.4
2019
96.7
2020
103.2
2021
2022
101.5
60.59
2021
2022
61.88
1
Description:
Capital raised has been successfully
deployed into the portfolio, providing
economies of scale and maintaining
low ongoing charges ratio
Description:
NAV total return of +48% since IPO,
outperforming GBP-hedged high
yield bonds (+21%)
Description:
ESG score increased through
implementation of the Company’s
ESG strategy
1. ESG score is included in the scope of
KPMG LLP’s limited assurance (see
www.seqifund.com/investors/
documents‑circulars).
NAV
(£B)
NAV PER ORDINARY SHARE
(P)
ESG SCORE
08
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Our economic infrastructure portfolio is well
positioned for a higher interest rate environment.
Highlights
NAV total return
1
of 3.5% (2021: 13.5%)
intheyear
Share price total return
1
of 4.5%
(2021:17.4%) in the year
Defensive, diversified portfolio
of76investments across 8 sectors,
29sub‑sectors and 12mature jurisdictions
• 95% of investments in private debt (2021: 97%)
• 50% floating rate investments (2021: 57%), capturing
short-term rate rises
• Short weighted average life of 4.1 years (2021:
4.5years) creating reinvestment opportunities
• Weighted average equity cushion of 33% (2021: 35%)
Annualised portfolio yield‑to‑maturity
1
of8.4% (2021: 9.0%) as at 31March 2022
Ongoing charges ratio of 0.87% (2021:0.87%)
(calculated in accordance with AICguidance)
1
Dividends totalling 6.25p per Ordinary Share
(2021: 6.25p) paid during the year, in line
with annual target dividend
Dividend cash cover
1
of 1.06x (2021: 1.04x)
ESG score of the portfolio is on a long‑term
upward trend
1. See appendix for Alternative Performance Measures (“APMs”).
HIGHLIGHTS FOR THE YEAR ENDED 31 MARCH 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
09
£1,777,042,832
Total net assets (31 March 2021: £1,819,130,381)
2.3%
100.50p
Net asset value (“NAV”) per Ordinary Share
1,2
(31 March 2021: 103.18p)
2.6%
102.80p
Ordinary Share price
2
(31 March 2021: 104.20p)
1.3%
2.3%
Ordinary Share premium to NAV
1
(31 March 2021: 1.0%)
130%
1. See appendix for Alternative Performance Measures (“APMs”).
2. Cum dividend.
FINANCIAL HIGHLIGHTS
10
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Dear Shareholder,
It is my pleasure to present to you the
Annual Report and Audited Financial
Statements of the Company for the
financial year of operations ended
31March 2022.
The first half of the financial year
sawglobal economies emerging
from lockdowns and improving
market conditions despite continuing
uncertainty. This uncertainty markedly
increased over the course of the
second half of the financial year
withrising global inflation and interest
rates concerns as well as the Russian
invasion of Ukraine. Against the
backdrop of increased market volatility,
the Company has remained resilient and
the Board and the Investment Adviser
have remained focused on managing
the portfolio and the deployment of
capital into attractive new loans.
NAV AND SHARE PRICE
PERFORMANCE
Over the financial year, the Company’s
NAV per Ordinary Share decreased
from 103.18p to 100.50p, after paying
dividends of 6.25p, producing a NAV
total return of 3.5%
1
, lower than the
Company’s target return of 7-8%.
Thisiscompared to the Company’s
prior year outperformance, when
NAV per Ordinary Share increased
from 96.69p to 103.18p, after paying
dividends of 6.25p, producing a total
NAV return
1
of 13.5%, materially in
excess of the Company’s target return.
The Company’s share price also
declined over the year, from 104.20p
to 102.80p, a share price total return
1
of 4.5%, once dividends are taken into
account. The slight fall in the share
price reflects the decline in the NAV,
offset slightly by improvement in the
Company’s premium, which increased
from 1.0% at the beginning, to 2.3% by
the end of the year.
Against the backdrop of rising interest
rates across the yield curve, particularly
over the final quarter of our financial
year, this is a solid performance.
Wehave once again outperformed
the liquid credit markets and are now
experiencing a pick up in income on
our floating rate assets. In time we
anticipate that the same will occur in
thefixed rate section of our portfolio,
asexisting fixed rate loans repay and
are replaced by new loans reflecting
higher market interest rates.
DIVIDEND
Pleasingly, despite the volatility
experienced over the year, we
achieved our target of paying a fully
cash-covered dividend of 6.25p per
Ordinary Share. Itis our intention for
now to hold the payout at its current
level, notwithstanding that our interest
income is increasing and we anticipate
a further strengthening in our dividend
cash cover ratio.
The Company has demonstrated its
resilience throughout the challenges
of the last two years.
Chair’s statement
1. See appendix for Alternative Performance Measures (“APMs”).
ROBERT JENNINGS
Chair
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
11
PORTFOLIO PERFORMANCE
Most of our portfolio has performed well
over the course of the year, with many
sectors previously adversely affected
by COVID-19 improving materially.
Specifically, the Company’s exposures
to the transportation sector (excluding
aviation), student accommodation and
midstream assets all improved in credit
quality, while other sectors such as
telecommunications and healthcare
infrastructure remained robust.
Of the four underperforming investments
identified a year ago, three have
improved to the point where they are no
longer of concern and their increase in
valuation contributed 0.70p per share
to the NAV performance. Unfortunately,
two other investments have experienced
difficulties over the last 12 months,
namely Bulb Energy and Salt Lake
Potash. The effect of writing down the
valuation of these underperforming
investments (together with the loan
backed by a school in Washington, D.C.)
to their current fair values was to reduce
NAV by 2.50p per share.
However, our experience has been
that, upon eventual recovery from these
types of situations, the fair values of
the investments tends to exceed the
valuations assigned to them during the
restructuring or work-out phases
Sequoia Investment Management
Company Limited (the “Investment
Adviser”) discusses these specific
transactions in more detail in its report.
Credit losses are a natural part of
running a loan portfolio. It would be naïve
to imagine that the Company could keep
lending money in perpetuity without
experiencing some bad debts. Now that
the Company hasbeen operating for
seven years, in both economically benign
and challenging times and through a
period of macro-economic stress, it
is instructive to assess the portfolio’s
historic loss rate, i.e.annualised credit
losses, expressed as a percentage of
the loan book. Tobe conservative we
include losses arising not just from loans
that default, but also from situations
where we sell a loan (ata loss) to avoid
further deterioration. Intuitively, the loss
rate can be thought of as a reduction in
the yield of theportfolio.
In our case, the loss rate is 0.15%
if we just look at realised losses,
or0.36% if we include potential,
but as yet unrealised, losses on the
credit-impaired loans. We consider
this to be exceptionally low. For
comparison, research by Moody’s
implies that the loss rate for bank
lending to infrastructure projects has
historically been 0.1% to 0.15% per
annum. However, that is in the context
of investment grade, or borderline
investment grade, loans, on which the
typical yield is c.2.5% over LIBOR/
SONIA or less. Our portfolio has yielded
about 3.5% more than that, with similar
credit losses, resulting in a high level of
relative outperformance.
During the financial year, the Investment
Adviser has had a highly selective
approach to new investments.
Ingeneral, we have prioritised
investments in lower-risk parts of
the infrastructure market, which
typically have only a moderate or
lowcorrelation to the economic cycle,
such as businesses with a high degree
of contractual income. Wehavealso
avoided drawing too much on the
Fund’s revolving credit facility (“RCF”) –
inpart, because having no or little net
leverage is clearly prudent in turbulent
markets.
12
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Chair’s statement continued
ENVIRONMENTAL, SOCIAL
AND GOVERNANCE (“ESG”)
This year has seen continued progress
on the development of the Company’s
approach to ESG. We have focused
on applying the comprehensive ESG
policies which we published in June
2021 across our portfolio including on
all new loan reviews. We are currently
further developing these and expect to
publish an update of our policies shortly.
Our policies already set out indetail
our approach to asset selection and
portfolio construction, as well as broader
themes such as how we can engage
with our borrowers on ESG-related
matters. We also continue to report
under Article 8 ofthe EU Sustainable
Finance Disclosure Regulation (“SFDR”)
directive.
For the second year running we
havemandated KPMG LLP to provide
independent limited assurance of our
portfolio’s overall ESG score, which
we believe is indicative of our intention
to raise standards of rigour in the
qualification of ESG credentials across
portfolios of loans.
Overall, the portfolio has shown
progression from an average score
of60.59 to 61.88. A significant number
of the lowest-scoring loans have
been sold or allowed to roll off at their
maturity, and new investments generally
score higher than the ones they replace.
We expect this trend to continue, and
believe that our scoring framework will
allow us to continue to allocate more
capital towards sectors and borrowers
who demonstrate appropriate
environmental, social orgovernance
characteristics.
However, this is not always the case.
We are a facilitator of change and as
such are willing to support borrowers
with programmes to improve their
ESG performance, including transition
measures to reduce their carbon
emissions. This can take the form of
having ESG requirements as a condition
to making a loan, and including
appropriate ESG covenants in our loan
agreements. We also provide capital
with the explicit goal of driving change
– such as financing energy efficiency
investments, or projects to reduce the
greenhouse gas emissions of existing
assets. It should be noted that in some
cases this might mean that we are
making investments with quite a low
ESG score to begin with, but on the
expectation that our capital will be used
to improve the borrower’s ESG profile
over time.
As noted in my review last year, the
Board wrote to all the Company’s key
service providers to request information
about the management of their carbon
footprints and the steps they are taking
to reduce these over time. Wewere
greatly encouraged to discover
that the majority of our larger key
service providers have already set up
impressive programmes to monitor and
reduce their carbon intensity.
But our engagement revealed that some
of our smaller key service providers
have not yet developed comprehensive
net zero plans. Moreover, even
though as a company we have no
employees and no office and engage
only non-executive directors and
consultants, the fulfilment of these
roles involves activities such as air
travel to and from Guernsey, which
undoubtedly causes carbon emissions,
albeit emissions that are unavoidable at
thistime.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
13
We have therefore felt it appropriate
to undertake an exercise to quantify
the Company’s carbon footprint.
Weestimate this at just under 180
tons of CO
2
per annum. This estimate
allows for the emissions arising from
our Directors and Consultants and
from personnel in our smaller service
providers whose carbon reduction plans
are less developed in the fulfilment of
their respective duties for the Company.
We have also allowed for the full
estimated emissions of our Investment
Advisory team notwithstanding that
they have their own programmes for
monitoring, mitigating and offsetting.
We therefore consider that our estimate
of 180 tons in reality overstates our true
carbon footprint.
Using measures which are
independently verified as incremental,
measurable, permanent and closely
monitored by industry leading
practitioners, we have committed
to invest £15,000, which should be
sufficient to offset the Company’s
estimated emissions for our financial
years to 31 March 2022, 31 March2023
and the first part of the year ending
31 March 2024. To finance this
commitment, our Investment Adviser
has agreed to donate half of the cost,
and our Directors and Consultants each
agree to forego on a continuing basis
one per cent of fees due to each of
them with effect from 1 April 2022.
The Company is currently in discussion
with its smaller key service providers
and we anticipate that they too will
agree to make a contribution to our
carbon offsetting initiative. Going
forward, it is the strong intention of
the Board, with full support from our
Investment Adviser, that the Company
should remain a carbon neutral
organisation.
Particulars of the initiatives we have
chosen to support in order to offset
ourestimated emissions are provided in
the ESG section of our website. We also
explain there how we have estimated
the level of our emissions and why we
consider that our estimate exceeds the
likely true level of these.
Overall, I continue to believe that
in the context of an infrastructure
debt-focused fund the policies that
ourInvestment Adviser is operating
andis developing further place us at
theforefront of ESG thinking.
14
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Chair’s statement continued
BOARD SUCCESSION PLANS
I would like to thank Jon Bridel and
JanPethick, who have diligently served
as Directors of the Company since
before the IPO, and who are now both
stepping down at this year’s Annual
General Meeting (“AGM”).
They have brought many years of
experience to the Board and they
have contributed significantly to the
Company’s success.
In previous Chair’s statements, I have
discussed Board succession planning
and I would now like to introduce
JamesStewart and TimDrayson, who
both joined the Board in January 2022,
having previously had distinguished
careers in infrastructure and the
debt capital markets respectively.
James was Vice Chair of KPMG LLP
and chair of its Global Infrastructure
Practice; before that he was the Chief
Executive of Infrastructure UK and of
PartnershipsUK. And in the early part
of his career in investment banking, he
gained considerable experience as a
leading Project Finance practitioner.
Tim was the Global Head of Corporate
Sales, and Deputy Head of the
European Corporate Debt platform at
BNP Paribas. Tim arrived on the Board
with significant prior knowledge of the
Company, as he was previously an
independent consultant to the Board.
Replacing him in that role is Andrea
Finegan, who until recently was the
Chief Operating Officer of Greencoat.
Profiles of the Board and our
consultants are on pages 58 to 61.
In order to ensure a sensible degree
of continuity, we have taken the view
that in our approach to succession we
should allow a period of time for new
Directors to familiarise themselves fully
with our situation, governance and
culture before retiring Directors step
down. Accordingly, over the last six
months we have operated with a larger
Board during the transition period.
Going forward, given the growth of our
portfolio since launch, we consider
a five to six person Board more
appropriate, as it allows us to draw on
a wider experience base and it offers
additional resources and offers greater
scope to promote diversity.
OUTLOOK
We are taking full account of the
risks–and opportunities – that
higherinflation may present. In general,
a moderate amount of inflation is helpful
for the credit quality of the companies
that we lend to. This is because in many
cases these companies are able to
increase their revenues more or less
in line with inflation, while their debts
remain the same in nominal terms.
Inother words, inflation reduces the real
amount of leverage that our borrowers
have. There, however, is a risk, currently
exacerbated by high energy prices and
the ongoing consequences of Russia’s
invasion of Ukraine, that central banks
decide to address inflation aggressively,
reducing growth in the economy
oreventriggering a recession and
aperiod of stagflation.
While we do not welcome recessionary
pressures in any of the countries where
we hold investments, the resilience of
our borrowers to recession is one of
the most important factors that our
Investment Adviser evaluates in its
loanassessment processes.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
15
We are also mindful that interest rates
are increasing and are likely to continue
to do so. As noted above, an increase
in short-term interest rates is positive
for the portfolio, given the high level of
floating rate debt held. While increases
in longer-term interest rates are likely
to have the effect of temporarily
decreasing NAV, since the values of
fixed-rate loans decline, they too should
eventually be positive for the Company,
since reinvestment opportunities will
offer higher interest rates, and prices
of existing fixed-rate loans will pull
to par as they get closer to maturity.
We therefore believe that overall the
portfolio is well positioned for an
increasing interest rate environment.
Considering this outlook for interest
rates, the Board and Investment
Adviser have reflected on how best to
take advantage of the opportunity that
thisgives us.
For now we consider our priorities to be:
• to maintain our dividend payout at
its current level while increasing our
cash cover ratio;
• to continue to invest in new loans
with somewhat higher credit quality
metrics and/or somewhat stronger
ESG credentials than our current
portfolio averages; and
• to retain a significant level of head
room on our revolving credit facility.
We believe that this cautious approach
is appropriate given current pessimism
regarding the outlook for OECD
economies and that it will position us
well to continue delivering attractive and
sustainable returns for Shareholders.
We will also monitor our share price
closely and, if appropriate, may from
time to time engage in limited buy backs
when there seems to be an unwarranted
level of discount to NAV.
I would like to end by noting that
the Company has demonstrated its
resilience throughout the challenges of
the last two years and that with our well
diversified portfolio, growing interest
income and disciplined approach to
capital deployment, we believe we are
well positioned for the future.
ROBERT JENNINGS
Chair
8 July 2022
16
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Market opportunity
PRINCIPAL ACTIVITY SECTORS IN WHICH WE INVEST
The Company’s investment objective
is to provide investors with regular,
sustained, long-term distributions
and capital appreciation from a
diversified portfolio of senior and
subordinated economic infrastructure
debt investments. TheFund principally
invests in private operational projects
with a proven record and stable cash
flows, spread across 8 sectors and 29
sub-sectors, reducing exposure to any
one sector or business cycle. It aims to
capture the illiquidity premium offered
by private debt investments, with select
exposure to liquid, publicly traded debt.
The majority of the Fund’s portfolio
consists of bilateral loans and club
deals, for which the Investment Adviser
negotiated favourable terms for the Fund
to optimise its risk-adjusted returns.
UTILITIES ACCOMMODATION
The utility industry includes companies that supply essential services such as the
distribution and transmission of electricity, natural gas, and water. Utilities serve as a
public good and often have monopolistic characteristics, and as a result, are typically
highly regulated. Other examples would be pipelines in the midstream sector, whichare
essential to the transportation of commodities between the point of extraction and
consumption. Utilitiescompanies are normally defensive, as the businesses are capital
intensive and enjoy very high barriers to entry, and their revenues areresilient over
the economic cycle. Utilitycompany revenues are also not normally directlylinked to
commodityprices.
In the accommodation sector, the Fund mainly invests in specialist healthcare assets
such as learning disability care homes. Healthcare assets are fundamental to societies
and have a non-discretionary demand profile as governments have a statutory duty to
provide these services to their citizens. The industry is highly regulated, non-cyclical
and has high barriers to entry. Most healthcare businesses derive their revenues from
governments and municipalities. The Fund also invests in selective student housing
opportunities in countries where there are student housing shortages, such as the
Netherlands. The Fund is able to achieve attractive risk-adjusted returns in those
jurisdictions.
POWER
TECHNOLOGY, MEDIA AND TELECOMMUNICATIONS (“TMT”)
In the power sector, the Fund mainly invests in base load and energy transition assets.
Base load projects sell electricity all or most of the time and take on merchant risk (albeit
subject to hedging or power purchase agreements (“PPAs”)). Energy transition projects,
such as “peaker plants”, are only expected to be operating for a small part of the year,
when electricity prices spike, but do receive substantial standby payments from grid
operators – these are increasingly important as more renewable energy is deployed and
standby capacity is needed to stabilise the grid. Energy transition projects therefore have
an intrinsic ESG strength of facilitating higherlevels of renewable energy.
Attractive energy assets are characterised by strong asset backing, ahigh percentage
of contracted revenues and are based in highly developed energy markets that often
procure capacity on a two or three-year forward basis which enhances revenue visibility.
TheCompany generally looks to finance companies with low exposure to power prices
(“merchant price risk”) which can be achieved by borrowers hedging this risk through
derivatives or multi-year PPAs. All projects are assessed based on their competitive
positioning in the merit order curve and must be able to demonstrate solid operational
performance.
The opportunities we are seeing acrossthe digital sector stem from the exponential
growth in demand for data. There are numerous well-documented trends as well as further
advancements intechnology which will continue to act assignificant tailwinds to the sector.
Good connectivity is essential in the world we live in and the world has leapt forward in its
digitalisation journey. The essentiality of core assets (fibre, towers and data centres) within
digital networks has been accelerated due to the unfortunate circumstances brought about
by the pandemic. Our investments in the sector have been chief benefactors of these
positive dynamics as valuations have strongly appreciated across the space. The Fund’s
experience in the sector includes hyperscale data centres with blue-chip tenants, global
portfolios of mobile phone towers and an undersea data cable linking the US with Australia
and New Zealand.
RENEWABLES
TRANSPORT AND TRANSPORTATION EQUIPMENT
Over the course of the last decade, renewable energy has grown materially as
governments and investors started to realise the need for sustainable energy sources.
In 2021, countries worldwide continued to pursue decarbonisation plans, despite a
global pandemic and an economic recession. The renewable growth trend is expected
to continue going forward as more countries, including the US, join the Paris Climate
Accord which aims to achieve the goal of net-zero carbon emissions by 2050.
The Fund finances a wide range of renewable energy assets including both
ground-mounted and rooftop solar, wind turbines, hydro-electricity, geothermal
electricity and energy from waste projects. Typically, renewable energy projects benefit
from long-term electricity purchase agreements and government support schemes
such asROCs in the UK and Investment TaxCredits (“ITCs”) in the US.
In the transportation sector, the Company lends to long-term assets such as roads, ports,
airports and railways. These sub-sectors benefit from high barriers to entry and may have
quasi-monopolistic characteristics. Typically the Company’s loans are serviced by the
revenues that the assets generate through their usage, which may be either regulated or
operate in the open market.
In the transportation assets sector,the Company finances rolling stock, aircraft and
shipping. These types of assets typically have a high replacement cost and a long
economic life. In many cases, these assets will be on medium or long-term leases with
operators (e.g. a train operator) which provides a high degree ofcertainty of income.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
17
SECTORS IN WHICH WE INVEST
UTILITIES ACCOMMODATION
The utility industry includes companies that supply essential services such as the
distribution and transmission of electricity, natural gas, and water. Utilities serve as a
public good and often have monopolistic characteristics, and as a result, are typically
highly regulated. Other examples would be pipelines in the midstream sector, whichare
essential to the transportation of commodities between the point of extraction and
consumption. Utilitiescompanies are normally defensive, as the businesses are capital
intensive and enjoy very high barriers to entry, and their revenues areresilient over
the economic cycle. Utilitycompany revenues are also not normally directlylinked to
commodityprices.
In the accommodation sector, the Fund mainly invests in specialist healthcare assets
such as learning disability care homes. Healthcare assets are fundamental to societies
and have a non-discretionary demand profile as governments have a statutory duty to
provide these services to their citizens. The industry is highly regulated, non-cyclical
and has high barriers to entry. Most healthcare businesses derive their revenues from
governments and municipalities. The Fund also invests in selective student housing
opportunities in countries where there are student housing shortages, such as the
Netherlands. The Fund is able to achieve attractive risk-adjusted returns in those
jurisdictions.
POWER
TECHNOLOGY, MEDIA AND TELECOMMUNICATIONS (“TMT”)
In the power sector, the Fund mainly invests in base load and energy transition assets.
Base load projects sell electricity all or most of the time and take on merchant risk (albeit
subject to hedging or power purchase agreements (“PPAs”)). Energy transition projects,
such as “peaker plants”, are only expected to be operating for a small part of the year,
when electricity prices spike, but do receive substantial standby payments from grid
operators – these are increasingly important as more renewable energy is deployed and
standby capacity is needed to stabilise the grid. Energy transition projects therefore have
an intrinsic ESG strength of facilitating higherlevels of renewable energy.
Attractive energy assets are characterised by strong asset backing, ahigh percentage
of contracted revenues and are based in highly developed energy markets that often
procure capacity on a two or three-year forward basis which enhances revenue visibility.
TheCompany generally looks to finance companies with low exposure to power prices
(“merchant price risk”) which can be achieved by borrowers hedging this risk through
derivatives or multi-year PPAs. All projects are assessed based on their competitive
positioning in the merit order curve and must be able to demonstrate solid operational
performance.
The opportunities we are seeing acrossthe digital sector stem from the exponential
growth in demand for data. There are numerous well-documented trends as well as further
advancements intechnology which will continue to act assignificant tailwinds to the sector.
Good connectivity is essential in the world we live in and the world has leapt forward in its
digitalisation journey. The essentiality of core assets (fibre, towers and data centres) within
digital networks has been accelerated due to the unfortunate circumstances brought about
by the pandemic. Our investments in the sector have been chief benefactors of these
positive dynamics as valuations have strongly appreciated across the space. The Fund’s
experience in the sector includes hyperscale data centres with blue-chip tenants, global
portfolios of mobile phone towers and an undersea data cable linking the US with Australia
and New Zealand.
RENEWABLES
TRANSPORT AND TRANSPORTATION EQUIPMENT
Over the course of the last decade, renewable energy has grown materially as
governments and investors started to realise the need for sustainable energy sources.
In 2021, countries worldwide continued to pursue decarbonisation plans, despite a
global pandemic and an economic recession. The renewable growth trend is expected
to continue going forward as more countries, including the US, join the Paris Climate
Accord which aims to achieve the goal of net-zero carbon emissions by 2050.
The Fund finances a wide range of renewable energy assets including both
ground-mounted and rooftop solar, wind turbines, hydro-electricity, geothermal
electricity and energy from waste projects. Typically, renewable energy projects benefit
from long-term electricity purchase agreements and government support schemes
such asROCs in the UK and Investment TaxCredits (“ITCs”) in the US.
In the transportation sector, the Company lends to long-term assets such as roads, ports,
airports and railways. These sub-sectors benefit from high barriers to entry and may have
quasi-monopolistic characteristics. Typically the Company’s loans are serviced by the
revenues that the assets generate through their usage, which may be either regulated or
operate in the open market.
In the transportation assets sector,the Company finances rolling stock, aircraft and
shipping. These types of assets typically have a high replacement cost and a long
economic life. In many cases, these assets will be on medium or long-term leases with
operators (e.g. a train operator) which provides a high degree ofcertainty of income.
18
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Business model
DRIVEN BY OUR PURPOSE
RISK MANAGEMENT
INVESTMENT PROCESS
Our purpose is to generate
attractive and sustainable
returns for a wide range of
investors throughresponsible
and disciplined investment
into a growing portfolio
of diverse economic
infrastructure debt.
Theseassets would otherwise
be difficult for investors to
access, given the specialist
nature of the necessary credit
rating and advisory skills
needed. Our investments
support the provision of
infrastructure on a sustainable
basis and create social and
economic benefits across the
range of geographies in which
we invest.
Credit review framework
Escalation criteria are in place
requiring Risk Committee and
Investment Consultant review of
investments possessing certain
characteristics. AIFM has full
discretion to approve or decline
investments.
Risk Committee
Committee is comprised of
independent non-executive
Directors. Read more on page 66.
Independent AIFM
RiskManager
Detailed review of all investment
recommendations and material
developments with borrowers.
STEP 1
ORIGINATION
• Identify market opportunities in sectors and jurisdictions with strong credit
characteristics and attractive relative pricing
• Leverage relationships with lending banks and infrastructure owners
STEP 5
ACQUISITION
ANDMONITORING
• Investment Adviser executes the
trade once the recommendation
is approved
• Execution of appropriate
currency hedge as necessary
• All ongoing credit monitoring
and updates including the
Investment Committee reviews
are sent to the AIFM
• Every asset is monitored
semi-annually at a minimum, and
more frequently when required
• Annually the Board undertakes
a full portfolio review, with a
separate session dedicated to
focus loans (determined by risk
profile), in addition to quarterly
Board reviews
STEP 4
INVESTMENT APPROVAL
PROCESS
• Full credit memorandum
andvaluation/yield analysis
is provided to the Investment
Committee for review
• A unanimous investment
decision is required in order to
make the recommendation to
the Alternative Investment Fund
Manager (“AIFM”)
• Investment Committee
minutes and material credit
documentation are submitted
to the AIFM for detailed review
and referred to the Investment
Manager or the Board as
appropriate for approval
andsign-off
1. See appendix for Alternative Performance Measures (“APMs”).
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
19
SUSTAINABILITY FINANCIAL OUTCOMES
ROBUST GOVERNANCE
INVESTMENT PROCESS
Effective Board oversight
Details of Board composition, committee structures and
the Company’s internal controls and risk management
systems are set out in the corporate governance report
on pages 62 to 67.
Financial management
Details of the arrangements for ensuring the integrity of
the Company’s system of internal financial controls and
financial reporting processes are set out in the report of
the Audit Committee on pages 70 to 72.
Financial
The Company’s NAV
performance and dividend
cover can be found on pages
25 and 26.
Governance
Details of the Company’s
governance framework and the
activities of the Board during
the year can be found on
pages 62 to 67.
Environmental
andsocial
Details of the Company’s
sustainability strategy and
theapproach taken in applying
its principles to its business
activities are described in the
sustainability section on pages
34 to 47.
6.25p
The Company has paid a
dividend of 6.25p per share for
the financial year, in line with
its target.
£1.80 billion
The Fund’s investment portfolio
was valued at c.£1.80 billion at
the year end.
1.06x
The Company’s cash dividend
cover for the financial year was
1.06x.
4.5%
Total share price return
1
for the
year was 4.5%.
STEP 2
INITIAL SCREENING
• Eliminate assets unlikely to
pass investment approval,
including review of ESG
credentials
• Identify strong credits for
inclusion in shortlist for
fullanalysis
STEP 3
DETAILED
CREDITANALYSIS
• Due diligence and credit
process
• Site visits, meetings with
management, as appropriate
• Run proprietary analytical
models if applicable
• Determine risk characteristics
and mitigants
• Ensure no diversification,
concentration or other limits
are broken
20
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Q&A with the Investment Adviser
HAS THE COMPANY’S OVERALL RISK INCREASED THIS YEAR?
WHY HAS THE PORTFOLIO YIELD DECLINED THIS YEAR?
We believe that, overall, portfolio risk has
decreased during the course of the year.
This is the consequence of three changes
– the first two of which are economic
factors, and the third one is a decision
that we made:
• firstly, several parts of the economy
that were shut down – orat least
curtailed – by COVID-19 have
reopened. From our perspective the
important ones are transportation
and student accommodation.
This has directly led to some
underperforming investments turning
around quiterapidly;
• secondly, higher energy prices are
directly beneficial for electricity
generation and midstream assets
and only indirectly negative for some
other sectors such as transportation;
and
• thirdly, for the past few years –
actually since before the COVID-19
pandemic – we have had a cautious
view of the global economy
and have shunned higher-risk
lending opportunities, in favour of
more defensive loans, where the
companies that we lend to typically
benefit from high levels of contractual
income, good asset backing, high
barriers to entry, or business models
that have a low correlation to the
economic cycle.
Of course, any portfolio of loans is likely
to have some borrowers with difficulties.
In last year’s Annual Report we discussed
four such underperforming loans – of
those, three have improved to the point
where they are no longer of concern; only
one of last year’s problem loans remains.
Although two new loans have been
added to the list in the past 12 months,
the total number of problem positions
has shrunk from four to three and the
percentage of NAV halved from 10%
to5%.
The portfolio yield is the sum
oftwocomponents, averaged
acrossinvestments: interest rates
(i.e.LIBOR, SONIA, SOFR or government
bond yields, as appropriate to the
loan in question) and credit spreads
(i.e. incremental yield needed as
compensation for risk).
Since portfolio risk has declined
(asdiscussed in the previous question),
credit spreads have also reduced.
Inparticular, by avoiding high-yielding
but potentially risky loans, the Company
has made the conscious decision to
accept a lower yield for the time being.
The Investment Adviser believes that in
the current market environment this is
thecorrect course of action.
The portfolio yield of 8.4% is within our
target range (8% to 9%) and is more
than adequate to cover the dividend.
Moreover, as interest rates increase, the
portfolio yield should also rise, given that
approximately half the portfolio consists
of floating rate loans.
On a technical note, this year we have
not included the theoretical yield to
maturity on our three underperforming
loans. These loans have very high yields
– reflecting their risk – but given that
their outcome is uncertain, we believe
it is prudent to exclude them from the
calculation of the weighted average yield
on the portfolio. In previous years we
included this type of loan – the effect of
excluding them has been to reduce the
weighted average yield by about 0.7%.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
21
HOW IS THE COMPANY AFFECTED BY INFLATION AND HIGHER INTEREST RATES?
The portfolio’s direct correlation to
inflation remains low – none of our loans
has an interest rate that is mechanically
linked to inflation. However, there is an
indirect correlation, as higher inflation is
leading to higher policy interest rates.
This is helpful, given that about 50%
of the portfolio consists of floating rate
loans – in broad terms, if interest rates
increase by 1%, then portfolio income
would increase by about 0.5% per
annum, although in some cases interest
rates would need to rise above a “floor”
(i.e. a minimum interest rate) embedded in
the loan agreement before this increase
can take effect. In relation to fixed rate
loans, higher long-term interest rates
are a mixed blessing: the immediate
consequence is that there is a temporary
decline in NAV, but over time higher
interest rates are beneficial since the new
loans we will be making in the future will
naturally have a higher yield.
There is also another indirect effect.
Inflation is likely to be helpful for the
credit quality of many of our borrowers,
since their debts will decrease in
real terms while their assets and
revenues willbenefit from inflation.
Forexample, if we are financing student
accommodation, then it is reasonable to
assume that the rents that students pay
will increase by more or less inflation over
time, and that therefore that borrowers’
credit ratios (such as loan-to-value or
interest cover) will improve.
HOW HAS THE COMPANY BEEN AFFECTED BY RUSSIA’S INVASION OF UKRAINE?
The Company is not permitted to invest
in Russia, Belarus or Ukraine, and so has
no direct exposure to those jurisdictions.
Its indirect exposure (for example, do
we lend to companies that do business
there?) is negligible. The Company is fully
compliant with the international sanctions
imposed on Russia.
However, that is not to say that there have
been no consequences for the Company
– all investors have been affected, and we
are no different.
The invasion has led to a significant
and sustained increase in the price of
some commodities, notably energy. Our
analysis is that, overall, this is positive for
the credit quality of our portfolio since the
Company has substantial exposure to
electricity generation (both conventional
and renewable) and, to a lesser extent,
midstream oil and gas assets (such as
pipelines), both of which benefit from high
energy prices.
We have less exposure to infrastructure
sectors (such as transportation) that
suffer when prices are high. The one very
material adverse consequence was the
default of our loan to Bulb Energy, which
is discussed elsewhere in this report.
The conflict has underlined Europe’s need
for alternatives to fossil fuels, and the
EU has pledged to end its dependency
on gas, coal and oil imported from
Russia. The Company expects this
rebalancing of the energy economy to
provide new opportunities in renewable
energy, and associated assets such as
energy storage, smart metering and grid
stabilisation.
In the shorter term though, the broader
economic consequences of the invasion
are clearly negative. Not only have
inflationary pressures increased, but
supply chains have been disrupted,
especially in agriculture, and it is possible
that this will have far-reaching economic
and geopolitical consequences.
Weremain cautious in our investment
approach in this period of uncertainty.
22
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Q&A with the Investment Adviser continued
WHAT ARE THE INVESTMENT ADVISER’S FUTURE INITIATIVES?
HOW DOES YOUR ESG STRATEGY WORK IN PRACTICE?
The Company remains committed to
generating attractive and sustainable
returns by investing in an increasingly
diverse portfolio of economic
infrastructure debt. As at 31 March
2022, the Company’s invested portfolio
consisted of 76 investments overall, an
increase from 72 in March 2021. Looking
ahead, the Company will seek to further
the development of its pipeline of 8
sectors and 29 sub-sectors by exploring
new infrastructure technologies, such as:
floating offshore wind, synthetic fuels,
carbon capture technologies, hydrogen,
energy storage and automation. We
believe that these sectors are closely
aligned with the Company’s strategy
and future ambitions as we continue to
diversify the portfolio.
The Company will also continue to hold
the majority of the portfolio in senior-
ranking debt, as opposed to mezzanine
or other types of subordinated lending.
Senior-ranking debt has the first claim
on a borrower’s assets in the event
of a default and is therefore the most
defensive type of lending. The Company
will also focus on targeting floating rate
assets to generate adequate real returns
for investors. As at 31 March 2022,
floating rate assets represented 50% of
the portfolio. The Investment Adviser aims
to maintain or increase this percentage
over time.
The Company has continued to
implement its comprehensive ESG
programme. As in previous years, we
have clear criteria for what we will not
invest in (i.e. negative screening) and
where we would like to make more
investments (i.e. positive screening).
We also have an ESG scoring process,
transparently set out in our ESG policy,
and aim to increase the portfolio’s
ESG score over time – a goal we have
achieved this year, largely as a result
of continuing to invest in projects with
strong ESG credentials.
These three elements – negative and
positive screening and ESG scoring – are
mostly concerned with the allocation of
capital. Whilst that is of course hugely
important, we do not believe that should
be the full extent of our ESG strategy.
Our view is that we can engage with the
companies that we lend to on a range of
ESG topics. This engagement can take
the form of, for example, dialogue with
our borrowers (both before and after we
lend), gathering information, and including
within loan agreements a range of
undertakings, representations, warranties
and covenants covering the borrowers’
environmental, social and governance
obligations.
Our belief in driving change may also
lead us to make some investments, from
time to time, which have relatively low
ESG scores, but where our capital is
making a material improvement in the
environmental profile of the company we
are lending to. For example, we might
lend to finance energy efficiency, recycling
or carbon-scrubbing technologies.
Other than our Portfolio ESG scoring
process and procedures, we have taken
steps to mitigate our carbon emissions.
In addition, we have supported the steps
that the Company has taken to mitigate
its emissions as described in the Chair’s
statement on pages 12 to 13.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
23
Investment Adviser’s report
THE INVESTMENT ADVISER’S OBJECTIVES FOR THE YEAR
Over the course of the financial year ended 31 March 2022, Sequoia Investment Management Company Limited (“Sequoia”)
has had a number of objectives for the Company:
Goal Commentary Achieved
GROSS PORTFOLIO
RETURN OF 8‑9%
The Company is fully invested with a portfolio that
yields
1
8.4%.
MANAGE THE PORTFOLIO
RESPONSIBLY THROUGH
AN INFLATIONARY AND
RISING INTEREST RATE
ENVIRONMENT
Anticipating hawkish central bank policies, the
Companyhas targeted and achieved a low-duration
portfolio consisting of 50% floating rate assets and
implemented increased monitoring on potentially
negatively affected assets.
FOLLOW A
SUSTAINABLE
INVESTMENT STRATEGY
The Company has improved the overall ESG score of its
portfolio by allocating capital to higher-rated opportunities
and selling off lower-rated legacy investments.
ESG engagement with borrowers has increased
toimprovereporting.
TIMELY AND TRANSPARENT
INVESTOR REPORTING
Factsheets, commentary and the full portfolio are provided
monthly for full transparency.
CONTINUE
IMPLEMENTATION OF
ESG‑LINKED BENEFITS
FORTHE COMPANY
Renewal and increase of the Company’s RCF in
November2021 with the inclusion of a sustainability-linked
interest margin.
CASH‑COVERED
DIVIDENDS OF
6.25PPERSHARE
The Company paid 6.25p of dividends per Ordinary Share
during the year. Cash cover of 1.06x
1
on the dividend.
1. See appendix for Alternative Performance Measures (“APMs”).
We have seen a meaningful improvement
inthecreditqualityof the portfolio
24
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
THE INVESTMENT ENVIRONMENT DURING THE YEAR
The first half of the year saw mostly benign financial market conditions, with stable interest rates and, overall, credit spread
tightening, albeit at a slower pace compared to the previous year. Credit spreads in some sectors, such as telecommunications
and renewable energy, dropped to below pre-COVID levels. Other sectors, such as aviation and non-sustainable power, did
not see significant credit spread tightening, driven in part by their lacklustre economic performance and in part by their poor
ESG profile, which is increasingly deterring investment in some sectors.
During the second half of the fiscal year, financial markets were both weaker and more volatile, as a result of inflation and
interest rate concerns, hawkish central bank policies and Russia’s invasion of Ukraine. In addition, energy prices (specifically
the electricity, oil and gas markets) rose very significantly, benefiting some parts of the infrastructure market (for example,
renewable energy), whilst hurting other parts (for example, transportation).
Overall, this has been a challenging economic environment, and many asset classes – including high yield bonds, leveraged
loans and the listed equity markets – have struggled. In our report we will discuss how the Company has fared and how the
investment portfolio is positioned for some of the challenges and opportunities.
Investment Adviser’s report
SHARE PERFORMANCE CAPITAL RAISING AND
DEPLOYMENT SINCE IPO
As at 31 March 2022, the Company had 1,767,397,442
Ordinary Shares in issue. The closing share price on
that day was 102.8p per Ordinary Share, implying a
market capitalisation for the Company of approximately
£1.82 billion, compared to £1.84 billion the previous
year. The share price declined slightly year-on-year,
by1.3%. In the opinion of the Investment Adviser,
thiswas mainly driven by concerns about the impact
ofinflation, rising interest rates and how Russia’s
invasion of Ukraine and the associated disruptions
tosupply chains will impact on the global economy,
aswell as the decline in the Company’s NAV per
shareas discussed below.
LIQUIDITY
As at 31 March 2022, the Company had cash of £94.5 million, more than covering the £66.3 million of future funding
commitments on investments it had made. During the period, due to the lingering consequences of COVID-19, the Investment
Adviser focused on the monitoring and management of existing portfolio investments and deployment of capital into attractive
new loans.
0
500
1,000
1,500
2,000
Mar
15
Mar
16
Mar
17
Mar
18
Mar
21
Mar
22
Invested capital
Net cash
Mar
19
Mar
20
£'000
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
25
NAV PERFORMANCE
Over the financial year, the Company’s NAV per Ordinary Share
1
decreased by 2.68p post-dividend, from 103.18p to 100.50p,
driven by the following effects:
Factor
NAV
effect
Interest income on the Company’s investments 8.57p
Losses on foreign exchange movements, net of the effect of hedging 0.00p
Negative price movements
1
(3.52)p
IFRS adjustment from mid-price at acquisition to bid price (0.31)p
Operating costs (1.19) p
Gains from issuing Ordinary Shares at a premium to NAV 0.02p
Gross increase in NAV 3.57p
Less: Dividends paid (6.25)p
Net decrease in NAV after payments of dividends (2.68)p
Over the year, portfolio income has been reasonably strong (both on an accounting basis and on a cash basis, as discussed
inthe next section), but the NAV, net of dividends, has overall fallen slightly due to negative price movements of 3.52p
pershare. This figure can be analysed as the sum of four different components:
Factor
NAV
effect
Mark down of Bulb, Salt Lake Potash and Washington School (2.50)p
Mark up of previously underperforming loans 0.70p
Price declines due to increases in long-term rates (2.09)p
Other price movements 0.37p
NAV decrease due to price movements (3.52)p
Although the NAV decline is disappointing, the Company has consistently outperformed the liquid credit markets, such as high
yield bonds and leverage loans, since its IPO in March 2015 and this year was no exception. In fact, over the year the NAV total
return
1
to investors has been 3.5% (44% since the IPO), compared to -1.61% (22% since the IPO) for Sterling-hedged high yield
bonds. The chart below shows this relative performance.
TOTAL RETURN SINCE THE INCEPTION OF THE COMPANY TO 31 MARCH 2022
85
105
125
145
95
115
135
155
Mar
16
Mar
17
Mar
18
Mar
21
Mar
22
Share price total return of 48%
SEQI NAV total return of 48%
GBP-hedged HY bonds total return of 21%
Mar
19
Mar
20
"High yield GBP-hedged ETF" is the
iShares Global High Yield Corp Bond GBP
Hedged UCITS ETF (ticker: GHYS LN).
Total return calculated with
gross dividends reinvested
1. See appendix for Alternative Performance Measures (“APMs”).
Source: Bloomberg.
26
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
DIVIDEND COVER
Pleasingly, the level of dividend cash
cover
1
has increased from 1.04x in
the last financial year to 1.06x for the
current year. This improvement in
cash cover was mainly driven by (1)
several borrowers who had previously
been permitted to capitalise interest
during the COVID-19 pandemic starting
to pay cash interest again and (2)
interest income on floating rates loans
increasing as LIBOR (or equivalent
short-term rates) rose. For details of the
dividend cash cover calculation, please
refer to the Appendix.
The Investment Adviser expects that
the dividend cover will continue to
improve in the next financial year, driven
by the collection of accrued interest
and by increasing short-term interest
rates. TheDirectors of the Company
have, in light of this, reaffirmed their
dividendtarget.
THE CREDIT PERFORMANCE
OF SPECIFIC INVESTMENTS
Overall, we have seen a meaningful
improvement in the average credit
quality of the portfolio, as many parts
of the economy have rebounded from
COVID-19. Specific examples include
student accommodation, transportation
and both traditional power and
renewable energy. The last two sectors
also benefited from the rise in energy
prices in the second half of the year.
However, as would be the case with
anyloan portfolio, some investments
have underperformed, sometimes
materially, and these positions
arediscussed below.
In our previous Annual Report,
wehighlighted four investments that
were experiencing significant credit
issues: a private school in Washington
D.C., a restructured loan in the US
midstream business, a Combined Heat
and Power (“CHP”) plant in Germany,
and a business that owns and operates
two refineries in Sweden. Pleasingly,
the underlying performances of the last
three on this list have improved to the
extent that these loans are no longer
ofconcern. In fact, as noted above,
theprices of these three investments
have increased and contributed in
aggregate about 0.70p per share.
While these three loans have improved,
two other loans have deteriorated.
Together with our loan backed by the
private school in Washington D.C. these
investments are being actively managed
by the Investment Adviser and are
summarisedbelow.
PART I. REVIEW OF THE YEAR
1. US private school
A loan backed by and secured
ona large building in a prime area
in Washington D.C., occupied by a
private school under a long-term lease
agreement. As at 31 March 2022, the
value of this loan is equal to 1.66% of
the portfolio.
As a result of the COVID-19 pandemic,
the ramp-up of school enrolments
was much slower than expected.
Lower than projected revenues from
tuition fees left the school without
the funds needed to pay rent to the
property-owning company which,
inturn, left the property company
(our borrower) unable to pay interest
on its loan. Unfortunately, the school
operator has to date been unsuccessful
in raising the capital that would enable
it to resume meeting its obligations
under its lease, and the owner of the
property has therefore worked with
its lenders, including the Company,
torestructure its debt. In April 2022,
the property owner secured the
refinancing of part ofits capital structure
and an agreement has been reached
between the lenders and the borrower
to restructure and extend the debt.
This includes the injection offurther
equity by the property owner. This
restructuring provides a stable capital
structure for the borrower to realise
the value of the property and repay the
Company’s loan.
2. UK energy supply company
A senior secured loan to a retail energy
supplier in the UK, Bulb Energy (“Bulb”).
As at 31 March 2022, the value of this
loan is equal to 1.55% of the portfolio.
Over the course of the second half of
2021, global energy prices increased
sharply. Bulb, in common with other
energy supply companies in the UK,
was unable to pass these increases
on to its retail customers (given the
retail energy price cap regulation in the
UK) and consequentially found itself
increasingly loss-making. Although
Bulb had a substantial energy hedging
programme in place, which helped
to mitigate these losses, Bulb was
unable to extend its hedges as market
volatility increased and its capital
position deteriorated. On 24 November
2021, Bulb and its parent company,
Simple Energy Limited (“Simple”), went
into the special administration regime
(“SAR”) and ordinary administration,
respectively.
The primary objective of the SAR is
to ensure continuity of energy supply
to customers, and, in this regard, the
Investment Adviser has been working
openly and constructively withall
stakeholders to ensure the best
interests of customers, employees and
creditors. During the SAR, the Fund
is unable to enforce its senior security
over the assets of Bulb. Moreover,
any funding that the Government
provides to Bulb, to support its ongoing
operations during the SAR or to pursue
other Government policy objectives,
may rank senior to the Fund’s secured
loan. As such, the Government has,
ineffect, nationalised Bulb and deprived
the Company of the value of its security.
However, the Company’s loan to Bulb
is also secured on the substantial
assets of its parent, Simple. These
assets are not included in the scope
of the SAR and therefore continue to
provide collateral for our loan to Bulb.
The administrators of Simple continue
to make progress on realising the
value of its assets. On 3 May 2022,
the Fund received a partial repayment
of £10 million from Simple against
the outstanding amounts due under
the loan agreement, which cleared all
outstanding interest due and reduced
the outstanding loan balance to
£47.6million.
Investment Adviser’s report continued
1. See appendix for Alternative Performance Measures (“APMs”).
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
27
3. Australian potash facility
A senior secured loan to finance the construction of a potash extraction and processing facility in Western Australia, currently
valued at 1.70% of the portfolio. The facility is owned by Salt Lake Potash (“SLP”), a company listed on the Australian stock
exchange under the ticker SO4.
SLP’s plan to start production in early 2022 met a series of obstacles, including technical/engineering issues and extreme
weather (the heavy rainfall was classified as a 1-in-50-years event). These difficulties resulted in both the construction cost
of the project increasing, as well as a delay to the date on which it would start to generate profits, leaving the project with a
funding shortfall. SLP’s attempt to raise additional capital from the stock market to address this shortfall unfortunately proved
unsuccessful, and the project’s lenders appointed KordaMentha as receivers on 20 October 2021.
The receivers, in consultation with the lenders, have continued to ensure that the project remains viable, by retaining key
employees and undertaking necessary works, commissioning third-party advisers to update the project’s business plan
and due diligence reports, and prepared SLP for sale. On 10 March 2022, KordaMentha made an announcement on the
Australian Stock Exchange regarding the start of the sale process and provided a short summary of some of the findings of
the third-party advisers, notably that the quantity of the potash resource was materially higher than originally estimated and
the market price of potash is much higher than a year ago, but, offsetting that, the rate of future extraction may be lower than
previously assumed.
FUND PERFORMANCE
31 March
2022
30 September
2021
31 March
2021
Net asset value per Ordinary Share
1
100.50p 102.94p 10 3.18 p
£ million 1,777.0 1,818.2 1,819.1
Invested portfolio percentage of NAV 95.0% 98.4% 94.3%
Total portfolio (including investments in settlement) percentage of NAV 101.5% 100.3% 97.7%
PORTFOLIO CHARACTERISTICS
31 March
2022
30 September
2021
31 March
2021
Number of investments 76 74 72
Single largest investment £ million 64.7 66.9 65.0
percentage of NAV 3.6% 3.7% 3.6%
Average investment size £ million 23.7 24.1 23.8
Sectors
by number of invested assets
8 8 8
Sub-sectors 29 31 31
Jurisdictions 12 12 12
Private debt
percentage of invested assets
94.7% 94.9% 93.3%
Senior debt 53.6% 56.2% 54.7%
Floating rate 50.1% 50.3% 56.5%
Construction risk 13.1% 10.1% 8.1%
Weighted-average maturity years 5.2 5.3 5.6
Weighted-average life years 4.1 4.3 4.5
Yield-to-maturity 8.4% 8.6% 9.0%
Modified duration 2.1 2.3 2.3
28
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
PART II. INVESTMENT
STRATEGY
Economic infrastructure as a
diverse, sustainable and highly
cash‑generative asset class
Economic infrastructure debt is a stable
asset class typically characterised by
high barriers to entry and relatively
stable cash flows, and includes
sectors such as transportation, utilities,
power, telecommunications and
renewables. Economic infrastructure
is often supported by physical assets,
long-term concessions or licences
to operate infrastructure assets and
these companies frequently operate
within a regulated framework. This is
especially true in the case of utilities,
telecommunications and parts of the
power sector.
A characteristic that economic
infrastructure sectors have in common
is that they earn their revenues from
demand, usage or volume. This means
that a project’s revenues are linked to
the utilisation of the project, such as a
toll road where revenues are dependent
or partially dependent upon traffic
volumes. This is in contrast to social
infrastructure, such as schools and
hospitals, which are often compensated
for the physical asset simply being
available for use.
To mitigate demand risk, economic
infrastructure projects are typically less
highly geared than social infrastructure
and have higher equity buffers, more
conservative credit ratios, stronger
loan covenants, and higher levels of
asset backing for lenders. Economic
infrastructure also provides higher
returns than social infrastructure and
is a much larger market. Moreover,
as sustainability has become a key
investment topic, the Investment
Adviser notes that investing in new
economic infrastructure is often
necessary for the implementation
ofthe latest technologies. This leads
to an abundance of ESG-focused
investment opportunities, benefiting not
only the Company’s portfolio, but also
the modernisation of otherwise high
barrier-to-entry sectors.
The characteristics of economic
infrastructure – stable cash flows, high
barriers to entry, physical assets, equity
buffers and lower gearing – all form the
bedrock upon which SEQI’s investment
opportunities are based and analysed.
This is not expected to change,
regardless of what is going on in the
markets, because the core features of
economic infrastructure all contribute to
strong fundamentals that are critical for
weathering storms.
With that said, the economic
infrastructure market is not immune
to volatility and there are certain
actions we took prior to, and over the
course of, the financial year, including
targeting mainly floating rate assets,
focusing on senior debt and favouring
non-cyclical industries. These actions
helped position the portfolio defensively
for potential downturns, such as the
COVID-19 pandemic and Russia’s
invasion of Ukraine.
Investment Adviser’s report continued
1. See appendix for Alternative Performance Measures (“APMs”).
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
29
Diversified and
cash‑generative portfolio
The Company’s portfolio remained
resilient during the COVID-19 pandemic
relative to the broader market. This
was due to the defensive late-cycle
strategies that the Company started
adopting in 2019. These strategies
included keeping a large portion of the
portfolio in defensive sectors, keeping
a strong allocation in senior compared
to mezzanine debt, and maintaining
the portfolio’s credit quality even as
spreads tightened prior to March 2020.
The Company started adopting these
strategies in 2019 because we expected
a slowdown in the economy, as the
business cycles in the US and the UK
ran into their 10th year in the second
half of 2019. Throughout the year, the
Company has also continued to position
itself defensively in anticipation of higher
inflation and the potential of a recession.
As a consequence of these actions,
asat 31 March 2022:
• 48% of the portfolio is
invested in defensive sectors,
including telecommunications,
accommodation, utilities and
renewables. These are viewed
asdefensive because they provide
essential services, often operate
within a regulated framework and
have high barriers to entry;
• 54% of the portfolio is in
senior-ranking debt, as opposed
to mezzanine or other types of
subordinated lending. Senior-ranking
debt has the first claim on a
borrower’s assets following a default
and is therefore the most defensive
type of lending;
• the average credit quality of the
portfolio has been maintained at
B1over the last 12 months while
still achieving our target yield.
Ourpolicy of not making CCC credit
quality investments, or of investing
in distressed debt, remains in
place;and
• 50% of the portfolio is in floating
rate loans. The Company focused
on targeting floating rate assets
throughout the year in order to
continue to generate adequate real
returns for investors.
The Investment Adviser aims to maintain
or increase this percentage over time.
The Company’s investment portfolio
is diversified by borrower, jurisdiction,
sector and sub-sector, with strict
investment limits in place to ensure
thatthis remains the case.
Geographically, the Company invests
in stable low-risk jurisdictions. Under
the terms of its investment criteria, the
Company is limited to investment-grade
countries, and has chosen to pursue
selected opportunities in Spain, but it
has not yet invested in Portugal or Italy.
TheCompany has been focused on the
United States, Canada, Australia, the
UK, and Northern and Western Europe.
The Company focuses predominantly
on private debt, which on 31 March
2022 represented approximately
95% of its portfolio. This is because,
typically, private debt enjoys an illiquidity
premium, i.e. a higher yield than a
liquid bond with otherwise similar
characteristics. Since the Company’s
main investment strategy is “buy and
hold”, it makes sense to capture this
illiquidity premium. Sequoia’s research
indicates that infrastructure private
debt instruments yield approximately
1% more than public, rated bonds.
However, in some cases, bonds can
also be an attractive investment for
three reasons.
Firstly, some bonds are “private
placements” which, whilst in bond
format, have an attractive yield that is
comparable to loans. Secondly, some
sectors, such as US utility companies,
predominantly borrow through the
bond markets, and therefore having
an allocation to bonds can improve
the diversification of the portfolio.
Thirdly, having some liquid assets in
the portfolio enables the Company to
take advantage of future opportunities
and can also be used to satisfy the
Company’s potential tender obligations.
The Company remains committed
to limiting exposure to greenfield
construction risk in the portfolio. Whilst
up to 20% of the NAV can consist of
lending to such projects, the actual
exposure to assets in construction as
of 31 March 2022 was 13% of the NAV.
Sequoia is careful to select projects
where it believes the Company will be
well compensated for taking a moderate
level of construction risk, and where the
underlying strength of the borrower’s
business or project mitigates the risk.
The Company takes its corporate and
social responsibilities seriously and
has focused on further developing and
implementing ESG initiatives during
the fiscal year. Throughout the year,
the Company continued to deploy its
capital in sustainable investments with
favourable ESG credentials such as
renewables, energy transition and TMT
investments. To further demonstrate
its commitment to sustainability,
the Company has also introduced a
sustainability-linked margin adjustment
to its RCF as part of the latest RCF
refinancing and upsizing in November
2021 which will be determined annually
based on the portfolio’s overall ESG
score.
30
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Investment Adviser’s report continued
PART II. INVESTMENT STRATEGY CONTINUED
The portfolio’s resilience to rising interest rates and inflation
Two of the key investment themes currently are globally high inflation and rising interest rates. Clearly these two are linked and
market participants expect central banks to continue to increase policy rates to try to bring inflation under control. We believe
the portfolio is well positioned to manage this situation, and moreover see significant advantages for the Fund in a higher
interest rate world.
Increasing interest rates are broadly positive for the Fund, although their impact can be complex.
• Rising short-term rates are positive, since half the investment portfolio consists of floating rate debt. Higher short-term
rates therefore will increase the income that the Company derives from its investment portfolio, improving dividend cover
and potentially helping to build NAV. It should however be noted that interest rates affect the cost of currency hedging and
therefore increases in Sterling short-term interest rates are the most beneficial.
• Rising long-term rates are positive over time, but may result in temporary NAV declines at first. The portfolio has a low
modified duration of 2.1, which means that a one basis point increase in long-term interest rates will result in the portfolio
valuation falling by approximately 2.1 basis points. However, this decrease is temporary as the price of the investments will
“pull to par” as they approach maturity. The advantage to the Company of higher interest rates is that, all other things being
equal, the Company will be able to charge higher rates on its new loans.
Origination activities
The Company’s strategy is to invest in both the primary and secondary debt markets. Sequoia believes that this combination
delivers a number of benefits: participating in the primary markets allows the Company to generate upfront lending fees and
to structure investments to meet its own requirements; and buying investments in the secondary markets can permit the rapid
deployment of capital into seasoned assets with a proven track record.
Primary market origination
The primary loan markets provide the most important investment opportunity for the Company. The Investment Adviser has
sourced bilateral loans and participated in “club” deals, where a small number of lenders join together. The Company has
also on occasion participated in more widely syndicated infrastructure loans. Primary market loans often have favourable
economics because the Company, as lender, benefits from upfront lending fees. As the Company has grown, primary market
investment activity has grown to surpass secondary market investments, with 84% of the portfolio comprising primary
investments as of 31 March 2022.
Secondary market origination
Some of the Company’s investments continue to be acquired from banks or other lenders in the secondary markets.
Thisapproach can provide one or more of the following benefits:
• enables a rapid deployment of capital, since secondary positions can be acquired relatively quickly compared to primary
market transactions in infrastructure debt that first need to be structured, negotiated and documented;
• provides an additional source of due diligence material as loans have performance histories that permit credit analysis on
actual results rather than financial forecasts. In addition, research
1
shows that infrastructure loans improve in credit quality
over time so secondary loans in many cases have improved in credit quality from the time of their initial origination; and
• provides a yield pick-up as there is a real shortage of secondary market investors in project finance, as most infrastructure
debt funds focus exclusively on the primary markets. During periods of market volatility in particular, the Fund can take
advantage of the limited competition to capture attractive discounts from sellers looking to reduce or exit positions.
1. Average annual European broad infrastructure and global project finance default rates. Moody’s, “Default and Recovery Rates for Project Finance
Bank Loans 1983-2018,” March 2020.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
31
PART III. POSITIONING THE INVESTMENT PORTFOLIO FOR THE FUTURE
Investment opportunities
Sequoia continues to monitor the global response to the COVID-19 pandemic as well as the primary and secondary effects of
Russia’s invasion of Ukraine. As the world continues to emerge from lockdowns, Sequoia believes the Company is particularly
well positioned to continue deploying capital into its pipeline of mostly private debt infrastructure lending opportunities.
Sequoia continued to witness a steady stream of infrastructure debt opportunities during the second half of this financial
year despite the difficult market conditions. In terms of the pipeline, Sequoia is especially excited about potential investments
in the renewables and accommodation sectors where the current portfolio is arguably underweight, lending opportunities
are often attractive and capital deployment into these sectors would be desirable for diversification. Investments in these
sectors will also provide additional stability in case of a potential policy-driven market downturn or other unpredictable events.
Overall, the opportunity for the Company in economic infrastructure debt remains strong and the asset class continues to be
under-invested and attractive. It is in times of market stress that economic infrastructure debt demonstrates its strength and
resilience as an asset class, and so Sequoia is optimistic about the prospects for growing the Company while maintaining
itstrack record of sourcing suitable investments and delivering to Shareholders a total return of 7-8% over the long term.
In exploring these investment opportunities, the Company will utilise its RCF, which was refinanced during the year, on more
attractive terms than the previous facility. Notably, the facility was increased to £325 million, margins on drawn amounts have
been reduced and the facility’s covenants were modified to better suit the Fund’s needs. As of 31March 2022, the Company
had drawn £121.4 million on the RCF.
In light of the ongoing economic uncertainty, the Company expects to have only a moderate level of net debt. This will leave
the Company with liquidity to, for example, meet margin calls on its FX hedging book, or take advantage of secondary market
opportunities that may present themselves. Additionally, low gearing is prudent in periods of market volatility, and will lead a
more stable NAV.
Strengthening the team at Sequoia Investment Management Company
As the Company embarks on its seventh year of operations, a number of growth initiatives at the Investment Adviser have
taken place to ensure there are sufficient resources to devote to monitoring and new origination activities.
Specifically, the Investment Adviser has hired six additional investment professionals since March 2021 (one Vice President,
four Analysts and one Fund Controller). These hires will further enhance an already-strong team. As at March 2022, the total
headcount with these additional hires was 24. We believe that this is one of the largest and most knowledgeable investment
teams focused solely on infrastructure debt in the market, and as such positions the Company well for continuedsuccess.
SEQUOIA INVESTMENT MANAGEMENT COMPANY LIMITED
Investment Adviser
8 July 2022
PRIMARY AND SECONDARY INVESTMENTS SINCE IPO
0
40
80
100
20
60
Mar
15
Mar
16
Mar
17
Mar
18
Mar
21
Mar
22
Primary
Secondary
Mar
19
Mar
20
Percentage of the portfolio
32
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Case study
EXMAR is a provider of crucial floating infrastructure solutions
to the oil & gas industry, a leading ship owner and operator in
the transportation of liquefied natural gas (“LNG”) and liquefied
petroleum gas, and a provider of supporting services to the
marine industry. As of 2021, the company owned two floating
LNG infrastructure assets with 3.5 million tonnes per annum of
joint capacity and controlled a fleet of 37 ships and two offshore
accommodation barges. The company seeks to employ its
infrastructure assets and vessels on medium to long term
contracts that improve the visibility of cash flows. In 2022, EXMAR
signed a five year tolling fee contract with Dutch utility Gasunie for
the use of EXMAR’s floating storage and regasification unit.
EXMAR has a strong focus on developing sustainable solutions
in shipping and is at the forefront of developing ammonia fuelled
ships and CO
2
and hydrogen transport solutions.
EXMAR is based in Antwerp, Belgium and is listed on Euronext.
The proceeds of the facility were used to prepay the company’s
NOK 650 million senior unsecured bonds, maturing in May 2022.
EXMAR
LINK TO ESG
Enabling the transition
to a lower carbon world
8.39%
Cash‑on‑cash yield
8.39%
Yield to maturity
US$50.0
million
Size
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
33
34
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
OUR CLIMATE PLEDGE
1
We support the Paris climate goals to limit the global average temperature increases to well below 2˚C,
andto pursue efforts to limit the temperature increase to 1.5˚C.
2
We support the goal of the world reaching net-zero carbon emissions by 2050.
3
We will endeavour to dispose of investments which are contrary to our ESG policy.
4
We will use our ESG policy to score our loan book and, by investing in higher-scoring opportunities and disposing of
lower-scoring opportunities, aim to improve the ESG score of our loan book over time.
5
We will engage proactively with the companies we lend to, to encourage them to work towards the Parisgoals.
6
We will, where appropriate, embed covenants into loan agreements to contractually oblige our borrowers toadopt
and comply with environmental policies.
7
We will embed covenants into loan agreements to oblige contractually our borrowers to report
appropriateenvironmental metrics.
8
We will engage with regulators and policy makers wherever we believe we can accelerate or improve actionto
combat climate change.
9
We will speak out publicly, and build or support coalitions of like-minded investors and thought-leaders, todrive
change where we believe this will be effective.
10
We will report to Shareholders our compliance with our ESG policies.
The Company has implemented a comprehensive
programme incorporating broad ESG considerations
into its approach toinvestment.
Sustainability
UN SDGs:
The Company aims to align its
investments with the UN SDGs through
itsESG policy and investment criteria.
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
35
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
As described in the Company’s
Sustainability ImpactStatement
published on our website
(www.seqifund.com/investors/
documents‑circulars), the Fund also
takes into account, whereappropriate
and possible, credit risks arising from
climate change by looking at a range
ofclimate scenarios. In these scenarios,
investments may be affected by a range
of factors such as economic disruption,
changes in commodity prices (including
power), an increase in the incidence
of extreme weather events, changes
in public policy and demographic
changes.
ACTIONS TO ADDRESS
PRINCIPAL ADVERSE
SUSTAINABILITY IMPACTS
During the year, the Fund has continued
to incorporate its comprehensive set of
environmental policies and strategies
into its investment approach, as set out
in more detail in the Policy. Over the
course of the next year, the Fund hopes
to achieve the following goals:
• continue to promote beneficial
investments through the allocation
ofthe Fund’s capital;
• continue to work with its portfolio
ofborrowers and encourage them
toimprove their ESG profiles;
• improve the quality and extent of its
reporting to the Fund’s investors; and
• improve the average ESG score of
its portfolio and remove or reduce
its exposure to the lowest-scoring
investments.
ENGAGEMENT POLICIES
The Fund takes a proactive approach
tomanaging its loan book, and engages
with borrowers (in relation to ESG
topics) in a number of important ways,
as set out in more detail in its ESG
Policy. In summary, these include:
• incorporating environmental
considerations into loan terms,
such as covenants to comply with
environmental regulations, manage
pollution, reduce carbon emissions
and adopt water and wastewater
management strategies;
• reporting requirements on
environmental metrics such as
carbon footprint, energy intensity
and recycling ratios; and
• exercising voting rights in loan
agreements responsibly and taking
account of the environmental
consequences of voting.
The Fund has adopted a comprehensive set of
environmental policies and strategies, as set
out in more detail in the ESG Policy.
36
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Sustainability continued
ESG POLICY – SUMMARY
Throughout the year, the Company
has continued to incorporate its
comprehensive programme of broad
ESG considerations into its investment
approach.
The Board and the Investment
Advisertake their corporate and social
responsibilities seriously. TheCompany
already had strong ESG credentials
when, on 10 March 2021, it published
its updated ESG policy and reporting
criteria (www.seqifund.com/
investors/documents‑circulars),
setting out the criteria and principles
applied to its investing activities.
During the last fiscal year, the Company
built significantly on its early ESG work
and can now state the following:
• the Investment Adviser fully
incorporates the UNPRI in its
investment processes and decisions;
• the Company operates its business
and its investment activities in
accordance with the UN Global
Compact;
• the Company complies with the
reporting obligations of the SFDR
(asapplicable, inparticular Article 8);
• the Company has improved its
ESGscore compared to March2021,
when KPMG LLP last provided
independent limited assurance
under ISAE (UK) 3000 over SEQI’s
portfolio’s overall ESG score.
The assurance opinion can be
found on the Company’s website
(www.seqifund.com/investors/
documents‑circulars);
• the Company proposed and
negotiated an ESG-linked interest
rate adjustment to its new RCF
facility, which was signed in
November 2021. This allows the
Company to benefit by improving
the portfolio’s ESG profile and
underscores the Company’s
long-term commitment to ESG
andsustainable investment; and
• the Company promotes its
lenders’ commitment to ESG
policies by including ESG-linked
positive and negative covenants
in loan documentation where
possible. Thisis supported by the
customisable nature of private debt
deals, which comprise the majority
ofthe Company’s portfolio.
Alignment with
community goals
Commitment to
sustainability goals
Efficient use
ofresources
Reduced environmental
footprint
Sustainable economic
development
GUIDELINES
CONSIDERATIONS
• Health and safety of
residents: pollution
and noise
• Historical and
cultural elements
preservation and
project’s visual
impact
• Counterparties’
commitment to
sustainability,
including an
adequate
maintenance plan
• Other indicators
of commitment to
sustainability
• Materials recycling,
reduction of
energy and water
consumption and
limitation on use of
landfills
• Alternative water
sources usage and
consumption of
renewable energy
• Emissions of
greenhouse gasses
and air pollutants
• Usage of
environmentally
friendly and
biodegradable
materials.
• Use of farmland and
natural buffer zones
• Job creation and
workforce skills
development
• Support of local
social and business
community
ENGAGEMENT POLICIES CONTINUED
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
37
During the year, the Board has also
taken steps to assess the Fund’s
carbon footprint by engaging with
each of its key suppliers on their ESG
activities, with a particular focus on the
steps being taken by each to reduce
their greenhouse gas emissions.
TheBoard recognises carbon offsetting
as the last stage of an effective
net-zerostrategy.
To this end, the Company is currently
considering acquiring credits in
schemes issued through the Gold
Standard marketplace, which provides
an “off-the-shelf” route for organisations
to acquire credits which can be retired
immediately as part of their emissions
reductions strategy. TheBoard is also
considering investment in UK peatland
restoration through development
projects verified under the Peatland
Code. Damaged peatlands are
estimated to emit around 4% of the UK’s
total annual greenhouse gas emissions.
The amount to be committedby the
Fund, partly funded by contributions
from each Director of 1% of their
annual fees from the Company
(seetheDirectors’ remuneration
report), will be allocated as roughly 25%
towards immediate offsets in respect
of the year ended 31 March 2022,
and75% proposed to be committed
toinvestment in UK peatland restoration
to offset emissions anticipated to be
generated over a minimum of the next
three financial years. Key suppliers
will also be invited to contribute
towards thescheme as part of
theirenvironmental initiatives which,
ifsuccessful, will reduce the Company’s
overall financial commitment.
The guiding principles behind the
ESG programme are the UNPRI,
towhich the Investment Adviser is a
signatory. These principles now cover
investments in private debt, and as such
are highly relevant to the Company’s
business. The Investment Adviser has
incorporated these principles into all
stages of its investment process:
• the origination of new investments
includes enhanced negative and
positive screening;
• due diligence and credit analysis
include thorough assessment of the
potential impact of climate change,
enhanced environmental impact and
technical assessments, and ESG
questionnaires for borrowers; and
• loan documentation can
include, where appropriate,
ESGconsiderations. For example,
enhanced reporting by borrowers in
relation to their environmental impact.
The Company’s reporting to its
Shareholders has been expanded
to cover ESG. In particular, it will
take the recommendations of the
TCFD into account, including those
recommendations specific to the
banking sector. The Company aims
toprovide best-in-class disclosure.
During the prior year, the Investment
Adviser retrospectively reviewed the
Company’s existing portfolio and
assessed whether it had been holding
investments which, had these policies
been in place at the time, would not
have been made. The Investment
Adviser positively noted only two “red
flag” investments, including a loan to
an airport services provider, which was
sold in the prior year, and a loan to a
coal export terminal, which matured
during the year in June 2021. Assuch,
there are no legacy investments
remaining in the portfolio as at the end
of the year. The Company will however
continue its efforts to increase its ESG
score by disposing of its lower-scoring
assets and by favouring credits that
align closer with its ESG policy.
The Company therefore views its
ESG initiative as building upon solid
foundations and being in a period of
continuing evolutionary, rather than
revolutionary, change.
38
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
APPLYING ESG PRINCIPLES TO SEQI
ESG principles are applied in three ways to the SEQI portfolio:
1. NEGATIVE SCREENING
2. THEMATIC INVESTING (POSITIVE SCREENING)
The following sub-sectors or asset types are excluded:
• military infrastructure, such as military housing;
• infrastructure related to the exploration and production of oil and gas, such as oil rigs and platforms, fracking
facilities and facilities involved in tar sands. Note that midstream assets such as pipelines are not necessarily
excluded but are subject to ESG scoring as set out below;
• infrastructure related to mining thermal coal;
• electricity generation from coal; and
• alcohol, gambling and pornography are already excluded by SEQI’s investment criteria.
Currently, SEQI has three ESG investment themes. Positive screening will be employed to increase the Fund’s
exposure to these investment themes, subject to existing concentration limits.
• Renewable energy, such as solar, wind and geothermal generation, and directly related businesses including
companies that supply renewable energy.
• Enabling the transition to a lower carbon world, such as grid stabilisation, electric vehicles, traffic congestion
reduction and the substitution of coal by gas.
• Infrastructure with social benefits, such as healthcare, clean water and education.
As at 31 March 2022, thematic investing covers 61% (2021: 59%) of SEQI’s investment portfolio, split 13% (2021: 17%)
renewable energy, 24% (2021: 23%) enabling the transition to a lower carbon world and 24% (2021: 19%) infrastructure
with social benefits.
Renewable energy
• A diversified US renewables
business
• Hydro power
• Offshore wind turbine repair
vessels
• US residential roof solar
panel business
• UK electricity supplier
sourcing renewable energy
• Spanish solar power portfolios
• UK landfill gas
Enabling the transition to
a lower carbon world
• German combined cycle gas
turbine (“CCGT”) plant
• Grid enhancement assets
such as peaker plants
• US gas pipelines and other
midstream assets
• Nordic specialist shipping
Infrastructure with social
benefits
• Telecom towers
• UK specialist healthcare
• Student housing in a range
of jurisdictions
• US passenger rail service
The following table shows examples of anonymised investments in each theme:
Sustainability continued
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
39
Some infrastructure assets (for example, the electricity
grid) are neither excluded through negative screening nor
positively selected through thematic investing; therefore,
it is necessary to have a methodology to assess the ESG
profile of these projects.
The ESG scoring methodology has been designed to
be as objective as possible. The score primarily reflects
the current ESG performance of the investment but also
reflects, to a limited extent, the “direction of travel”. For
example, a business that currently significantly contributes
to climate change will receive some credit if it is investing
meaningfully to reduce its contribution.
Note that the ESG score is distinct to a credit rating. Some
elements of ESG scoring will directly affect a borrower’s
credit rating (for example, weak corporate governance has
a negative contribution to credit quality) but nonetheless it
is entirely possible for a business with a weak ESG score
to have a strong credit profile, and vice versa.
To facilitate ESG scoring during the investment process,
the Investment Adviser designed an ESG scoring model
that must be completed prior to bringing a new investment
to the Investment Committee. The intention also is to
provide the credit analysts a guide for ESG considerations
at the earliest stages of due diligence. Implementing the
ESG model at the beginning of the deal lifecycle will flag
assets with weaker ESG credentials much earlier.
Finally, the scoring methodology and model have been
calibrated such that renewable energy projects with the
most robust social and governance practices would
receive a score of 100, and a power plant that burns
thermal coal with no redeeming social or governance
policies would receive a score of 0. Needless to say, the
power plant in this example would not make it past the
Investment Adviser’s new business committee.
ESG SCORE DISTRIBUTIONS AS AT 31MARCH 2022
Over the last year, the portfolio’s overall ESG score increased from 60.59 to 61.88
1
. For details of how the ESG score is
compiled and derived, please see our ESG policy and reporting criteria www.seqifund.com/investors/documents‑
circulars. The chart below represents a comparison of the portfolio’s ESG profile between March 2021 and March 2022.
The main reasons for the change in score are (i) the effect of loans being repaid or sold, (ii) the effect of new investments
and (iii) changes in borrower behaviour.
• The removal from the portfolio of all maturing and sold positions since March 2021 contributed to a decrease of
0.16 in the ESG score. Three of the portfolio’s high-scoring investments repaid during the year. This was partially
offset by the repayment of Adani Abbot and Seaport, which had ESG scores of 35 and 40 respectively. While the
Company is not in control of unscheduled repayments, we expect the long-term impact of repaying credits on the
portfolio’s ESG score to be positive due to pre-existing and weaker ESG investments reaching maturity or being
sold, and proceeds being re-invested in greener assets.
• The acquisition of new assets improved the portfolio’s ESG score by 1.41. This re-affirms the Investment Adviser’s
commitment to ESG and continuous efforts to deploy capital as defined in its ESG policy.
• An upwards revision of three credits, which have shown material commitment to their ESG policies, improved
the portfolio’s score by 0.13. We encourage lenders to improve on their own policies and procedures. As part of
regular credit monitoring, the Company reconsiders the ESG scores of its portfolio assets and makes adjustments
when appropriate.
• The remaining small improvement of 0.22 in the overall ESG score was attributable to changes in assets’ weights
and some cross-effects between the previous categories.
0
10
30
40
20
0 to 36 36 to 44 44 to 53 53 to 61 78 to 87 87 to 95
Prior year
Current year
61 to 70 70 to 78
% of portfolio
1. Included within KPMG LLP’s independent limited assurance scope. The assurance opinion can be found on the Company’s website
(www.seqifund.com/investors/documents-circulars).
3. ESG SCORING
6.25%
Cash‑on‑cash yield
6.25%
Yield to maturity
£23.9
million
Size
40
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Case study
Founded in 2017 by seasoned
ex‑Vodafone senior executives and
backed by Amber Infrastructure, Toob
owns and operates a full‑fibre network
in the south of England, connecting
homes and businesses directly to
gigabit broadband for £25 per month (for
18‑month contracts), i.e. much faster and
cheaper than most competing services.
Byprioritising use of Openreach’s Physical
Infrastructure Access (“PIA”) comprising
existing underground ducts and telegraph
poles, Toob is able to minimise the need
for civil works and permits required from
councils to keep construction costs low.
From an environmental perspective,
full‑fibre networks are significantly
moreenergy efficient than copper
wirelinenetworks. They require no power
to street cabinets, and their services are
more reliable, requiring significantly less
maintenance. The fibre infrastructure
directly reduces pollution as it is more
energy efficient compared to the existing
copper‑based networks. Moreover,
it enables more people to work or
study from home, which also indirectly
reducespollution.
Toob is targeting full coverage in each
of its hubs across the south of England,
thus enabling households to connect to
a faster and more reliable level of service
which previously was not widely available.
Broader access could lead to improved
education (as more education shifts online)
and greater productivity. Toob’s price
point, while a commercial item, is suited to
delivering high speed connectivity, often
at lower prices and higher bandwidth than
incumbent products.
The company is committed to deploying
sustainable solutions to provide fibre
broadband access in urban and suburban
areas with ESG policies and commitments
in place or planned. The Company
also negotiated that an ESG report be
prepared by Toob as a part of annual
information undertaking. This undertaking
enables the Company to actively monitor
Toob’s progress and engage in active
dialogue with management in achieving
sustainability, social and governance goals.
Toob
LINK TO ESG
Infrastructure with
socialbenefits
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
41
Sustainability continued
GOVERNANCE
Disclose the organisation’s governance around climate‑related risks and opportunities.
Our progress against the TCFD recommendations
TCFD RECOMMENDED DISCLOSURES
A. The Board’s
oversight of
climate‑related risks
and opportunities.
The whole Board is responsible for setting the strategy for the Company, including in relation
to climate-related risks and opportunities. The Board meets at least quarterly, during which
they, together with their independent consultants and the Investment Adviser, review the
risks and opportunities facing the Company, including in relation to climate change. As part
of this, the Investment Adviser prepares an ESG report each quarter for the Board.
The Company has a number of Committees which are tasked with focusing on various
specific elements of climate-related risk and opportunity.
• The Management Engagement Committee is responsible for encouraging the
Company’sservice providers to minimise their avoidable greenhouse gas emissions
and offset unavoidable emissions, thereby helping to minimise the Company’s Scope 2
emissions.
• The Audit Committee has responsibility for climate-related disclosures including SFDR
and TCFD.
• The ESG and Stakeholder Engagement Committee reviews and approves the Company’s
ESG policy.
The Company firmly believes that
high-quality climate disclosure is
essential for all Shareholders making
long-term investment decisions.
Thefollowing table outlines the
Company’s summary of the TCFD
disclosures made for financial year
2021/22.
WHAT TCFD IS AND
WHATITSTANDS FOR
The Financial Reporting Council
says that “Users expect companies
to provide full information about the
future impact of climate change on
the business and how the company’s
activities affect the environment”.
Inaccordance with the net zero target
by 2050, the UK Government also now
expects listed companies to report in
line with the TCFD framework.
This means that greater disclosure
will be required across the areas of
governance, risk, performance and
strategy. Although investment firms are
currently exempt from the provision of
TCFD, the Company expects increased
pressure from investors to lead to
more voluntary compliance across
theindustry.
We are pleased to confirm that
we have included in our TCFD
Report climate-related financial
disclosures consistent with the
four recommendations and the 11
recommended disclosures set out
in the June 2017 report entitled
Recommendations of the Task
Force onClimate-related Financial
Disclosures. In October 2021, the
TCFD released additional guidance
implementing the Recommendations
of the Task Force on Climate-related
Financial Disclosures (2021 TCFD
Annex), which supersedes the
2017Annex of the same name
(2017TCFDAnnex).
In line with the current UK Listing
Rules (Listing Rules) requirements,
our TCFD-aligned disclosures take
into account the implementation
recommendations in the 2017
TCFD Annex. In addition, we have
considered the 2021 TCFD Annex
and applied it where possible. Some
recommendations in the 2021 TCFD
Annex will require more time for us to
fully consider. We will be working to
implement the rest of the 2021 TCFD
Annex recommendations over the
course of 2022 and intend to apply
these more fully in our next Annual
Report. Further details on the TCFD
Recommendations and Recommended
Disclosures are available at:
https://www.fsb-tcfd.org.
42
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Sustainability continued
TCFD RECOMMENDED DISCLOSURES CONTINUED
B. Describe
management’s
role in assessing
and managing
climate‑related risks
and opportunities.
ESG, including climate-related risks and opportunities, has become central to the
Investment Adviser’s approach to infrastructure debt.
Climate risks are considered at each stage of the investment process, including the initial
screening of opportunities (where positive and negative screening are applied, as outlined
in the ESG policy) and in meetings of the Investment Adviser’s Investment Committee.
Risk assessment takes the form of both qualitative analysis (such as scenario testing) and
qualitative assessments (such as approach of the management of investee companies).
After an investment has been made, the Investment Adviser continues to monitor it for
changes to its climate-related risk profile. Primarily this is undertaken through regular
discussion with, and information gathering from, the borrowers that the Company has
lent to. This is further enhanced in some cases by bespoke climate-related covenants and
undertakings included within loan agreements.
The Investment Adviser considers climate-related risks not only in relation to individual
investments, but also aggregated at the portfolio level. For example, it is necessary to
assess correlations of climate-related risks.
KEY DEVELOPMENTS
• For the 2020/21 financial year, the Company engaged
KPMG to provide an independent limited assurance
process under ISAE (UK) 3000 on our ESG scores
for the SEQI portfolio. We understand that we were
the first FTSE 250 investment fund to undertake such
a process. This mandate has been renewed for the
2021/22 financial year, providing an independent
oversight of our analysis.
• In March 2022, the Board formed an ESG
andStakeholder Engagement Committee as
discussedabove.
STRATEGY
Disclose the actual and potential impacts of climate‑related risks and opportunities on the organisation’s
businesses, strategy and financial planning where such information is material.
TCFD RECOMMENDED DISCLOSURES
A. Describe the
climate‑related risks
and opportunities
the organisation has
identified over the
short, medium and
long term.
The Company is well positioned to take advantage of the climate-related opportunities,
since the transition to a low carbon economy is likely to require very significant capital, and
governments around the world will look to the private sector to finance this, at least in part.
These opportunities include: renewable energy, grid enhancement, energy storage, electric
vehicle charging, energy efficiency projects and improved mass transit systems. Moreover,
traditional lenders such as banks are not always well positioned to adapt quickly to new
technologies and that will increase the need for private debt. The Company is already seeing
significant lending opportunities in many of these areas and expects this demand for capital
to increase over time.
Our progress against the TCFD recommendations continued
GOVERNANCE CONTINUED
Disclose the organisation’s governance around climate‑related risks and opportunities.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
43
TCFD RECOMMENDED DISCLOSURES CONTINUED
A. Describe the
climate‑related risks
and opportunities
the organisation has
identified over the
short, medium and
long term continued.
At the same time, the Company is exposed to climate-related risks, primarily through its
investment portfolio. The key risks are:
• transitional risks, namely that some assets may become less profitable, or
evenworthless, as a result of legislation, regulation or market changes. For example,
acarbontax might mean that it is no longer economic to operate a gas-fired power plant;
• technology risk, namely that some parts of the infrastructure sector are developing
rapidly, such as energy storage and hydrogen fuel systems, which may result in changes
to markets that are difficult to predict. For example, the development of better batteries
may make some “peaker plants” (power plants that operate when electricity prices
spike)redundant;
• physical risk, namely that one consequence of climate change is the increased frequency
of droughts, flooding, fires, storms or other natural phenomena. For example, businesses
located in coastal areas may need to invest substantially in sea defences or otherwise
harden their assets; and
• social and economic risks, namely that climate changes may make some areas much
more difficult to live in, resulting in economic hardship, mass migration and potential
political instability.
It is not possible to put precise time scales on these risks, but it is reasonable to assume
that they are all currently present to a certain extent, and that they are likely to grow
overtime.
B. Describe the impact
of climate‑related
risks and
opportunities on
the organisation’s
businesses, strategy
and financial
planning.
The impact of the climate-related opportunities is that the Company will be able to deploy
capital on attractive terms to a wider range of sectors than currently. This will increase the
diversification of the Company’s portfolio and help it to deliver an attractive risk-adjusted
return to Shareholders.
Conversely, avoiding sectors where there is an unduly high level of climate-related risk, or
even limiting the Company’s exposure to sectors where there is some climate-related risk,
will decrease the portfolio’s diversification.
The Investment Adviser’s view is that, between these two factors, there will be a net benefit
for the Company’s strategy. This is because the Company is already avoiding the most
at-risk sectors, and is only beginning to see the full range of opportunities that are likely
to arise. Moreover, avoiding borrowers with a high degree of climate-related risk is simply
prudent lending and should be done regardless of any ESG strategy.
One purpose of the Company’s ESG score is to help track resilience to climate change,
amongst other things. Part of the investment strategy is to improve the portfolio’s weighted
average ESG score over time, which can be achieved by improving the portfolio’s resilience
to climate change risks.
STRATEGY CONTINUED
Disclose the actual and potential impacts of climate‑related risks and opportunities on the organisation’s
businesses, strategy and financial planning where such information is material.
44
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Sustainability continued
TCFD RECOMMENDED DISCLOSURES CONTINUED
C. Describe the
resilience of the
organisation’s
strategy, taking
into consideration
different
climate‑related
scenarios, including
a 2ºC or lower
scenario.
Overall, the Company believes that its strategy is resilient to climate change.
In order to assess resilience, it is necessary to consider a range of scenarios. Broadly speaking,
in 2ºC or lower scenarios, transitional risks will be high but physical and social-economic risks
will be low. In higher temperature scenarios, the converse will be the case.
There are two potential impacts of climate-related risk on the Company.
Firstly, some sectors within the infrastructure market may become uninvestible in the future,
for example assets in the hydrocarbon value chain such as gas-fired power stations. This is
especially likely to be the case in low temperature increase scenarios, where the economy
has transitioned rapidly to a low carbon state. Currently, under its ESG policy, the Company
is avoiding those sectors where there is a near-term or medium-term risk of them becoming
uninvestible, such as coal-fired power stations or upstream oil and gas assets. Therefore,
this potential impact can be considered long-term. Should it happen, the Company’s
portfolio might over time become less diversified; however, in the opinion of the Investment
Adviser, this risk is more than outweighed by the opportunities described above.
Secondly, the credit quality of some of the borrowers that the Company lends to might
deteriorate. For example, extreme weather events might materially increase the cost of
insuring some assets, or they may not be insurable without investing in asset-hardening.
This risk is mitigated in a number of ways:
• each of the borrowers has equity capital at risk ahead of the loan. This acts as a “shock
absorber”. The equity capital needs to be lost before the Company can lose money;
• the Company’s loans are typically short-dated; they are mostly due to be repaid within
five years. That is before many of the most serious climate risks are likely to manifest
themselves;
• the Investment Adviser undertakes thorough due diligence on each company that the
Company lends to, and assessing their exposure to climate risk is part of that. In other
words, the Company is not likely to make a loan to a business that has poor resilience to
climate change risk; and
• the investment portfolio is highly diversified, in terms of the location of its borrowers and
the sectors and sub-sectors they operate in. This will reduce the effect of many risks,
such as technological disruption or unexpected regulation or legislation.
KEY DEVELOPMENTS
• After adopting its ESG policy in the 2020/21 financial
year, the Company began disposing of, or in some
cases waiting for the natural repayment of, its loans
to borrowers in sectors that were not permitted under
the ESG policy (for example, a loan to a coal export
terminal). This process was completed during the
2021/22 financial year. This means that the Company
no longer has exposure to sectors with the highest
levels of transition risk.
• We have replaced these with, inter alia, loans in new
sectors such as energy efficiency projects that are
positioned to take advantage the opportunities that
arise from the transition to a low carbon economy.
Our progress against the TCFD recommendations continued
STRATEGY CONTINUED
Disclose the actual and potential impacts of climate‑related risks and opportunities on the organisation’s
businesses, strategy and financial planning where such information is material.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
45
RISK MANAGEMENT
Disclose how the organisation identifies, assesses and manages climate‑related risks.
TCFD RECOMMENDED DISCLOSURES
A. Describe the
organisation’s
processes for
identifying
and assessing
climate‑related
risks.
Climate-related risks are primarily assessed at the level of each investment, and form part of
the Investment Adviser’s due diligence and underwriting process.
Typically, third-party expert reports will be commissioned to assess key risks. For example,
engineers might review the physical condition of the borrower’s assets, including their
exposure and resilience to extreme weather risk. This will then be analysed in tandem with
areview of the borrower’s insurance policy, and its other resources to cover uninsured risks.
Each investment should also be analysed, where possible, in different climate scenarios,
with the goal of identifying (a) credit rating changes arising from climate change and (b)
elevated climate event risk. These items should be assessed separately as a standard credit
rating framework struggles to incorporate event risk.
Climate-related risks are thus identified, and where possible quantified, in the due diligence
phase of an investment, and discussed in the Investment Committee. Risks that are
unacceptably high will result in an investment not being made.
B. Describe the
organisation’s
processes
for managing
climate‑related
risks.
The Investment Adviser monitors each loan at least twice a year (and more frequently if
required). This includes a review not just of credit quality, but also of the borrower’s ESG
profile, including climate-related factors. To assist in this, each borrower is sent annually
a detailed questionnaire including qualitative and quantitative topics which will assist the
Investment Adviser in updating its analysis.
A range of steps can be taken as a result of this ongoing monitoring of investments. For
example, the internal credit rating may be adjusted, the loan may be considered for disposal,
or the decision may be made not to participate in a refinancing of the loan, when it comes
to its maturity date. In other words, if it becomes clear that a borrower’s resilience to climate
change is deteriorating, the Company can choose to dispose of the loan.
Similarly, if a sector is beginning to experience higher levels of climate-related risks, the
Investment Adviser will avoid making new loans in it. Given the relatively short maturity
of many of the loans in the portfolio, this will rapidly have the effect of decreasing the
Company’s exposure to that sector.
46
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Sustainability continued
TCFD RECOMMENDED DISCLOSURES CONTINUED
C. Describe how
processes for
identifying,
assessing
and managing
climate‑related risks
are integrated into
the organisation’s
overall risk
management.
Climate risk is integrated into the entire investment and risk management process.
At a very early stage, in considering whether to dedicate resources to a potential new
loan, the Investment Adviser will apply negative and positive screening, and estimate the
borrower’s ESG score. Some potential investments will be rejected at this stage if the
climate-related risks are likely to be unacceptably high.
Following the due diligence process, the Investment Committee will consider ESG matters
as a part of the deliberations. The investment’s ESG score will be agreed upon by the
committee.
Subsequently, the investment is considered by the Investment Manager and in some cases
the Risk Committee of the Board, who take into account both credit quality and ESG profile,
including, where appropriate, resilience to climate change.
Finally, each quarter, the Investment Adviser prepares for the Board an ESG report, which
reviews the overall portfolio.
KEY DEVELOPMENTS
• The Company has a comprehensive framework to identify and assess climate change risk. This is fully integrated into
its loan approval, monitoring and risk management processes.
Our progress against the TCFD recommendations continued
RISK MANAGEMENT CONTINUED
Disclose how the organisation identifies, assesses and manages climate‑related risks.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
47
TCFD RECOMMENDED DISCLOSURES
A. Disclose the
metrics used by
the organisation
to assess
climate‑related risks
and opportunities
in line with its
strategy and risk
management
process.
Currently, the Company uses the ESG score as its key metric for assessing the
environmental profile of its investments. This ESG scoring framework helps the Company
allocate capital between projects and to measure its progress over time in a quantitative
way. The methodology blends the “E”, “S” and “G” components without allowing strength
in one area to offset entirely weakness in another. For example, a polluting company will
always get a poor score, even if it has excellent social and governance policies. Moreover,
the Fund’s policy is not to lend to companies with a very low E score, of less than one,
regardless of the overall ESG score.
Going forward, the Company is looking to widen its range of metrics including potentially
greenhouse gas emissions. However, currently this is not possible as the data that is
available, in the context of a private debt portfolio, is not comprehensive enough to
accurately calculate this type of metric. The ESG score serves as an analogous metric.
B. Disclose Scope
1, Scope 2 and, if
appropriate, Scope
3 greenhouse gas
emissions and the
related risks.
The Company expects to be able to make Scope 1 and Scope 2 disclosures in the near
future, and is working with the companies that it lends to in order to calculate or estimate its
Scope 3 greenhouse gas emissions.
C. Describe the
targets used by
the organisation
to manage
climate‑related risks
and performance
against targets.
Currently, the primary target used is to improve year-on-year the portfolio’s weighted
average ESG score.
METRICS AND TARGETS
Disclose the metrics and targets used to assess and manage the relevant
climate‑related risks and opportunities where such information is material.
KEY DEVELOPMENTS
• The Company has improved the average portfolio ESG score from 60.59 to 61.88 over the course of the current
financial year, largely as a result of making loans with a strong environmental profile, such as renewable energy and
energy efficiency projects.
48
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
STAKEHOLDERS, BUSINESS
RELATIONSHIPS AND
SOCIALLY RESPONSIBLE
INVESTMENT
Whilst directly applicable to companies
incorporated in the UK, the Board
recognises the intention of the AIC Code
that matters set out in section 172 of the
Companies Act 2006 are reported. The
Board strives to understand the views
of the Company’s key stakeholders and
to take these into consideration as part
of its discussions and decision-making
process. As an investment company,
the Company does not have any
employees and conducts its core
activities through third-party service
providers. Each provider has an
established track record and is required
to have in place suitable policies and
procedures to ensure it maintains high
standards of business conduct, treats
customers fairly, and employs corporate
governance best practice.
Whilst the primary duty of the Directors
is owed to the Company as a whole,
all Board discussions involve careful
consideration of the longer-term
consequences of any decisions and
their implications for stakeholders.
Particular consideration is given to
the continued alignment of interests
between the activities of the Company
and those that contribute to delivering
the Board’s strategy, which include the
Investment Manager, the Investment
Adviser, the Company Secretary,
recipients of the Company’s capital and
providers of long-term debt finance.
The Board’s commitment to
maintaining high standards of corporate
governance; its policy for active
shareholder engagement, combined
with the Directors’ duties enshrined
in Company law; the constitutive
documents; the Disclosure Guidance
and Transparency Rules; and the
Market Abuse Regulation, ensure that
Shareholders are provided with frequent
and comprehensive information
concerning the Company and its
activities.
RESPONSE TO
SHAREHOLDERS
Recipients of the Company’s capital
are subject to a comprehensive ESG
assessment deployed by the Investment
Adviser as part of the Company’s
investment process, designed to
encourage sustainability and mitigate the
negative impacts of corporate activity on
the environment and the communities
in which they operate. Further details
can be found in the Investment Adviser’s
report and the ESG report. The interests
of borrowers, sponsors and relevant
intermediaries involved in the credit
process are also discussed during
scheduled Board meetings and in detail
during the Board’s detailed portfolio
review sessions.
The relationship with the providers of
the Company’s RCF is managed by the
Company’s service providers. Regular
updates are provided on developments
concerning the Company and any
public announcements, in addition
to monthly reporting of portfolio
compliance covenants.
The Board respects and welcomes the
views of all stakeholders. Any queries
or areas of concern regarding the
Company’s operations can be raised
with the Company Secretary.
SECTION 172 STATEMENT
Although the Company is not domiciled
in the UK, through adopting and
reporting against the best practice
principles set out in the AIC Code, the
Company is voluntarily meeting any
obligations under the UK Corporate
Governance Code, including section
172 of the Companies Act 2006.
The Board of Directors recognise
their individual and collective duty to
act in good faith and in a way that is
most likely to promote the success
of the Company for the benefit of its
members as a whole, whilst also having
regard, amongst other matters, to the
Company’s key stakeholders and the
likely consequences of any decisions
taken during the year, as set out on the
following pages.
Stakeholders
The Board strives to understand the views of the Company’s
key stakeholders and to take these into consideration as part
of its decision making process
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
49
The interests of the
Company’s employees
The Company has no direct employees
and maintains close working
relationships with the employees of
the Investment Adviser, Investment
Manager and the Administrator,
who undertake the Company’s main
functions. Refer to the report of the
Management Engagement Committee
on pages 68 to 69.
The impact of the Company’s
operations on the community
and the environment
The Company has integrated detailed
ESG considerations into its investing
activities, designed to mitigate climate
change, promote human rights
practices and effective corporate
governance. Refer to the sustainability
report on pages 34 to 47.
The need to foster the
Company’s business
relationships with
suppliersand others
The Board maintains close working
relationships with all key suppliers and
those responsible for delivering the
Company’s strategy. The contractual
relationship with each supplier and
their performance is formally reviewed
each year. Refer to the report of the
Management Engagement Committee
on pages 68 to 69.
In addition, even though the Company
has no premises or employees, it
has estimated the carbon emissions
caused by its Directors, consultants and
personnel employed by its Investment
Adviser and smaller service providers
in the fulfilment of their respective roles
relating to management, direction and
governance of the Company. It strives
to be a carbon neutral entity (backdated
to 1 April 2021) through its purchase of
appropriate offsetting measures. For
further details please refer to the Chair’s
Statement on page 13 and to the ESG
section of our website.
The desirability of the
Company maintaining a
reputation for high standards
of business conduct
The Chair is responsible for setting
expectations concerning the Company’s
culture and the Board ensures
that its core values of integrity and
accountability are demonstrated in all
areas of the Company’s operation.
Refer to Board values and culture on
page 64 of the corporate governance
statement.
The need to act fairly between
Shareholders of the Company
The Board, in conjunction with the
Investment Adviser and Broker,
engages actively with Shareholders
to understand their views and to
ensure their interests are taken into
consideration when determining the
Company’s strategic direction.
50
Sequoia Economic Infrastructure Income Fund Limited
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Stakeholders continued
SHAREHOLDERS
Why engage?
As principal providers of capital, Shareholder capital is deployed
by the Company in pursuit of its investment objective which, in
turn, generates income for the Company which is used primarily
tobenefit Shareholders through the payment of dividends.
The Board recognises the importance of active Shareholder
engagement to ensure there exists a continued alignment
of interests with the objectives of the Company and those of
Shareholders, and to inform the Board’s future decision-making.
How the Company engages
The Board, as well as with the Investment Adviser and the Broker,
maintains an ongoing programme of investor engagement which
includes investor and analyst presentations, regular announcements
on material developments affecting the Company, and offers to
meet with key institutional Shareholders. Feedback from these and
other relevant channels of communication forms part of the Board’s
decision-making process when determining the future strategy of the
Company, and taking decisions which may impact Shareholders.
Shareholders are invited to attend and vote at all general meetings
where all significant decisions affecting the Company are taken.
Inparticular, the AGM where Shareholders may discuss the activities
of the Company, its governance and strategy, andraise any issues or
concerns directly with the Board.
Routine updates are also provided to Shareholders through the
provision of monthly investment update factsheets and net asset value
reports, annual and half-yearly financial statements and regulatory
news announcements.
All of which, in addition to other relevant information concerning the
Company, are made available on the Company’s website.
The Chair and individual Directors are willing to meet major
Shareholders to discuss any particular items of concern or to
understand their views on governance and the performance of the
Company. General queries can also be submitted to the Board via the
Company Secretary at the Company’s registered office.
Key Board decision: implementation of scrip
dividend scheme
In July 2020 and in response to continued high levels of demand
for the Company’s shares, the Board implemented a scrip
dividendscheme.
The Directors considered the relative merits both to the Company
and to individual Shareholders from the implementation of a scrip
dividend scheme, whereby holders of Ordinary Shares are offered
the right to elect to receive Ordinary Shares, credited as fully paid
and paid in lieu of cash.
Benefits to the Company include the retention of cash which
would otherwise have been paid as dividends, whilst continuing to
grow and providing Shareholders with the ability to increase their
shareholdings in the Company without incurring dealing and other
associated transaction costs. UK-resident Shareholders may also
be able to treat shares received under a scrip dividend scheme
as capital rather than income. Such a facility also provides one
mechanism of addressing any imbalance between the supply of
anddemand for the Company’s shares.
Process
The Company’s shares have tended to attract high levels of
demand in the market, evidenced by the number of successful and
oversubscribed share issuances and that the Ordinary Shares have
–apart from two periods from late March to early April 2020 and
currently, both the result of significant adverse macro-economic
events – consistently traded at a premium since launch.
In addition to receiving the relevant tax and legal advice, in
considering whether or not offering a scrip facility was in the best
interests of Shareholders, research was undertaken on market
precedent and the practice of peer entities with scrip dividends,
andthe views of proxy voting agencies.
The Company’s Articles include a facility for offering a scrip dividend
alternative, subject to the passing of an ordinary resolution and,
at an Extraordinary General Meeting held on 25 February 2020,
Shareholders authorised the Company to offer a scrip dividend in
accordance with the terms set out in the Articles. In July 2020 the
Directors published a circular setting out the terms and conditions of
the scrip dividend scheme to apply for dividends declared in respect
of the financial year ended 31 March 2021 onwards.
Outcomes
It was concluded by the Board that offering a scrip dividend
alternative was in the best interests of Shareholders as a whole.
As part of this process, it was agreed by the Board that each issue of
new Ordinary Shares under the scrip dividend scheme would remain
conditional on it being accretive to net asset value; therefore, prior to
resolving the allotment of new shares to electing Shareholders, on
each occasion the Board assesses the level of Shareholder take-up,
the premium to NAV represented by the issue price premium, and the
costs associated with each issue.
The Directors are satisfied with the results to date from the scrip
dividend scheme, as demonstrated by the level of take-up from each
quarterly dividend.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
51
BORROWERS
Why engage?
Engagement with borrowers and gaining an understanding of their
needs is fundamental to ensuring an appropriate lending structure
is put in place that accurately reflects the risks associated with the
borrower’s operations.
Ongoing monitoring by the Investment Adviser provides updates
to the Board on material activity and informs decision-making on
matters of portfolio risk.
How the Company engages
The Investment Adviser monitors the performance of borrowers
on an ongoing basis and routine reporting to the Risk Committee
measures borrower performance against a combination of generic
and borrower-specific key performance indicators. This regular
interaction with borrowers is supported by all ongoing credit
monitoring and updates and Investment Committee reviews being
provided to the AIFM and independent consultants.
All borrowers are assessed against the Company’s ESG framework
which is designed to encourage sustainability and mitigate any
negative impacts from corporate activity on the environment and
the communities in which they operate.
A detailed monitoring review report is prepared for every asset
at least every six months and more frequently depending on risk
characteristics or material developments. The Board and all key
advisers annually undertake a detailed review of all positions in the
portfolio, with a separate session dedicated to certain focus loans
based on their risk profile
SUPPLIERS
Why engage?
The Company’s suppliers include third-party service providers
engaged to provide the core investment advisory, management
andadministrative tasks.
Each of these providers is essential in ensuring the ongoing
operational performance of the Company. The Company relies on
the performance of third-party service providers to undertake all of
its main activities.
How the Company engages
The Board maintains close working relationships with all of its
key advisers and regularly engages on matters relevant to the
Company’s activities.
Acting through the Management Engagement Committee, the
Board oversees and monitors the performance and contractual
relationships with each supplier. A detailed annual assessment is
undertaken of each supplier to ensure they continue to perform
their duties to a high standard and that their objectives remain
aligned with those of the Company. This process informs the
Board’s decision-making with regard to the continuing appointment
of key suppliers.
The annual Management Engagement Committee meeting was held
on 29 March 2022 and reviewed the performance and continued
engagement of all key suppliers. A further qualitative assessment
was undertaken in respect of the Investment Adviser and with
reference to various assessment criteria recommended by the
Association of Investment Companies (“AIC”). Refer to the report
ofthe Management Engagement Committee on pages 68 to 69.
52
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Stakeholders continued
LENDERS
Why engage?
The Company’s lead lender, RBSI, provides a credit facility which is
used for efficient deployment into credit opportunities and avoiding
any impact to performance from cash drag.
How the Company engages
The Company’s relationship with RBSI is managed by the
Investment Adviser and is overseen by the Investment Manager.
The Investment Adviser is responsible for notifying RBSI of relevant
business developments and for preparing compliance certificates
on a monthly basis which confirm the Company’s adherence to
numerous debt covenants.
The Company’s funding requirements are reviewed at least
quarterly, which includes consideration of amounts drawn on the
RCF and the Investment Adviser’s business development pipeline.
These factors form part of the Board’s decision-making process
concerning the operation of the RCF and the Company’s capital
management strategy.
SOCIETY
The Company’s investing activities contribute to the societies in
which its borrowers operate through providing funding for crucial
services and facilities.
Why engage?
Through applying a disciplined and socially responsible approach to
investment activity, the Company seeks to ensure its own long-term
sustainable success, and that of the environments in which
itoperates.
The due diligence assessment carried out prior to any new
investment ensures that sustainability features at the very core
ofthe investment process.
How the Company engages
Economic infrastructure is infrastructure that promotes economic
activity, including transport, transportation equipment, utilities,
power, renewable energy, accommodation and telecommunications
infrastructure.
The Company’s indirect engagement through those responsible for
managing relationships with borrowers confirms the positive impact
of SEQI’s investment activities since its IPO is achieved through
numerous societal benefits including, but not limited to, the creation
of renewable energy, reducing carbon emissions, increasing
consumer interconnectivity, achieving efficient use of materials,
andreducing the cost of public amenities.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
53
Principal and emerging risks
anduncertainties
The Board has established a Risk
Committee, which is responsible for
reviewing the Company’s overall risks
and monitoring the risk control activity
designed to mitigate these risks.
TheRisk Committee has carried out a
robust assessment of the principal and
emerging risks facing the Company,
including those that would threaten
the Company’s business model, future
performance, reputation, solvency
or liquidity. The Board has appointed
Sanne Fund Management (Guernsey)
Limited (formerly International Fund
Management Limited) (“SFMGL” or
the “Investment Manager”) as the
AIFM to the Company. SFMGL is
also responsible for providing risk
management services compliant
with that defined in the Alternative
Investment Fund Managers Directive
(“AIFMD”) and as deemed appropriate
by the Board.
Under the instruction of the Risk
Committee, SFMGL is responsible
for the implementation of a risk
management policy and ensuring that
appropriate risk mitigation processes
are in place; for monitoring risk
exposure; preparing quarterly risk
reports to the Risk Committee; and
otherwise reporting on an ad hoc basis
to the Board as necessary.
Since their appointments
on 30January2018 and
1February2022respectively,
KateThurman and AndreaFinegan,
and, until 31December2021,
TimDrayson, independent consultants
to the Company, have provided
guidance to the Board on the overall
approach to risk management across
the Company’s portfolio. Part of their
focus has been to assist the Investment
Manager in scrutinising certain of the
Investment Adviser’s credit evaluations.
Anurag Gupta, Chief Risk Officer
(“CRO”) of the Investment Adviser,
provides additional oversight and
resource to the Company’s risk
management function and the due
diligence process employed by the
Investment Adviser.
The principal and emerging risks associated with the Company are as follows:
Risk Potential impact Mitigation
The value of the investments made and
intended to be made by the Fund will
change from time to time according to a
variety of factors. The the performance of
the underlying borrowers, expected and
unexpected movements in interest rates,
exchange rates, inflation and bond ratings
and general market pricing of similar
investments will all impact the Company
and its netassetvalue.
• AIFM, Broker and Investment Adviser
continually monitor market conditions.
• Discount control mechanisms (as set out in
the Prospectus) to be employed, but only
when practical and advisable.
• Careful review of investments directly or
indirectly affected by any emerging or
continuing risks.
1
MARKET
RISK
KEY
Low impact risk Medium impact risk High impact risk
The Board is constantly alert to the identification of any
emerging risks
54
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Principal and emerging risks
anduncertainties
continued
Risk Potential impact Mitigation
Borrowers in respect of loans or bonds in
which the Fund has invested may default
on their obligations. Such default may
adversely affect the income received
by the Company and the value of the
Company’s assets.
• Each asset subject to detailed review either
semi-annually or in response to a credit
event.
• Third-party ratings on some borrowers.
• Detailed due diligence and credit review
process subject to several approval layers
prior to transacting.
• AIFM reviews all Investment Adviser credit
update reports.
• Independent consultants provide input to
the evaluation of potential new investments
and to the ongoing monitoring process.
• Enhanced credit process applied in respect
of high-risk transactions.
• Integration of the Investment Adviser’s Chief
Risk Officer in credit process.
2
CREDIT
RISK
Infrastructure debt investments in loan
form are not likely to be publicly traded or
freely marketable, and debt investments
in bond form may have limited or no
secondary market liquidity. Such
investments may consequently be difficult
to value or sell and therefore the price
that is achievable for the investments
might be lower than their valuation.
• Portfolio liquidity is monitored on an
ongoing basis, with approximately 18%
(2021: 20%) of the portfolio in short-term
(less than one week) liquidity.
• Adoption of an internal liquidity stress
testing policy.
• Solvency tests required prior to the
Company making distributions.
3
LIQUIDITY RISK
Counterparty risk can arise through
the Company’s exposure to particular
counterparties for executing transactions
and the risk that the counterparties will
not meet their contractual obligations.
• Counterparty exposures are monitored and
movements reported regularly to the Board.
• Cash management policy in place to
restrict the levels of cash permitted to be
placed and the required credit ratings of the
designated institutions.
• Assessment of suitability of key
counterparties includes consideration of
relevant policies and procedures, including
business continuity arrangements.
4
COUNTERPARTY
RISK
KEY
Low impact risk Medium impact risk High impact risk
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
55
Risk Potential impact Mitigation
Leverage risk arises where the Company
takes on additional risk because of the
leverage of exposures, along with the
specific potential for loss arising from a
leverage counterparty being granted a
charge over assets.
• The Board monitors the level of leverage
on an ongoing basis as well as the credit
ratings of counterparties.
5
LEVERAGE RISK
Compliance and regulatory risk can arise
where processes and procedures are
not followed correctly or where incorrect
judgement causes the Company to
be unable to meet its objectives or
obligation, exposing the Company
to the risk of loss, sanction or action
by Shareholders, counterparties or
regulators.
• The Investment Adviser and the
Administrator monitor compliance
with regulatory requirements and the
Administrator presents a report at quarterly
Board meetings.
6
COMPLIANCE &
REGULATORY
RISK
This is the risk of loss resulting from
inadequate or failed internal processes,
people and systems or from external
events. This can include, but is not limited
to, internal/external fraud, business
disruption and system failures, data entry
errors and damage to physical assets.
• Effectiveness of the Company’s risk
management framework and internal
control systems reviewed annually. Regular
reporting by the Administrator of any
internal control failings identified through
their independent compliance review
function.
7
OPERATIONAL
RISK
Brexit, the war in Ukraine and other
geopolitical events may have an
adverse effect on the Company and its
operations.
• The Risk Committee monitors geopolitical
risks and their impact on the portfolio on an
ongoing basis, and may seek independent
advice on emerging developments likely to
affect the Company.
8
POLITICAL AND
ECONOMIC RISK
KEY
Low impact risk Medium impact risk High impact risk
56
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Principal and emerging risks
anduncertainties
continued
Emerging risks
The Board is constantly alert to the
identification of any emerging risks, in
discussion with the Investment Manager
and the Investment Adviser. The Board
will then assess the likelihood and
impact of any such emerging risks,
and will discuss and agree appropriate
strategies to mitigate and/or manage
the identified risks. Emerging risks are
managed through discussion of their
likelihood and impact at each quarterly
Board meeting. Should an emerging
risk be determined to have any potential
impact on the Company, appropriate
mitigating measures and controls are
agreed.
The emergence of the COVID-19
pandemic, and its ongoing effects,
presented a significant emerging risk
to markets globally, and prompt action
was taken by the Board and its key
advisers in March 2020, which has
continued subsequently, to assess in
full the potential impact to the Company
from the resulting exceptional market
volatility and widening of spreads.
During the year, the Company has
continued to operate effectively and
maintain its enhanced monitoring of
the global response to the COVID-19
pandemic; the primary and secondary
effects of historically low oil prices; and
the market uncertainty arising from the
Russian invasion of Ukraine.
Aggressive central banks action to
increase global interest rates in order
to combat inflation may also give rise
to an increased risk of recession, as
discussed in the Chair’s statement and
Investment Adviser’s report. To mitigate
this risk, the Fund has maintained a high
level of floating-rate investments, which
will benefit from a higher interest rate
environment.
A detailed review of the main financial
risks faced by the Company, and
how they are managed or mitigated,
is set out in note 5 to the Financial
Statements.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
57
Board of Directors 58
The Sequoia Investment Management Company team 60
Independent consultants 61
Corporate governance 62
Report of the Management Engagement Committee 68
Report of the Audit Committee 70
Report of the Remuneration and Nomination Committee 73
Directors’ remuneration report 75
Directors’ report 77
Statement of Directors’ responsibilities 81
Pages 57 to 81
Governance
58
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
ROBERT JENNINGS, CBE JONATHAN (JON) BRIDEL TIM DRAYSON SARIK A PATEL JAN PETHICK SANDRA PLATTS JAMES STEWART
Chairman Non-executive Director Non-executive Director Non-executive Director Non-executive Director Senior Independent Director Non-executive Director
Robert Jennings is a resident
of the United Kingdom and
qualified as a Chartered
Accountant in 1979. He has
over 30 years’ experience
in the infrastructure
sector. MrJennings was a
managing director of UBS
Investment Bank and was
joint head of the Bank’s
Infrastructure Group until
2007. He has twice acted as
a special senior adviser to
HMTreasury.
Mr Jennings has previously
served as a non-executive
director of the following
companies: Crossrail
(2009-2019); Southern
Water (2012-2017, including
as its Chair from 2014);
3i Infrastructure plc
(2018-2021); and Chapter
Zero (2019-2021). His role
as Chair of the Company
is his sole remaining public
engagement.
Jon Bridel is a resident
of Guernsey. Mr Bridel is
currently a non-executive
director of a number of
London-listed investment
funds. Mr Bridel was
previously Managing Director
of Royal Bank of Canada’s
investment businesses in the
Channel Islands.
After qualifying as a
Chartered Accountant in
1987, Mr Bridel worked with
Price Waterhouse Corporate
Finance in London. He
subsequently held senior
positions in banking, credit
and corporate finance,
investment management
and private international
businesses where he was
Chief Financial Officer.
Mr Bridel holds a Master
of Business Administration
(Dunelm) and also holds
qualifications from the
Institute of Chartered
Accountants in England and
Wales, where he is a Fellow,
the Chartered Institute of
Marketing, where he is a
Chartered Marketer, and
the Australian Institute of
Company Directors. He is
also a Chartered Director
and Fellow of the Institute of
Directors and is a Chartered
Fellow of the Chartered
Institute for Securities and
Investment.
Tim Drayson, is a resident of
the United Kingdom and has
over 30 years’ experience
in the US and European
debt capital markets.
Hewas most recently
Global Head of Corporate
Sales & Deputy Head of
the European Corporate
Loan and DCM Platform
at BNP Paribas and had
been a member of the Fixed
Income Transaction Approval
Committee, screening
complex transactions
and interacting with the
bank’s credit committee.
He joined BNP Paribas as
GlobalHead of Securitization
in 2005, with responsibility
for managing all origination
and structuring teams,
including infrastructure.
Prior to joining BNP Paribas,
Tim held senior roles at
Morgan Stanley in London
as Head of Securitized
Products Syndication and
Paine Webber in New York,
where he traded mortgage
products.
Sarika Patel is a resident of
the United Kingdom and has
over 30 years’ experience
in a mixture of public and
private organisations. She is
a Chartered Accountant and
a Chartered Marketer and
a graduate in law. She is a
non-executive director and
chairs the audit committees
at Foresight Sustainable
Forestry Company plc, SDCL
Energy Efficiency Income
Trust plc and abrdn Equity
Income Trust. Sarika is the
Chair of Action for Children
and is a Board Member of the
Office for Nuclear Regulation
where she chairs theAudit,
Risk and Assurance
Committee. She is a member
of the Expert Advisory Panel,
chaired by the Minister for
Brexit Opportunities and
Government Efficiency,
focused on the Public Bodies
Reform Programme.
Jan Pethick is a resident of
the United Kingdom and has
over 35 years’ experience in
the debt sector. Mr Pethick
was Chair of Merrill Lynch
International Debt Capital
Markets for 10 years, from
2000 to 2010. He had
previously been Head of
Global Debt Origination at
Dresdner Kleinwort Benson
which had acquired the
credit research boutique,
Luthy Baillie, which he had
co-founded in 1990. Prior
to that, he worked for 12
years at Lehman Brothers
where he was a member of
the Executive Management
Committee in Europe. Mr
Pethick currently serves
as Chair of Troy Asset
Management and was an
independent member of
the Supervisory Board of
Moody’s Investor Services
Europe.
Sandra Platts is a resident of
Guernsey. In her role as an
independent director, Sandra
holds three London listed
investment funds, one of
which is Sequoia.
Sandra was previously MD
of Kleinwort Benson in
Guernsey and undertook a
number of strategic roles as
Chief Operating Officer for
the wider Kleinwort Benson
Group.
Mrs Platts holds a Master of
Business Administration and
is member of the Institute of
Directors
James Stewart is a resident
of the United Kingdom
and brings a wealth of
leadership, international and
infrastructure experience
across both the public and
private sectors. Between
2011 and 2021, James held
several senior level positions
in KPMG, including as a
non-executive member of
the KPMG LLP Board and
chair of KPMG’s Global
Infrastructure practice. Prior
to this, James was Chief
Executive of Infrastructure
UK and of Partnerships UK,
responsible for supporting
major infrastructure projects
and the PPP program in
the UK. James’s earlier
experience includes 16 years
in investment banking, where
he was involved in lending,
investing equity and advising
on infrastructure projects.
James is currently a Trustee
of the Shaw Trust and Chair
and Trustee of Power for the
People.
E
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N R A
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R
A
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E
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M
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R
M
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R A
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E
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M
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N
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N
BOARD LEADERSHIP AND PURPOSE
Board of Directors
The Directors of the Company, all of whom are
non-executiveand independent, are as follows:
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
59
KEY
A
Audit Committee
E
ESG and Stakeholder
Engagement
Committee
M
Management
Engagement
Committee
R
Risk Committee
N
Remuneration
and Nomination
Committee
Chair
ROBERT JENNINGS, CBE JONATHAN (JON) BRIDEL TIM DRAYSON SARIK A PATEL JAN PETHICK SANDRA PLATTS JAMES STEWART
Chairman Non-executive Director Non-executive Director Non-executive Director Non-executive Director Senior Independent Director Non-executive Director
Robert Jennings is a resident
of the United Kingdom and
qualified as a Chartered
Accountant in 1979. He has
over 30 years’ experience
in the infrastructure
sector. MrJennings was a
managing director of UBS
Investment Bank and was
joint head of the Bank’s
Infrastructure Group until
2007. He has twice acted as
a special senior adviser to
HMTreasury.
Mr Jennings has previously
served as a non-executive
director of the following
companies: Crossrail
(2009-2019); Southern
Water (2012-2017, including
as its Chair from 2014);
3i Infrastructure plc
(2018-2021); and Chapter
Zero (2019-2021). His role
as Chair of the Company
is his sole remaining public
engagement.
Jon Bridel is a resident
of Guernsey. Mr Bridel is
currently a non-executive
director of a number of
London-listed investment
funds. Mr Bridel was
previously Managing Director
of Royal Bank of Canada’s
investment businesses in the
Channel Islands.
After qualifying as a
Chartered Accountant in
1987, Mr Bridel worked with
Price Waterhouse Corporate
Finance in London. He
subsequently held senior
positions in banking, credit
and corporate finance,
investment management
and private international
businesses where he was
Chief Financial Officer.
Mr Bridel holds a Master
of Business Administration
(Dunelm) and also holds
qualifications from the
Institute of Chartered
Accountants in England and
Wales, where he is a Fellow,
the Chartered Institute of
Marketing, where he is a
Chartered Marketer, and
the Australian Institute of
Company Directors. He is
also a Chartered Director
and Fellow of the Institute of
Directors and is a Chartered
Fellow of the Chartered
Institute for Securities and
Investment.
Tim Drayson, is a resident of
the United Kingdom and has
over 30 years’ experience
in the US and European
debt capital markets.
Hewas most recently
Global Head of Corporate
Sales & Deputy Head of
the European Corporate
Loan and DCM Platform
at BNP Paribas and had
been a member of the Fixed
Income Transaction Approval
Committee, screening
complex transactions
and interacting with the
bank’s credit committee.
He joined BNP Paribas as
GlobalHead of Securitization
in 2005, with responsibility
for managing all origination
and structuring teams,
including infrastructure.
Prior to joining BNP Paribas,
Tim held senior roles at
Morgan Stanley in London
as Head of Securitized
Products Syndication and
Paine Webber in New York,
where he traded mortgage
products.
Sarika Patel is a resident of
the United Kingdom and has
over 30 years’ experience
in a mixture of public and
private organisations. She is
a Chartered Accountant and
a Chartered Marketer and
a graduate in law. She is a
non-executive director and
chairs the audit committees
at Foresight Sustainable
Forestry Company plc, SDCL
Energy Efficiency Income
Trust plc and abrdn Equity
Income Trust. Sarika is the
Chair of Action for Children
and is a Board Member of the
Office for Nuclear Regulation
where she chairs theAudit,
Risk and Assurance
Committee. She is a member
of the Expert Advisory Panel,
chaired by the Minister for
Brexit Opportunities and
Government Efficiency,
focused on the Public Bodies
Reform Programme.
Jan Pethick is a resident of
the United Kingdom and has
over 35 years’ experience in
the debt sector. Mr Pethick
was Chair of Merrill Lynch
International Debt Capital
Markets for 10 years, from
2000 to 2010. He had
previously been Head of
Global Debt Origination at
Dresdner Kleinwort Benson
which had acquired the
credit research boutique,
Luthy Baillie, which he had
co-founded in 1990. Prior
to that, he worked for 12
years at Lehman Brothers
where he was a member of
the Executive Management
Committee in Europe. Mr
Pethick currently serves
as Chair of Troy Asset
Management and was an
independent member of
the Supervisory Board of
Moody’s Investor Services
Europe.
Sandra Platts is a resident of
Guernsey. In her role as an
independent director, Sandra
holds three London listed
investment funds, one of
which is Sequoia.
Sandra was previously MD
of Kleinwort Benson in
Guernsey and undertook a
number of strategic roles as
Chief Operating Officer for
the wider Kleinwort Benson
Group.
Mrs Platts holds a Master of
Business Administration and
is member of the Institute of
Directors
James Stewart is a resident
of the United Kingdom
and brings a wealth of
leadership, international and
infrastructure experience
across both the public and
private sectors. Between
2011 and 2021, James held
several senior level positions
in KPMG, including as a
non-executive member of
the KPMG LLP Board and
chair of KPMG’s Global
Infrastructure practice. Prior
to this, James was Chief
Executive of Infrastructure
UK and of Partnerships UK,
responsible for supporting
major infrastructure projects
and the PPP program in
the UK. James’s earlier
experience includes 16 years
in investment banking, where
he was involved in lending,
investing equity and advising
on infrastructure projects.
James is currently a Trustee
of the Shaw Trust and Chair
and Trustee of Power for the
People.
E
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M
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N R A
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R
A
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E
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M
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R
M
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R A
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60
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
BOARD LEADERSHIP AND PURPOSE
The Sequoia Investment
ManagementCompany team
Sequoia Investment Management Company Limited
(“Sequoia”) is an experienced investment adviser,
whichhasacted as Investment Adviser to the Company
fromits inception. Sequoia’s management team and
Investment Committee are as follows:
RANDALL SANDSTROM STEVE COOK DOLF KOHNHORST GREG TAYLOR ANURAG GUPTA
Director and CEO/CIO Director and Head
of Portfolio Management
Director and Co-Head
of Infrastructure Debt
Director and Co-Head
of Infrastructure Debt
Chief Risk Officer (“CRO”)
30 years of experience
in the international and
domestic credit markets and
infrastructure debt markets.
Has managed global high
yield and investment grade
bonds, leveraged loans, ABS
and money market securities.
Board of Directors, LCF
Rothschild and MD of
Structured Finance. Former
CEO/CIO, Eiger Capital.
Head of Euro Credit Market
Strategy, Morgan Stanley.
Institutional Investors
“All-American” senior
Industrial Credit Analyst,
CSFirst Boston (energy and
transportation). Has worked in
London, New York and Tokyo.
Over 20 years of
infrastructure experience.
European Head of Whole
Business Securitisation
and CMBS and Co-Head
of Infrastructure Finance at
UBS.
Head of European Corporate
Securitisation at Morgan
Stanley with lending and
balance sheet responsibility.
Wide variety of infrastructure
projects in the UK and across
Europe as a lender, arranger
and adviser.
38 years of experience in
investment banking, debt
capital markets and project
finance commercial lending.
Head of Société Générale’s
Financial Institutions Group
covering UK, Irish, Benelux
and Scandinavian banks,
insurance companies,
pension funds and investment
management companies.
16 years at Morgan Stanley
heading Benelux and
Scandinavian sales teams
and DCM Structured
Solutions Group.
Commercial lending to
shipping, construction and
project finance sectors.
More than 30 years of
infrastructure experience.
Head of InfrastructureFinance
at Merrill Lynch and Co-Head
of Infrastructure Finance
atUBS.
Developed Moody’s
methodology for rating
regulated infrastructure
companies.
Broad perspective as bond
arranger, direct lender, credit
analyst and financial adviser
to both borrowers and public
sector. Includes lending
in Europe, the UK, North
America and Latin America.
Over 20 years of
experience in project
finance,infrastructure
investment and appraisal,
risk management, M&A and
financial advisory.
Extensive transactional
experience across
infrastructure sectors such
as transportation, power and
utilities, renewables, TMT and
social infrastructure.
Former KPMG in Canada
Infrastructure Advisory Partner
and Global Sector Head
of Power within the KPMG
Global Infrastructure Practice;
previous infrastructure
industry roles in both public
and private sectors in multiple
geographies.
MBA (Tulane University, USA),
Bachelors in Mechanical
Engineering (Engineering
Council, UK) and BSc
(Calcutta University, India).
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
61
Independent
consultants
The independent
consultantsof Sequoia
Economic Infrastructure
Income Fund Limited are
asfollows:
RANDALL SANDSTROM STEVE COOK DOLF KOHNHORST GREG TAYLOR ANURAG GUPTA
Director and CEO/CIO Director and Head
of Portfolio Management
Director and Co-Head
of Infrastructure Debt
Director and Co-Head
of Infrastructure Debt
Chief Risk Officer (“CRO”)
30 years of experience
in the international and
domestic credit markets and
infrastructure debt markets.
Has managed global high
yield and investment grade
bonds, leveraged loans, ABS
and money market securities.
Board of Directors, LCF
Rothschild and MD of
Structured Finance. Former
CEO/CIO, Eiger Capital.
Head of Euro Credit Market
Strategy, Morgan Stanley.
Institutional Investors
“All-American” senior
Industrial Credit Analyst,
CSFirst Boston (energy and
transportation). Has worked in
London, New York and Tokyo.
Over 20 years of
infrastructure experience.
European Head of Whole
Business Securitisation
and CMBS and Co-Head
of Infrastructure Finance at
UBS.
Head of European Corporate
Securitisation at Morgan
Stanley with lending and
balance sheet responsibility.
Wide variety of infrastructure
projects in the UK and across
Europe as a lender, arranger
and adviser.
38 years of experience in
investment banking, debt
capital markets and project
finance commercial lending.
Head of Société Générale’s
Financial Institutions Group
covering UK, Irish, Benelux
and Scandinavian banks,
insurance companies,
pension funds and investment
management companies.
16 years at Morgan Stanley
heading Benelux and
Scandinavian sales teams
and DCM Structured
Solutions Group.
Commercial lending to
shipping, construction and
project finance sectors.
More than 30 years of
infrastructure experience.
Head of InfrastructureFinance
at Merrill Lynch and Co-Head
of Infrastructure Finance
atUBS.
Developed Moody’s
methodology for rating
regulated infrastructure
companies.
Broad perspective as bond
arranger, direct lender, credit
analyst and financial adviser
to both borrowers and public
sector. Includes lending
in Europe, the UK, North
America and Latin America.
Over 20 years of
experience in project
finance,infrastructure
investment and appraisal,
risk management, M&A and
financial advisory.
Extensive transactional
experience across
infrastructure sectors such
as transportation, power and
utilities, renewables, TMT and
social infrastructure.
Former KPMG in Canada
Infrastructure Advisory Partner
and Global Sector Head
of Power within the KPMG
Global Infrastructure Practice;
previous infrastructure
industry roles in both public
and private sectors in multiple
geographies.
MBA (Tulane University, USA),
Bachelors in Mechanical
Engineering (Engineering
Council, UK) and BSc
(Calcutta University, India).
KATE THURMAN ANDREA FINEGAN
Independent consultant
tothe Board
Independent consultant
tothe Board
Kate Thurman is a highly
experienced and respected
credit market professional
having spent over 30 years
identifying and analysing
credit risk in bond and loan
instruments for institutional
portfolios. Kate has broad
experience across industry
sectors, credit grades, legal
structures and jurisdictions,
having special expertise in the
assessment of quantitative
and qualitative credit factors
and downside risks. She
is a former board and
audit committee member
of Colne Housing Society,
a not-for-profit Housing
Association with 3,000 units
under management and c.
£150 million of commercial
debt. Her former executive
career included senior
roles in asset management
and investment banking
organisations.
Andrea Finegan has a strong
background in infrastructure
finance, including over
20 years spent in the
management of infrastructure
funds. She is currently
independent chair of the
Greencoat Capital Valuation
Committee, having previously
served as COO of Greencoat
and was responsible for
overseeing the establishment
of listed and unlisted
investment fund products.
Prior to Greencoat, Andrea
was responsible for similar
management functions at
Climate Change Capital and
ING Infrastructure Funds.
62
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
COMPLIANCE
The Board places a high degree of importance on ensuring
that high standards of corporate governance are maintained
and has considered the principles and provisions of the
AIC Code of Corporate Governance (the “AIC Code”),
which can be found at https://www.theaic.co.uk. The AIC
Code addresses all the principles set out in the UK Code of
Corporate Governance (the “UK Code”) in addition to setting
out additional principles and provisions on issues relevant to
listed investment funds. The Board considers that reporting
against the principles and provisions of the AIC Code will
provide better information to Shareholders and during the
year the Board has reviewed its policies and procedures
against the AIC Code.
The Board has also taken note of the Finance Sector Code
of Corporate Governance issued by the Guernsey Financial
Services Commission (the “Guernsey Code”). The Guernsey
Code provides a governance framework for Guernsey
Financial Services Commission (“GFSC”) licensed entities,
authorised and registered collective investment schemes.
Companies reporting against the UK Code or the AIC Code
are deemed to satisfy the provisions of the Guernsey Code.
For the year ended 31 March 2022, the Company has
complied with the provisions of the AIC Code and the relevant
provisions of the UK Code. Issues that are not reported on
in detail here are excluded because they are deemed to be
irrelevant to the Company, being an externally managed
investment company. In particular, all of the Company’s
day-to-day management and administrative functions are
outsourced to third parties and as a result the Company has
no executive directors, employees or internal operations and
therefore has not reported in respect of provisions concerning
the role of the chief executive, the remuneration of executive
directors’, or the internal auditfunction.
Corporate governance
CORPORATE GOVERNANCE STATEMENT
AIC Code
• Board leadership and purpose (see pages 58 to 61).
• Division of responsibility (see pages 65 to 67).
• Composition, evaluation and succession (see pages
63, 64 and 74).
• Audit, risk and internal control (see page 67 and
pages 68 to 72).
• Remuneration (see pages 73 to 76).
The Board
Chair
Senior Independent
Director
Independent
Directors
Remuneration and Nomination Committee
Responsible for recommending changes to the
composition of the Board, reviewing succession
planning and determining the Company’s remuneration
policy
Read more on pages 73 to 74
Audit Committee
Ensures there is confidence in the integrity of internal
financial controls and corporate reporting
Read more on pages 70 to 72
ESG and Stakeholder Engagement
Committee
Responsible for monitoring the effectiveness of the
Company’s engagement with key stakeholders and
setting the Company’s ESG objectives
Read more on page 67
Management Engagement Committee
Responsible for reviewing the remuneration and
performance of the Company’s service providers
Read more on pages 68 to 69
Risk Committee
Responsible for the management of risks to which the
Fund’s investments are exposed
Read more on page 66
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
63
COMPOSITION OF THE
BOARD AND INDEPENDENCE
OF DIRECTORS
As at 31 March 2022, the Board of
Directors comprised seven(2021:four)
non-executive andindependent Directors
as set out below. The Company has no
executive Directors or any employees.
The Chair and all Directors are considered
independent of the Investment Adviser,
the Investment Manager, the Administrator
and Company Secretary. The Directors
consider that there are no factors, as set
out in the AIC Code, which compromise
the Directors’ independence and that
they all contribute positively to Board
effectiveness. The Board reviews the
independence of all Directors annually.
Robert Jennings was deemed to be
independent by the Board prior to his
appointment as Chair of the Company.
The Directors’ biographies are disclosed
on pages 58 and 59.
Robert Jennings is the Chair of the
Board. In accordance with provision
19 of the UK Code, a Chair should not
remain in post for more than nine years
from the date of their initial appointment.
Jan Pethick is the Chair of the
Management Engagement Committee.
Jon Bridel is the Chair of the Risk
Committee.
Sandra Platts is the Senior Independent
Director (“SID”) and Chair of the
Remuneration and Nomination
Committee.
Sarika Patel is the Chair of the Audit
Committee.
James Stewart is the Chair of the
newly-formed ESG and Stakeholder
Engagement Committee.
No Director has a service contract
with the Company. The terms of
appointment for each non-executive
Director are set out in writing between
each individual and the Company.
Copies of the appointment letters are
available for review by Shareholders at
the Company’s registered office.
As Chair, Robert Jennings is
responsible for leading the Board
of Directors and for ensuring its
effectiveness in all aspects of its
role. The specific duties of the Chair
include setting the Board’s agenda,
expectations concerning the Company’s
culture, ensuring the Board has in
place effective decision-making
processes which are supported by
accurate and high-quality information,
and demonstrating ethical leadership
and promoting the highest standards
of integrity, probity and corporate
governance throughout the Company.
The Board’s annual performance
evaluation is led by the Chair, with
support from the SID, and it will take
action as appropriate based on the
results of that evaluation.
The responsibilities of the SID include
being available to Shareholders as
an additional point of contact or to
communicate any concerns to the
Board, and working closely with
the Remuneration and Nomination
Committee to develop the Board’s
succession planning and pipeline.
Under the terms of their appointment,
all four original non-executive Directors
were subject to re-election at the first
AGM. Thereafter, in accordance with
the Company’s Articles of Incorporation,
two Directors shall retire each year and
may offer themselves for re-election.
In accordance with the AIC Code,
allDirectors are subject to re-election
annually by Shareholders. The Board
has adopted a policy on tenure
that it considers appropriate for
aninvestment company. The Board
does not consider length of service
by itself to be a factor impairing
director independence. However, the
Board’s tenure and succession policy,
applied to all non-executive Directors,
seeks to ensure that the Board
remains well-balanced and that skills,
knowledge and experience of the Board
is refreshed at appropriate intervals.
Inorder to avoid undue disruption
fromthe departure of multiple Directors
in the same year, and for reasons of
continuity, three new Directors have
been appointed during the year, and
two of the Directors appointed at the
Company’s launch will retire without
seeking reappointment not later than
atthe 2022 AGM.
BOARD DIVERSITY
The Board supports the
recommendations of the Davies
Reportand notes the recommendations
of the Parker review into ethnic
diversity and the Hampton-Alexander
review ongender balance in FTSE
leadership. The Board supports
the widening of its diversity, whilst
ensuring the capabilities, experience
and background of each member
remain appropriate to the Company
and continue to contribute to overall
Boardeffectiveness.
The search process initiated following
the Nomination Committee’s review
of the size, structure and composition
of the Board recognised the need to
broaden the diversity of the Board.
64
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
CORPORATE GOVERNANCE STATEMENT
Corporate governance continued
DIRECTORS’ PERFORMANCE
EVALUATION
The Board has established an informal
system for the evaluation of its own
performance and that of the Company’s
individual Directors, which is led by
the Chair and, as regards the Chair’s
performance evaluation, by the SID.
Itconsiders this to be appropriate
having regard to the non-executive
role of the Directors and the significant
outsourcing of services by the Company
to external providers.
The Directors undertake, on an
annual basis, an assessment of
the effectiveness of the Board,
particularly in relation to its oversight
and monitoring of the performance of
the Investment Manager, Investment
Adviser and other key service providers.
The evaluations consider the balance
of skills, experience, independence and
knowledge of the Company. The Board
also evaluates the effectiveness of each
of the Directors.
An externally facilitated Board
effectiveness review was undertaken
by Condign Board Consulting Limited
during the prior year. The review
assessed aspects such as the quality
of the Board’s engagement with the
Investment Advisory team concerning
investment strategy, and the monitoring
of performance; contingency planning
for “realistic disaster scenarios”
for key assets; climate change risk
and ESG reporting; the ongoing
cohesiveness of the Board and its key
advisers; the structure of the Board
and its Committees; its oversight
of Shareholder relationships and
communications; and issues relating
to diversity, transitioning and long-term
succession planning. The findings
from the independent performance
evaluation concluded that the Company
maintained high standards of corporate
governance practice and, in the context
of the Company, the main principles of
the AIC Code continued to be applied
effectively.
The Board remains cognisant of the
need to anticipate and respond to
evolving challenges, and therefore
the governance framework in place
by the Company is subject to regular
review to ensure it remains appropriate
in the context of the Company.
Thenext externally facilitated Board
effectiveness review will be carried out
in relation to the financial year ending
31March2024.
BOARD VALUES
ANDCULTURE
The Chair is responsible for setting the
standards and values expected of the
Board, and the Board operates with
the Company’s core values of integrity,
transparency and accountability with an
aim of maintaining a reputation for high
standards in all areas of the Company’s
activities. The Board recognises the
value and importance to all stakeholders
of organisations incorporating
effective environmental, social and
governance policies as part of its
day-to-day operations; refer to pages
48 to 52 for additional information. In
the furtherance of the Company’s ESG
aspirations and the increased attention
from stakeholders on these matters,
the Board has appointed a dedicated
committee (the ESG and Stakeholder
Engagement Committee – for details
see page 67) with the delegated
responsibility for addressing relevant
matters of stakeholder engagement.
Through designing an effective ESG
policy which reflects the Board’s core
values and the alignment of this with
the Company’s business operations,
the Board seeks to promote a culture of
openness and constructive challenge
amongst those responsible for taking
key decisions. The findings from the
most recent external performance
evaluation endorsed the quality of
boardroom debate and high levels of
collaboration between all parties as
key contributors to a highly effective
decision-making process. This is
underpinned by a robust corporate
governance framework which seeks to
align the Company’s purpose, values
and strategy with the culture set by the
Board through active engagement with
the Company’s key service providers.
DIRECTORS’ REMUNERATION
It is the responsibility of the
Remuneration and Nomination
Committee to debate and make
recommendations to the Board in
relation to the Directors’ remuneration,
having regard to the level of fees
payable to non-executive Directors
in the industry generally, the role that
individual Directors fulfil in respect of
Board and Committee responsibilities
and the time committed to the
Company’s affairs. No Director who
is a member of the Committee takes
part in discussions relating to their own
remuneration. The Directors periodically
benchmark the remuneration policy
of the Company against comparable
information on listed investment
companies, particularly those operating
in similar or adjacent market sectors,
in addition to giving due regard to
the individual circumstances of the
Company which may warrant a
departure from industry norms.
No Director has a service contract
with the Company and details of the
Directors’ remuneration, and changes
thereto reflecting the increased time
commitment required of the Board, can
be found in the Directors’ remuneration
report on pages 75 and 76.
DIRECTORS’ AND OFFICERS’
LIABILITY INSURANCE
The Company maintains insurance in
respect of directors’ and officers’ liability
in relation to the Directors’ actions on
behalf of the Company.
RELATIONS WITH
SHAREHOLDERS
The Board believes that the
maintenance of good relations
and understanding the views of
Shareholders is important to the
long-term sustainable success of
the Company and since launch the
Board has adopted a policy of actively
engaging with major Shareholders
through a variety of means. Further
information on how the Company
engages with Shareholders can be
found in the stakeholders report on
pages 48 to 52.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
65
BOARD RESPONSIBILITIES
The Board meets formally on a
quarterly basis to review the overall
business activities of the Company
and any matters specifically reserved
for its consideration. Standing agenda
items considered at all quarterly
Board meetings cover portfolio
performance, capital allocation and
deployment, ESG matters, NAV and
share price performance, Shareholder
return metrics, reviewing changes
to the risk environment including
the assessment of emerging risks,
marketing and investor relations,
peer group information and industry
issues. Consideration is also given
to administration and corporate
governance matters, legislative
developments and, where applicable,
reports are received from the Board’s
formally constituted committees.
The Directors also review the
Company’s activities every quarter to
ensure that the Company adheres to
its investment policy. Additional ad hoc
reports are received as required and
Directors have access at all times to the
advice and services of the Company
Secretary, who is responsible for
ensuring that the Board procedures
are followed, and that applicable rules
and regulations are complied with.
The Board has adopted a schedule
of matters specifically reserved for its
decision-making and distinguishing
these from matters it has delegated to
the Company’s key service providers.
Although no formal training is given
to Directors by the Company, the
Directors are kept up to date on various
matters such as corporate governance
issues through bulletins and training
materials provided from time to time by
the Company Secretary, the AIC and
professional firms.
The Board actively monitors the level
of the share price premium or discount
to determine what action, if any, is
required. This was noted particularly
during the equity market sell-off and the
significant volatility associated with the
COVID-19 crisis. The Board continues
to closely monitor the rating of the
Company’s shares.
DIRECTORS’ MEETINGS AND ATTENDANCE
The table below shows the Directors’ attendance at Board and Committee meetings during the 2021/22 annual Board cycle.
Number of
meetings held
Robert
Jennings
1
Sandra
Platts
Jan
Pethick
1
Jon
Bridel
Sarika
Patel
1
James
Stewart
1
Tim
Drayson
1
Board – scheduled 4 4 (4) 4 (4) 4 (4) 4 (4) 3 (3) 1 (1) 1 (1)
Board – ad hoc 8 8 (8) 8 (8) 6 (8) 7 (8) 4 (5) 2 (2) 2 (2)
Audit Committee 3 2 (2) 3 (3) 2 (2) 2 (2) 2 (2) 1 (1) 1 (1)
Risk Committee 7 6 (6) 6 (6) 7 (7) 7 (7) 6 (6) N/A 1 (1)
Nomination Committee 2 2 (2) 2 (2) 2 (2) 2 (2) N/A N/A N/A
Management Engagement
Committee
1 1 (1) 1 (1) 1 (1) N/A 1 (1) N/A N/A
Remuneration and
Nomination Committee
1 1 (1) 1 (1) N/A N/A N/A 1 (1) N/A
ESG and Stakeholder
Engagement Committee
1 1 (1) 1 (1) N/A N/A 1 (1) 1 (1) N/A
1. Onshore resident Directors.
The numbers in brackets indicate the number of meetings held during the tenure of the Director or their membership of the
specified committee.
Kate Thurman and Andrea Finegan (and, until his appointment to the Board on 1 January 2022, Tim Drayson), the Company’s
independent consultants, attended a number of Risk Committee and other meetings with the Directors during the year.
66
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
CORPORATE GOVERNANCE STATEMENT
Corporate governance continued
BOARD COMMITTEES
Audit Committee
Until 31 December 2021, the
AuditCommittee comprised
SandraPlatts, Jon Bridel, Jan Pethick,
RobertJennings and (with effect from
4August 2021) Sarika Patel, and was
chaired by Sandra Platts. With effect
from 1 January 2022, the Committee
comprises Sarika Patel, Sandra Platts,
James Stewart and Tim Drayson, and
is chaired by Sarika Patel. At least one
member of the Committee has recent
and relevant financial experience, in
accordance with the provisions of the
AIC Code. The Committee meets at
least three times a year.
Key responsibilities
The key responsibilities of the Audit
Committee include reviewing the
Financial Statements to ensure they
are prepared to a high standard and
comply with all relevant legislation and
guidelines, where appropriate, and
to maintain an effective relationship
with the Auditor. The Audit Committee
also reviews, considers and, if
appropriate, recommends for the
purposes of the Company’s Financial
Statements the valuations prepared
by the Investment Manager and
Investment Adviser. With respect to
the Auditor, the Audit Committee’s role
will include the assessment of their
independence and the effectiveness of
the audit, and a review of the Auditor’s
engagement letter and remuneration
and any non-audit services provided
by the Auditor. For the principal duties
and report of the Audit Committee
please refer to the report of the Audit
Committee on pages 70 to 72.
Risk Committee
Until 31 December 2021, the Risk
Committee comprised Jon Bridel,
Robert Jennings, Jan Pethick,
Sandra Platts and (with effect from
4August 2021) Sarika Patel, and
waschaired by Jon Bridel. With effect
from 1 January2022, the Committee
comprises Jon Bridel, Sarika Patel,
JanPethick and Tim Drayson, and is
chaired by Jon Bridel. The Committee
meets at least quarterly.
Key responsibilities
The principal responsibility of the
Risk Committee is to identify, assess,
monitor and, where possible, oversee
the management of risks to which the
Company’s investments are exposed,
principally to enable the Company to
achieve its target investment objective
of regular, sustained, long-term
distributions over the planned life of the
Company, with regular reporting to the
Board. As the Company is an externally
managed non-EU AIF for the purposes
of AIFMD, the Directors have appointed
the Investment Manager as AIFM to
manage the additional risks faced by
the Company as well as the relevant
disclosures to be made to investors
and regulators. On 30 January 2015,
the Financial Conduct Authority (“FCA”)
confirmed that the Company was
eligible to be marketed via the FCA’s
National Private Placement Regime and
the Company has complied with articles
22 and 23 of the AIFMD for the year
ended 31 March 2022.
The Risk Committee works closely
with the Investment Manager
and, as required, the independent
consultants, and provides oversight
of the Company’s risk management
function. The financial year under
review included a high volume of
matters being escalated as a result
of the market volatility caused by the
COVID-19 pandemic. Such activity
required extensive liaison between key
advisers to assess emerging risks and
to agree appropriate mitigating actions.
This was particularly evident in the
case of the Salt Creek restructuring
where considerable resources of the
Investment Adviser were committed
in order to protect the Company’s
interests during negotiations and
to implement the resulting holding
structure. The Committee welcomes
the strong progress made by Mr Anurag
Gupta since his appointment as CRO
to the Investment Adviser, particularly
his notable contributors to the risk
management framework and the credit
disciplines employed by the Investment
Adviser.
Management
EngagementCommittee
Until 31 December 2021, the
Management Engagement
Committee comprised Jan Pethick,
Jon Bridel, Robert Jennings,
Sandra Platts and (with effect
from 4 August 2021) SarikaPatel,
and was chaired by JanPethick.
With effect from 1 January2022,
theCommittee comprises JanPethick,
RobertJennings, Sandra Platts
and Sarika Patel, and is chaired by
JanPethick. The Committee meets
atleast once annually.
Key responsibilities
The Committee is responsible for
the regular review of the terms of the
Investment Advisory and Investment
Management Agreements, along with
the performance of the Administrator,
Investment Adviser and the Investment
Manager and the Fund’s other key
service providers. For the principal
duties and report of the Committee
please refer to the report of the
Management Engagement Committee
on pages 68 and 69.
Remuneration and
NominationCommittee
Until 30 March 2022, the
Companyhada separate Remuneration
Committee and Nomination Committee,
each comprising Robert Jennings,
Sandra Platts, Jan Pethick, Jon Bridel
and (with effect from 4 August 2021)
Sarika Patel. The Remuneration
Committee was chaired by Sandra
Platts and the Nomination Committee
by Robert Jennings. With effect from
30 March 2022, the two committees
were merged to form a combined
Remuneration and Nomination
Committee (the “Committee”),
whichcomprises Sandra Platts,
RobertJennings and James Stewart,
and is chaired by Sandra Platts.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
67
Key responsibilities
The Committee’s key responsibilities
include: reviewing the structure,
size and composition of the Board;
considering the succession planning
for Directors and senior executives;
reviewing the leadership needs of the
organisation and identifying candidates
for appointment to the Board, including
the need to broaden the diversity of the
Board; considering the remuneration
of the Directors; and determining
the Company’s remuneration policy.
Fordetails of the remuneration of the
Directors during the year, please refer
to the Directors’ remuneration report
onpages 75 to 76.
ESG and Stakeholder
Engagement Committee
The ESG and Stakeholder Engagement
Committee was established in March
2022. As at 31 March 2022, the
ESG and Stakeholder Engagement
Committee comprised James Stewart,
Robert Jennings, Sandra Platts and
Sarika Patel, and was chaired by
JamesStewart. The Committee will
meet at least twice annually.
Key responsibilities
The Committee’s key responsibilities
are to support the Board in monitoring
the effectiveness of the Company’s
engagement with key stakeholders and
to set the Company’s environmental,
social and governance objectives and to
review the performance of the Company
against those objectives.
MANAGEMENT
ARRANGEMENTS
Investment Manager and
Investment Adviser
The Directors are responsible for
the determination of the Company’s
investment policy and have overall
responsibility for the Company’s
activities. The Company has entered
into an Investment Management
Agreement with the Investment
Manager with effect from 28 January
2015. On the same date, the Investment
Manager, with the consent of the
Company, entered into an Investment
Advisory Agreement with the Investment
Adviser to manage the assets of the
Company in accordance with the
Company’s investment policy.
The Investment Adviser is responsible
for the day-to-day management of the
Company’s portfolio and the provision
of various other management services
to the Company, subject to the
overriding supervision of the Directors.
The Directors consider that the interests
of Shareholders, as a whole, are best
served by the continued appointment
of the Investment Manager and the
Investment Adviser to achieve the
Company’s investment objectives.
Custody arrangements
The Company’s assets are held in
custody by The Bank of New York
Mellon (the “Custodian”) pursuant
to aCustody Agreement dated
27February 2015.
The Company’s assets are registered
in the name of the Custodian within a
separate account designation and may
not be appropriated by the Custodian
for its own account.
The Board conducts an annual review
of the custody arrangements as part
of its general internal control review
and is pleased to confirm that the
Company’s custody arrangements
continue to operate satisfactorily.
TheBoard also monitors the credit
rating of the Custodian, to ensure the
financial stability of the Custodian is
being maintained to acceptable levels.
Asat31 March 2022, the long-term
credit rating of the Custodian as
reported by Standard and Poor’s is
AA-(2021: AA-), which is deemed to
bean acceptablelevel.
Ongoing monthly calls are maintained
between the Custodian and the
Administrator to discuss any
performance issues that may arise.
Administrator
Administration and Company Secretarial
services are provided to the Company
by Sanne Fund Services (Guernsey)
Limited (formerly Praxis Fund Services
Limited) (the “Administrator”). The
Administrator also assists the Company
with AIFMD, Common Reporting
Standard and FATCA reporting.
A summary of the terms of appointment
of the Investment Manager, Investment
Adviser, Custodian and Administrator,
including details of applicable fees and
notice of termination periods, is set out
in note 10 to the Financial Statements.
INTERNAL CONTROL REVIEW
AND RISK MANAGEMENT
SYSTEM
The Board of Directors is responsible
for putting in place a system of internal
controls relevant to the Company
and for reviewing the effectiveness of
those systems. The review of internal
controls is an ongoing process for
identifying and evaluating the risks
faced by the Company, and which are
designed to manage risks rather than
eliminate the risk of failure to achieve
theCompany’sobjectives.
It is the responsibility of the Board to
undertake risk assessment and review
of the internal controls in the context
of the Company’s objectives that
cover business strategy, operational,
compliance and financial risks facing
the Company. These internal controls
are implemented by the Company’s four
main service providers, the Investment
Adviser, the Investment Manager,
the Administrator and the Custodian.
The Board receives periodic updates
from these main service providers at
the quarterly Board meetings of the
Company. The Board is satisfied that
each service provider has effective
systems in place to control the
risks associated with the services
that they are contracted to provide
to the Company and are therefore
satisfied with the internal controls
oftheCompany.
The Board of Directors considers
the arrangements for the provision
of Investment Advisory, Investment
Management, Administration and
Custody services to the Company on
an ongoing basis and a formal review
is conducted annually. As part of this
review the Board considered the quality
of the personnel assigned to handle
the Company’s affairs, the investment
process and the results achieved
todate.
68
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
The Company has established a
Management Engagement Committee
with formally delegated duties and
responsibilities within written terms of
reference (which are available from the
Company’s website).
CHAIR AND MEMBERSHIP
Until 31 December 2021, the
Management Engagement Committee
comprised Jan Pethick, Jon Bridel,
Robert Jennings, Sandra Platts and
(with effect from 4 August 2021) Sarika
Patel, and was chaired by Jan Pethick.
With effect from 1 January 2022, the
Committee comprises Jan Pethick,
Robert Jennings, Sandra Platts and
Sarika Patel, and is chaired by Jan
Pethick. The Committee meets at least
once annually.
The Committee is responsible for
the regular review of the terms of the
Investment Advisory and Investment
Management Agreements, along with
the performance of the Administrator,
Investment Adviser and the Investment
Manager and the Fund’s other key
service providers. The membership
of the Committee and its terms of
reference are kept under review.
DUTIES
Through the Committee, the Directors
continually monitor the performance
and the continued appointment of all
key service providers and a formal,
detailed assessment of the performance
and the terms of engagement of the
Company’s key service providers
is undertaken on at least an annual
basis to ensure each remains fair and
reasonable. This annual review process
includes two-way feedback, which
provides the Board with an opportunity
to understand the views, experiences
and any significant issues encountered
by service providers during the year. In
addition, the Management Engagement
Committee is actively involved reviewing
the contractual relationship with
the Investment Adviser, scrutinising
their performance and ensuring the
contractual terms remain aligned with
the objectives of the Company and
the interests of Shareholders. This
includes reviewing the overall basis
of remuneration for the Investment
Adviser, particularly to ensure it does
not encourage excessive risk taking,
but rewards demonstrable superior
performance and continues to motivate
and incentivise the level of performance
expected of the Investment Adviser.
The Directors recognise the importance
of maintaining strong and effective
business relationships with the
Company’s operational counterparties
and that high quality interaction with
these stakeholders is an important
success factor for delivering the Board’s
strategy. The annual performance
assessment conducted by the
Management Engagement Committee
seeks to ensure that:
• the terms of engagement remain fair
and reasonable and reflective of the
services performed in the context of
the nature, scale and complexity of
the Company;
• strong congruence exists between
the objectives of the counterparty
and those of the Company;
• they have not been the subject of any
adverse event which may present
additional risk to the Company;
• they remain appropriately
incentivised to perform their duties to
a high standard; and
• their continued engagement remains
in the best interests of the Company
as a whole.
The Committee is responsible for the
regular review of the performance of
the Company’s key service providers.
Report of the Management
Engagement Committee
AUDIT, RISK AND INTERNAL CONTROL
JAN PETHICK
Management Engagement
Committee Chair
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
69
MAIN ACTIVITIES DURING
THE YEAR
Although the investment portfolio
demonstrated exceptional resilience
during the pandemic-related market
volatility, ensuring the employment
of effective and robust borrower
monitoring and credit oversight
procedures remained crucial in
anticipating and mitigating the impact of
credit events to the Investment Adviser’s
resource. As reported in the last Annual
Report, following the last financial year
end a redirection of resources from
origination to enhanced credit and
portfolio monitoring was instigated
by the Board and, whilst conditions
during the current year supported the
resumption of new loan origination,
key focus areas for the Management
Engagement Committee during the year
included:
• reviewing the performance of the
Custodian;
• reviewing the level of remuneration
payable to the Subsidiary
Administrator;
• reviewing the performance of the
Administrator, in particular whether
there had been any effect on service
levels following the acquisition of the
Administrator by Sanne Group plc;
• reviewing the performance of the
Broker; and
• reviewing the performance of the
Investment Manager.
The Committee is pleased by the
progress made by the Investment
Adviser in continuing to strengthen
its investment analysis team and risk
management function. Whilst the
resources available to the Investment
Adviser remains a key area of focus, the
Management Engagement Committee
is confident that the disciplines
developed during their recent growth
stage will support the Investment
Adviser’s management framework as
their business achieves greater scale.
We were also particularly impressed
by the commitment demonstrated by
the Investment Adviser to furthering
the Board’s aspirations towards carbon
neutrality and their comprehensive
implementation of the Company’s
ESG policy throughout the investment
portfolio. In promoting the Company’s
strategic position on climate change,
the Management Engagement
Committee was pleased to receive
responses to the Company’s carbon
enquiry letters issued in early 2021
confirming that the majority of the
Company’s key suppliers were either
actively measuring and taking steps
to reduce their Scope 1, Scope 2 and
Scope 3 emissions, or were advanced
on their journey towards designing a
carbon reduction framework.
SERVICE PROVIDER
PERFORMANCE
ASSESSMENT
During the Management Engagement
Committee’s annual performance
evaluation of all key service providers
in March 2022, additional feedback
was received on the quality of service
and the effectiveness of the working
relationships with each supplier.
Nomaterial actions arose as a
resultofthe review.
Recognising the supplementary
guidance issued by the AIC in 2019
which suggested various measures
by which investment companies may
assess the relationship with portfolio
managers, the service provider
performance appraisal process
undertaken in March 2022 included
an enhanced qualitative assessment
of the performance and contractual
relationship with Sequoia Investment
Management Company Limited.
The feedback from this assessment
reaffirmed the view that the Investment
Adviser was highly experienced in the
markets relevant to the Company’s
activities, the contractual terms were
reflective of market practice and there
existed a high level of congruence
between the duties of the Investment
Adviser and the objectives of the
Company.
The Management Engagement
Committee remains satisfied with the
overall level of performance of the
Investment Adviser. Currently the Board
does not consider it necessary to
obtain an independent appraisal of the
Investment Adviser’s services and the
continued retention of the Investment
Adviser’s services is considered to be in
Shareholders’ best interests.
JAN PETHICK
Management Engagement
Committee Chair
8 July 2022
70
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
SARIKA PATEL
Audit Committee Chair
The Company has established an Audit
Committee with formally delegated
duties and responsibilities within written
terms of reference (which are available
from the Company Secretary).
CHAIR AND MEMBERSHIP
Until 31 December 2021, the Audit
Committee comprised Sandra Platts,
Jon Bridel, Jan Pethick, Robert
Jennings and (with effect from
4August 2021) Sarika Patel, and was
chaired by Sandra Platts. With effect
from 1 January 2022, the Committee
comprises Sarika Patel, Sandra Platts,
James Stewart and Tim Drayson, and is
chaired by Sarika Patel. The Committee
meets at least three times a year. The
Company considers that the Audit
Committee members have sufficient
relevant sector experience to enable
the Committee to discharge its duties
effectively.
All members of the Committee are
independent Directors; have no present
links with Grant Thornton Limited, the
Company’s Auditor (the “Auditor” or
“Grant Thornton”); and are independent
of the Investment Manager and
Investment Adviser. Themembership
of the Audit Committee and its terms
of reference are kept under review.
Therelevant qualifications and
experience of each member of the
AuditCommittee are detailed on pages
58 to 59 of these Financial Statements.
The Audit Committee’s intention is
to meet three times a year in any full
year and to meet with the Auditor as
appropriate.
DUTIES
The Audit Committee’s main role and
responsibility is to provide advice to the
Board on whether the Annual Report
and Audited Financial Statements,
taken as a whole, are fair, balanced
and understandable and provide the
information necessary for Shareholders
to assess the Company’s performance,
business model and strategy. The Audit
Committee gives full consideration and
recommendation to the Board for the
approval of the contents of the interim
and annual Financial Statements of the
Company, which includes reviewing the
Auditor’s report.
The other principal duties of the
Committee are to consider the
appointment of the Auditor; to discuss
and agree with the Auditor the nature
and scope of the audit; to keep
under review the scope, results and
effectiveness of the audit and the
independence and objectivity of the
Auditor; and to review the Auditor’s
letter of engagement, planning report
for the financial period and management
letter, as applicable.
The Audit Committee is responsible
for monitoring the financial reporting
process and the effectiveness of the
Company’s internal control and risk
management systems. The Audit
Committee also focuses particularly on
compliance with legal requirements,
accounting standards and the relevant
Listing Rules and ensuring that an
effective system of internal financial
control is maintained.
The Audit Committee also reviews,
considers and, if appropriate,
recommends for the purposes of the
Company’s Financial Statements the
valuations prepared by the Investment
Manager and Investment Adviser. These
valuations are the most critical element
in the Company’s Financial Statements
and the Audit Committee considers
them carefully.
FINANCIAL REPORTING
ANDAUDIT
The Audit Committee has an active
involvement and oversight in the
preparation of both the interim and
annual Financial Statements and
in doing so is responsible for the
identification and monitoring of the
significant issues relating to the
Financial Statements and other risks
and uncertainties identified by the
Board. The key issue identified in
the preparation of these Financial
Statements is the valuation of the
Company’s investment in Sequoia
IDFAsset Holdings S.A., its subsidiary
company (the “Subsidiary”), which holds
all of the underlying investments.
The Company’s investment in
the Subsidiary had a fair value of
£1,770,022,999 as at 31 March 2022
(2021: £1,730,455,551), representing a
substantial proportion of the net assets
of the Company, and as such is the
biggest factor in relation to the accuracy
of the Financial Statements.
The Committee is responsible for
monitoring the effectiveness of
the Company’s financial reporting
process and internal controls.
AUDIT, RISK AND INTERNAL CONTROL
Report of the Audit Committee
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
71
PwC was engaged as Valuation
Agent throughout the year and
was responsible for carrying out
a fair market valuation review of
the Subsidiary’s investments on a
monthly basis. Draft pricing for the
Subsidiary’s investments is provided
by the Investment Adviser to the
Valuation Agent, who in turn produces
a final valuation report for review
by the Investment Adviser and the
Investment Manager. The responsibility
for establishing the valuation of the
Subsidiary’s investments rests with the
Investment Manager, subject to final
approval by the Board. This report is
then submitted to TMF Luxembourg
S.A. (the “Sub-Administrator”), for
inclusion in the Subsidiary’s NAV.
The Audit Committee has regular
dialogue with the Investment
Manager and Investment Adviser
regarding the methods of valuation
used. It reviews and may challenge
their methodologies, controls and
processes of valuation used to value
the Subsidiary’s investments. The
Audit Committee regularly reviews the
valuations prepared by the Investment
Adviser for investments where market
prices are not readily available. At the
year end these represented 79.2%
(2021: 74.6%) of total investments.
Where appropriate, these valuations
are scrutinised and compared against
valuations of investments with similar
characteristics or subject to a sensitivity
analysis based on changes in key
assumptions. TheAudit Committee
has also considered the Auditor’s
approach to their audit of the valuation
of the Subsidiary’s investments and
discussed with the Auditor their
approach to testing the appropriateness
and robustness of the valuation
methodologies applied. The Auditor has
not reported any significant differences
between the valuations used and the
results of the work performed during
their testing process.
Based on the review and analysis
described above, the Audit Committee
is satisfied that, as at 31 March 2022,
the fair values of the Subsidiary’s
investments are reasonable. As a result,
the Audit Committee is satisfied that
as at 31 March 2022, as stated in the
Financial Statements, the fair value
of the Company’s investment in the
Subsidiary is reasonable.
The Audit Committee reviewed the
Company’s accounting policies applied
in the preparation of the annual Financial
Statements, together with the relevant
critical judgements, estimates and
assumptions made by the Board and,
having discussed matters with the
Auditor, determined that these were in
compliance with International Financial
Reporting Standards (“IFRS”) as issued
by the IASB and were reasonable. The
Audit Committee reviewed the materiality
levels applied by the Auditor to the
Financial Statements as a whole and was
satisfied that these materiality levels were
appropriate. The Auditor reports to the
Audit Committee all material corrected
and uncorrected differences. The Auditor
explained the results of their audit and
that on the basis of their audit work,
there were no adjustments proposed
that were material in the context of the
Financial Statements as a whole.
The Audit Committee also reviews
the Company’s financial reports as
a whole to ensure that such reports
appropriately describe the Company’s
activities and that all statements
contained in such reports are consistent
with the Company’s financial results
and projections. Accordingly, the
Audit Committee was able to advise
the Board that the Annual Report and
Audited Financial Statements are fair,
balanced and understandable and
provide the information necessary for
Shareholders to assess the Company’s
performance, business model, financial
position and strategy.
EXTERNAL AUDITOR
The Audit Committee has responsibility
for making a recommendation on
the appointment, reappointment or
removal of the Auditor. During the year,
recognising the benefits of periodically
reviewing the role of external Auditor,
the Board decided that the audit of
the Company should be put out to
tender. Following the completion of
the formal tender process, the Board,
on the advice of the Audit Committee,
approved the appointment of Grant
Thornton as the Company’s external
Auditor with effect from the financial
year ending 31 March 2022, subject
to approval by Shareholders at the
Company’s 2022 AGM. KPMG,
whohad served as Auditor of the
Company for six years, resigned on
7December 2021.
During the year, the Audit Committee
received and reviewed the audit plan
and report from Grant Thornton.
To assess the effectiveness of the
Auditor, the Audit Committee reviewed:
• the Auditor’s fulfilment of the agreed
audit plan and variations from it, if
any;
• the Auditor’s assessment of its
objectivity and independence as
auditor of the Company;
• the Auditor’s report to the Audit
Committee highlighting their
significant areas of focus in the
conduct of their audit and findings
thereon that arose during the course
of the audit; and
• feedback from the Investment
Manager, Investment Adviser
and Administrator evaluating the
performance of the audit team.
For the year ended 31 March 2022,
the Audit Committee was satisfied that
there had been appropriate focus and
challenge on the primary areas of audit
risk and assessed the quality of the
audit process as good.
Where non-audit services are to be
provided to the Company by the
Auditor, full consideration of the
financial and other implications on the
independence of the Auditor arising
from any such engagement will be
considered before proceeding. All
non-audit services are pre-approved
by the Audit Committee if it is satisfied
that relevant safeguards are in place
to protect the Auditor’s objectivity and
independence.
To fulfil its responsibility regarding the
independence of the Auditor, the Audit
Committee considered:
• a report from the Auditor describing
its arrangements to identify, report
and manage any conflicts of interest;
and
• the extent of non-audit services
provided by the Auditor.
During the year ended 31 March 2022,
no non-audit services were provided
by Grant Thornton. Non-audit services
were provided by KPMG in relation to
the interim review and an assurance
report on the Company’s ESG scoring
framework.
72
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
AUDIT, RISK AND INTERNAL CONTROL
Report of the Audit Committeecontinued
EXTERNAL AUDITOR CONTINUED
The following table summarises the remuneration paid to Grant Thornton and KPMG and to other member firms of the current
and previous Auditors for audit and non-audit services.
For the
year ended
31 March 2022
£
For the
year ended
31 March 2021
£
Annual audit of the Company – Grant Thornton 145,450 —
Annual audit of the Company – KPMG — 149,10 0
Annual audit of the Subsidiary – Grant Thornton 57,550 —
Annual audit of the Subsidiary – KPMG — 31,380
Interim review of the Company – KPMG 32,500 29,500
235,500 209,980
ESG assurance report – KPMG LLP 40,800 38,000
INTERNAL CONTROLS
As the Company’s investment objective
is to invest all of its assets into the
Subsidiary, the Audit Committee,
after consultationwith the Investment
Manager, Investment Adviser and
Auditor, considers the key risk
of misstatement in its Financial
Statements to be the valuation of its
investment in the Subsidiary, but is
also mindful of the risk of the override
of controls by its service providers, the
Investment Manager, the Investment
Adviser, the Administrator and the
Sub-Administrator.
The Investment Manager, Investment
Adviser and Administrator together
maintain a system of internal control
on which they report to the Board.
TheBoard has reviewed the need for an
internal audit function and has decided
that the systems and procedures
employed by the Investment Manager,
Investment Adviser and Administrator
provide sufficient assurance that a
sound system of risk management
and internal control, which safeguards
Shareholders’ investment and the
Company’s assets, is maintained.
Aninternal audit function specific to
the Company is thereforeconsidered
unnecessary.
The Audit Committee is responsible
for reviewing and monitoring the
effectiveness of the internal financial
control systems and risk management
systems on which the Company is
reliant. These systems are designed to
ensure proper accounting records are
maintained, that the financial information
on which business decisions are made
and which is used in publications is
reliable, and that the assets of the
Company are safeguarded. Such a
system of internal financial controls
can only provide reasonable and
not absolute assurance against
misstatement or loss.
In accordance with the “Guidance on
Risk Management, Internal Control
and Related Financial and Business
Reporting” published by the Financial
Reporting Council (the “FRC”) in
September 2014, which integrated
the earlier guidance of the Turnbull
Report, the Audit Committee has
reviewed the Company’s internal control
procedures. These internal controls are
implemented by the Company’s four
main service providers, the Investment
Manager, the Investment Adviser,
the Administrator and the Custodian.
The Audit Committee has performed
reviews of the internal financial control
systems and risk management systems
during the year. The Audit Committee
is satisfied with the internal financial
control systems of the Company.
SARIKA PATEL
Audit Committee Chair
8 July 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
73
Until 30 March 2022, the Company
had a separate Remuneration
Committee and Nomination
Committee, eachcomprising Robert
Jennings, Sandra Platts, Jan Pethick,
Jon Bridel and (with effect from
4 August 2021) Sarika Patel. The
Remuneration Committee was chaired
by SandraPlatts and the Nomination
Committee by Robert Jennings.
Witheffect from 30 March 2022,
the two committees were merged
to form a combined Remuneration
and Nomination Committee (the
“Committee”), which comprises
Sandra Platts, Robert Jennings
and James Stewart, and is chaired
bySandraPlatts.
The Committee operates within clearly
defined terms of reference which are
considered and are then referred to
the Board for approval. A copy of the
terms of reference is available on the
Company’s website or upon request
from the Company Secretary.
The main roles and responsibilities
of the Remuneration and Nomination
Committee are to:
• consider the remuneration of
the Directors and determine the
Company’s remuneration policy;
• regularly review the structure, size
and composition of the Board and
make recommendations to the Board
with regard toany changes;
• give full consideration to succession
planning for Directors, taking
into account the challenges and
opportunities facing the Company
and the skills and expertise needed
on the Board in the future; and
• lead the process for appointments
and be responsible for identifying
and nominating, for the approval of
the Board, candidates to fill Board
vacancies as and when they arise.
The Remuneration and Nomination
Committee reports formally to the
Board on its proceedings on all matters
within its duties and responsibilities
and on how it has discharged its
responsibilities. The Committee meets
at least once per year and at such other
times throughout the year as required.
All members of the Board have the
right to attend Committee meetings.
However, other individuals and external
advisers may be invited to attend for
all or part of any meeting, as and when
appropriate and necessary.
Three new Directors join the
Boardas part of the Company’s
succession planning.
REMUNERATION, COMPOSITION AND SUCCESSION
Report of the Remuneration and
Nomination Committee
SANDRA PLATTS
Remuneration and Nomination
Committee Chair
74
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
REMUNERATION, COMPOSITION AND SUCCESSION
Report of the Remuneration and
Nomination Committee
continued
The Remuneration and Nomination
Committee met once during the
financial year and the former Nomination
Committee met twice during the
financial year. The principal matters
considered at these meetings included,
but were not limited to:
• the remuneration of the Directors and
the Company’s remuneration policy;
• the increase of the cap on Directors’
remuneration;
• consideration of potential
candidates for Board succession
and recommendation to the Board,
cognisant of the Company’s aim
of broadening the diversity of
theBoard;
• the findings of the Board evaluation
concerning the size, structure and
composition of the Board and the
appropriateness of the current mix of
skills, knowledge and experience for
its current activities;
• how effectively members of the
Board work together to achieve
theirobjectives;
• the Company’s policy on diversity,
ensuring this remained aligned
with the Company’s strategy
andobjectives;
• Director succession planning, with
reference to the Board’s skills matrix
and giving full consideration to the
expected future leadership needs
ofthe Company;
• the time requirements and
independence of Directors; and
• consideration and agreement of the
terms of reference of the Committee
for approval by the Board.
Following the Committee’s review during
the prior year of the size, structure,
composition and effectiveness of
the Board, and conclusion that there
was a need to broaden the diversity
of the Board, a search process was
undertaken to identify potential
candidates for Board succession.
The Committee was pleased by the
list of very high calibre candidates
produced from this process and was
delighted to be able to announce the
appointments of Sarika Patel (with effect
from 4 August 2021), James Stewart
and Tim Drayson (both with effect
from 1 January 2022) to the Board.
Biographies of all three individuals
canbe found on pages 58 to 59.
The Committee continues to maintain
and develop the Board’s succession
planning arrangements to ensure the
arrangements remain effective, and
that a diverse pipeline for succession
is maintained which remains aligned
with the Company’s strategy and future
leadership needs.
For details of the Directors’
remuneration for the year, please refer
to the Directors’ remuneration report on
pages 75 to 76.
SANDRA PLATTS
Remuneration and Nomination
Committee Chair
8 July 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
75
The Company’s policy in regard to Directors’ remuneration is to ensure that the Company maintains a transparent and
competitive fee structure in order to recruit, retain and motivate non-executive Directors of excellent quality in the overall
interests of Shareholders and the long-term success of the Company.
No element of the Directors’ remuneration is performance related, nor does any Director have any entitlement to pensions,
share options or any long-term incentive plans from the Company.
The Directors received the following remuneration in the form of Directors’ fees during the year:
Year ended
31 March 2022
Actual
£
Year ended
31 March 2021
Actual
£
Robert Jennings (Chair of the Board and of the Nomination Committee until
31 December 2021)
75,000 75,000
Jan Pethick (Chair of the Management Engagement Committee) 54,300 54,300
Jon Bridel (Chair of the Risk Committee) 54,300 54,300
Sandra Platts (Senior Independent Director, Chair of the Audit Committee
until 31 December 2021, Chair of the Remuneration Committee until 31 December 2021,
Chair of the Remuneration and Nomination Committee with effect from 1 January 2022)
61,075 62,000
Sarika Patel (appointed 4 August 2021, Chair of the Audit Committee with effect from
1January 2022)
34,500 —
Tim Drayson (appointed 1 January 2022) 12,000 —
James Stewart (appointed 1 January 2022) 12,000 —
Total 303,175 245,600
Directors’ remuneration remains
largely unchanged.
REMUNERATION
Directors’ remuneration report
SANDRA PLATTS
Remuneration and Nomination
Committee Chair
76
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
REMUNERATION
Directors’ remuneration report continued
In March 2022, the Directors
determined that their remuneration
packages should remain largely
unchanged for the current time and that
a further review of remuneration levels
would be conducted later in the year.
Robert Jennings is entitled to a fee of
£75,000 per annum (2021: £75,000 per
annum) in remuneration for his services
as Chair of the Board of Directors
(remaining at £75,000 per annum with
effect from 1 April 2022). The remaining
Directors are entitled to a basic fee
of £48,000 each per annum (2021:
£48,000 per annum) in remuneration
fortheir services as Directors (remaining
at £48,000 per annum with effect from
1April 2022).
Jan Pethick and Jon Bridel are each
entitled to a fee of £6,300 per annum
(2021: £6,300 per annum) in respect of
their roles as Chair of the Management
Engagement Committee and Chair
of the Risk Committee respectively
(remaining at £6,300 per annum with
effect from 1 April 2022).
Sandra Platts was entitled to a fee
of£10,000 per annum (2021: £10,000
per annum) in respect of her role as
Chair of the Audit Committee until
31December 2021, to a fee of £6,300
per annum (2021: £nil) with effect
from 1 January 2022 in respect of
her role as Chair of the Remuneration
Committee until 30 March 2022 and
of the combined Remuneration and
Nomination Committee with effect
from 30March2022 (remaining at
£6,300 perannum with effect from
1 April2022), and to a fee of £4,000
per annum (2021: £4,000 per annum)
for serving as the Senior Independent
Director (remaining at £4,000 per
annum with effect from 1April 2022).
Sarika Patel was appointed as a
Director with effect from 4 August 2021,
and is entitled to a fee of £10,000 per
annum in respect of her role as Chair
of the Audit Committee with effect
from 1January 2022 (remaining at
£10,000 per annum with effect from
1April2022).
Tim Drayson and James Stewart
wereappointed as Directors with effect
from 1 January 2022. With effect from
1April2022, James Stewart is entitled
to a fee of £6,300 per annum in respect
of his role as Chair of the newly-formed
ESG and Stakeholder Engagement
Committee.
With effect from 1 April 2022,all
Directors have committed to
contributing 1% of their fees to support
the Company’s carbon offsetting
initiatives.
Directors’ and officers’ liability insurance
cover is maintained by the Company on
behalf of the Directors.
Robert Jennings, Jan Pethick,
Jon Bridel and Sandra Platts were
appointed as non-executive Directors
by letters issued on 6 January 2015,
and subsequently revised on 1 July
2019. Sarika Patel was appointed as
a non-executive Director with effect
from 4 August 2021. Tim Drayson and
James Stewart were appointed as
non-executive Directors with effect from
1January2022.
Each Director’s appointment letter
provides that, upon the termination of
their appointment, they must resign
in writing and all records remain
the property of the Company. The
Directors’ appointments can be
terminated in accordance with the
Articles and without compensation.
The notice period for the removal of
Directors is two months, as specified
in the Director’s appointment letter.
The Articles provide that the office of
director shall be terminated by, among
other things: (a) written resignation;
(b) unauthorised absences from Board
meetings for 12 months or more;
(c) unanimous written request of the
other Directors; and (d) an ordinary
resolution of the Company.
Under the terms of their appointment,
each Director was subject to re-election
at the first AGM and annually thereafter.
The Company may terminate the
appointment of a Director immediately
on serving written notice and no
compensation is payable upon
termination of office as a Director of
theCompany becoming effective.
The amounts payable to Directors as
at 31 March 2022 are shown in note 10
to the Financial Statements and related
to services provided as non-executive
Directors. No Director has a service
contract with the Company, nor are any
such contracts proposed.
SANDRA PLATTS
Remuneration and Nomination
Committee Chair
8 July 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
77
The Directors of Sequoia Economic Infrastructure Income Fund Limited (the “Company”) are pleased to submit their Annual
Report and the Audited Financial Statements (the “Financial Statements”) for the year ended 31 March 2022.
RESULTS AND DIVIDENDS
The results for the year are shown in the Statement of Comprehensive Income on page 92.
The Directors have declared and paid dividends of £110,340,625 during the year ended 31 March 2022 (2021: £103,483,330).
Further details of dividends declared or paid are detailed in note 4 to the Financial Statements.
The Company’s dividend policy, in the absence of any significant restricting factors, is to pay dividends totalling 6.25p per
Ordinary Share per annum for the foreseeable future. This policy was reaffirmed by the Company on 30 March 2022 for the
financial year ended 31 March 2023. The Company pays dividends on a quarterly basis.
INDEPENDENT AUDITOR
KPMG Channel Islands Limited was appointed as Auditor on 28 January 2015 and resigned on 7 December 2021. Grant
Thornton Limited was appointed as Auditor on 7 December 2021 and a resolution to reappoint Grant Thornton Limited as
Auditor will be put to the forthcoming AGM.
DIRECTORS AND DIRECTORS’ INTERESTS
The Directors who served during the year, all of whom are independent and non-executive, are listed on 58 to 59.
As at 31 March 2022, the Directors had the following interests in the shares of the Company:
As at 31 March 2022 As at 31 March 2021
Name
Number of
Ordinary Shares
Percentage of
Ordinary Shares
in issue
Number of
Ordinary Shares
Percentage of
Ordinary Shares in
issue
Robert Jennings (Chair) (with other members of his family) 242,666 0.01% 242,666 0.01%
Jan Pethick (with his spouse) 263,820 0.01% 263,820 0.01%
Jon Bridel (held by a connected party) 30,000 0.00% 10,452 0.00%
Sandra Platts (in a family RATS) 27,953 0.00% 26,776 0.00%
Sarika Patel 5,000 0.00% N/A N/A
Tim Drayson 39,000 0.00% N/A N/A
On 25 April 2022, James Stewart’s spouse acquired 10,000 shares in the Company.
Directors’ report
78
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Directors’ report continued
GOING CONCERN
The Directors have reviewed the
Company’s holdings in cash and
cash equivalents and investments,
including a consideration of the
revaluation losses arising on certain
investments as a result of the COVID-19
pandemic and the market uncertainty
relating to the Ukraine-Russia war.
In conducting this review, the Board
has also assessed the Company’s
cash flows for the next 12 months
andconsidered the sustainability of the
environmental and social impact of the
Company’s activities. Partly as a result
of the Company’s large capital raise
in early March 2020, its balance sheet
was exceptionally strong when the
consequences of COVID-19 impacted
on financial markets, with a very low
level of gearing. The balance sheet
was further strengthened by another
capital raise in March 2021. Moreover,
the mark-to-market losses that were
incurred at the 2020 year end – which
have continued to reverse as the
investments mature and their valuations
accrete to par – were unrealised, and
therefore have no direct effect on the
solvency of the business. The risk of
realised losses arising through loans
defaulting is limited to a few specific
investments, representing a small
proportion of the Company’s investment
portfolio. The Directors also note
that the reduction in the level of cash
income during the prior year, resulting
from the impact of COVID-19 and an
oil supply glut on certain of the Fund’s
investments, has largely reversed
during the current year as several
borrowers who had been permitted to
capitalise interest during the COVID-19
pandemic have resumed paying cash
interest. Theinterest income cash
flow of the Fund remains sufficient to
cover operating costs and to pay the
Company’s target dividend.
As a result of this review, the Directors
have concluded that it is appropriate
to adopt the going concern basis in
preparing the Financial Statements
as the Company, despite the ongoing
effects of the COVID-19 pandemic
and the effects of the ongoing
Ukraine-Russia war, has a strong
balance sheet and adequate financial
resources to meet its liabilities as they
fall due.
VIABILIT Y STATEMENT
The Directors have carried out a
robustassessment of the viability of the
Company over a five-year period to May
2027, taking account of the Company’s
current position and the potential
impact of the principal and emerging
risks outlined in this statement.
In making this statement, the Directors
have considered the resilience of
the Company, taking into account
its current position, the principal and
emerging risks facing the Company
in severe but reasonable scenarios
and the effectiveness of any mitigating
actions. This assessment has
considered the potential impacts of
these risks on the business model,
future performance, solvency and
liquidity over the period.
The Directors have determined that
the five-year period to May 2027 is
an appropriate period over which to
provide its viability statement as the
average remaining life to maturity of
the Fund’s portfolio of investments has
historically generally fallen within the
range of four to five years. In making
their assessment, the Directors have
taken into account the Company’s NAV,
net income, cash flows, dividend cover,
regulatory compliance, the outlook for
the economy and key financial ratios
over the period.
These metrics are subject to sensitivity
analysis, which involves flexing a
number of main assumptions underlying
the forecast. This analysis is carried
out to evaluate the potential impact of
the Company’s principal risks actually
occurring, primarily the following:
severe changes in macro-economic
conditions, including a 20% Sterling FX
shock, which would trigger margin calls
by the Company’s FX counterparties;
inability to refinance leverage facilities;
a 5% haircut to the portfolio’s income;
and downgrading or illiquidity of loans.
This analysis included stress-testing to
simulate the combined effects of the
2008 global financial crisis and the 2020
global COVID-19 pandemic.
The viability model also includes
projections for the continuing
deployment of capital into new
targetinvestments. These projections
amount to approximately £746 million
over the next 30 months in the base
case scenario, and to approximately
£297million in the downside scenarios,
whilst still supporting the Company’s
target dividend and meeting its
financialtargets.
The Directors have also considered
the possibility that a Continuation
Resolution, to be proposed at the
2024 AGM, may not be passed
by Shareholders. The Directors
noted the overwhelming majority
vote in favour of the Continuation
Proposals passed in May 2016,
August 2018 and August 2021, and
the strong appetite for the Company’s
investment proposition evidenced
by the successful launch in March
2015, andanumber of subsequent
significantlyover-subscribed Open
Offers and Placings, and therefore
believe that the likelihood of the
Continuation Resolution failing is low.
They also noted that the rejection of a
Continuation Proposal by Shareholders
does not necessarily oblige the
Directors to wind up theCompany.
Based on this assessment, the Directors
have a reasonable expectation that the
Company will be able to continue in
operation and meet its liabilities as they
fall due over the periodto May 2027.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
79
SUBSTANTIAL SHAREHOLDINGS
As at 31 March 2022, the Company had the following shareholding in excess of 5% of the issued share capital:
Name
Number of
Ordinary Shares Percentage
Investec Wealth & Investment 132,666,859 7.5 0 %
RELATED PARTIES
Details of transactions with related
parties are disclosed in note 10 to the
Financial Statements.
LISTING REQUIREMENTS
Since its listing on the Main Market
of the London Stock Exchange and
admission to the premium segment
of the Official List of the UK Listing
Authority, the Company has complied
with the Listing Rules, the Prospectus
Rules, the FRC Disclosure Guidance
and Transparency Rules (“DTR”),
ESMA guidance and the European
Union’s Market Abuse Regulation
(asimplemented in the UK through
the Financial Services and Markets
Act 2000 (Market Abuse) Regulations
2016). There are no matters that require
disclosure under FCA Listing Rule
9.8.4R relating to arrangements made
with a controlling shareholder, waivers
of Directors’ fees or long-term incentive
schemes in force.
FOREIGN ACCOUNT TAX
COMPLIANCE ACT
The Foreign Account Tax Compliance
Act (“FATCA”) became effective
on 1 January 2013. The legislation
is aimed at determining the
ownership of US assets in foreign
accounts and improving US tax
compliance with respect to those
assets. On13December 2013, the
States of Guernsey entered into an
intergovernmental agreement (“IGA”)
with US Treasury, in order to facilitate
the requirements of FATCA. The
Company registered with the Internal
Revenue Service (“IRS”) on 25 February
2015 as a Foreign Financial Institution
(“FFI”) and a Sponsoring Entity.
COMMON REPORTING
STANDARD
The Common Reporting Standard
(“CRS”), formerly the Standard for
Automatic Exchange of Financial
Account Information, became
effective on 1 January 2016, and is an
information standard for the automatic
exchange of information developed
by the Organisation for Economic
Co-operation and Development
(“OECD”). CRS is a measure to counter
tax evasion, and it builds upon other
information sharing legislation, such
as FATCA and the European Union
Savings Directive, and has superseded
the UK-Guernsey IGA for the Automatic
Exchange of Information with effect
from 1 January 2016. The first reporting
under CRS for Guernsey was made
during 2017.
ALTERNATIVE INVESTMENT
FUND MANAGERS DIRECTIVE
The Company is categorised as a
non-EU Alternative Investment Fund
(“AIF”). The AIFMD seeks to regulate
managers of AIFs, such as the
Company. It imposes obligations on
AIFMs who manage AIFs in a member
state of the European Economic Area
(“EEA state”), or who market shares in
AIFs to investors who are domiciled,
or with a registered office, in an EEA
state. Under the AIFMD, an AIFM must
be appointed and must comply with
various organisational, operational
andtransparency requirements.
On 28 January 2015, the Company
appointed the Investment Manager to
act as AIFM on behalf of the Company.
The Investment Manager is responsible
for fulfilling the role of the AIFM and
ensuring the Company complies with
the AIFMD requirements. Details of
the total amount of remuneration
for the financial year, split into fixed
and variable remuneration, paid by
the AIFM to its staff, and the number
of beneficiaries, are made available
to Shareholders on request to the
Investment Manager.
SHARE BUY-BACKS
When appropriate, the Directors will
consider the acquisitions of Ordinary
Shares as part of its discount control
policy, in order to address possible
imbalances in the demand and supply
of Ordinary Shares in the market.
Thiscould include when the Company’s
Ordinary Shares have traded at a
significant discount to NAV for a
prolonged period of time. Conversely,
shorter periods of market disruption
may also create an imbalance in the
demand and supply of Ordinary Shares
in the market, and the Company may
consider the use of share buy-backs to
signal the confidence it has in the value
of its underlying assets.
In advance of any share buy-backs,
the Board will consider: (i) whether
the Company is technically able to
repurchase its own shares at that
point in time (including closed period
and regulatory considerations); (ii) the
Company’s available cash resources
after supporting the dividend; (iii) the
Board’s view of the prevailing value of
the Fund’s net assets; and (iv) other
relevant circumstances. Purchases
will only be made through the market
for cash at prices below the estimated
prevailing net asset value per Ordinary
Share where the Directors believe such
purchases will result in an increase in
the NAV per Ordinary Share.
80
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Directors’ report continued
ANTI-BRIBERY
ANDCORRUPTION
The Board acknowledges that the
Company’s international operations
may give rise to possible claims of
bribery and corruption. In consideration
of The Bribery Act 2010, enacted in
the UK, at the date of this report the
Board had conducted an assessment
of the perceived risks to the Company
arising from bribery and corruption
to identify aspects of business which
may be improved to mitigate such
risks. TheBoard has adopted a
zero-tolerance policy towards bribery
and has reiterated its commitment
to carry out business fairly, honestly
andopenly.
CRIMINAL FINANCES ACT
The Board has a zero-tolerance
commitment to preventing persons
associated with it from engaging in
criminal facilitation of tax evasion
and will not work with any service
provider who does not demonstrate
the same commitment. The Board
has satisfied itself in relation to its
key service providers that they have
reasonable provisions in place to
prevent the criminal facilitation of
tax evasion by their own staff or
anyassociatedpersons.
UK MODERN SLAVERY ACT
The Board acknowledges the
requirement to provide information
about human rights in accordance with
the UK Modern Slavery Act. The Board
conducts the business of the Company
ethically and with integrity and has a
zero-tolerance policy towards modern
slavery in all its forms. As the Company
has no employees, all its Directors
are non-executive and all its functions
are outsourced, there are no further
disclosures to be made in respect of
employees and human rights.
MARKET ABUSE
The Board and relevant personnel of
the Investment Adviser and our other
advisers acknowledge and adhere to
the Market Abuse Regulation, which
was implemented on 3 July 2016.
By order of the Board
SANDRA PLATTS
Director
8 July 2022
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
81
The Directors are responsible for
preparing the Annual Report and
Financial Statements in accordance
with applicable law and regulations.
The Companies (Guernsey) Law,
2008 (the “Company law”) requires
the Directors to prepare financial
statements for each financial year.
TheDirectors have elected to prepare
the Financial Statements in accordance
with International Financial Reporting
Standards (“IFRS”) as issued by the
IASB and applicable law.
Under the Company law, the Directors
must not approve the Financial
Statements unless they are satisfied
that they give a true and fair view of the
state of affairs of the Company and its
profit or loss for that year.
In preparing these Financial Statements,
the Directors are required to:
• select suitable accounting policies
and apply them consistently;
• make judgements and estimates that
are reasonable, relevant and reliable;
• state whether applicable accounting
standards have been followed,
subject to any material departures
disclosed and explained in the
Financial Statements;
• assess the Company’s ability
tocontinue as a going concern,
disclosing, as applicable, matters
related to going concern; and
• use the going concern basis of
accounting, unless they either intend
to liquidate the Company or cease
operations, or have no realistic
alternative but to do so.
The Directors are responsible for
keeping proper accounting records that
are sufficient to show and explain the
Company’s transactions and disclose
with reasonable accuracy at any time
the financial position of the Company
and to enable them to ensure that the
Financial Statements comply with the
Company law. They are responsible for
such internal control as they determine
is necessary to enable the preparation
of financial statements that are free
from material misstatement, whether
due to fraud or error, and have general
responsibility for taking such steps
as are reasonably open to them to
safeguard the assets of the Company
and to prevent and detect fraud and
other irregularities.
The Directors are responsible for
the maintenance and integrity of the
corporate and financial information
included on the Company’s website.
Legislation in the United Kingdom
and Guernsey governing the
preparation anddissemination of
financial statements may differ from
legislationinother jurisdictions.
The Directors who hold office at the
date of approval of the Directors’ report
confirm that, so far as they are aware,
there is no relevant audit information
of which the Company’s Auditor is
unaware, and that each Director has
taken all the steps they ought to have
taken as a director to make themselves
aware of any relevant audit information
and for establishing that the Company’s
Auditor is aware of that information.
RESPONSIBILITY
STATEMENTOF THE
DIRECTORS IN RESPECT
OFTHE ANNUAL REPORT
Each of the Directors who served
during the year, who are listed on pages
58to 59, confirms to the best of their
knowledge and belief that:
• the Financial Statements, prepared
in accordance with IFRS as issued
by the IASB, give a true and fair view
of the assets, liabilities, financial
position and profit of the Company,
as required by DTR 4.1.12R; and
• the Management Report (comprising
the Chair’s statement, the Investment
Adviser’s report, the ESG report,
the strategic report, the Directors’
report and other Committee
reports) includes a fair review of the
development and performance of
the business during the year, and
the position of the Company at
the end of the year, together with
a description of the principal risks
and uncertainties that the Company
faces, as required by DTR 4.1.8R and
DTR 4.1.9 R .
The Directors consider that the Annual
Report, comprising the Financial
Statements and the Management
Report, taken as a whole, is fair,
balanced and understandable and
provides the information necessary for
Shareholders to assess the Company’s
position and performance, business
model and strategy.
SANDRA PLATTS
Director
8 July 2022
Statement of Directors’ responsibilities
82
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
OPINION
We have audited the financial
statements of Sequoia Economic
Infrastructure Income Fund Limited
(the‘Company’) for the year ended
31 March 2022 which comprise
the Statement of Comprehensive
Income, the Statement of Changes
inShareholders’ Equity, the Statement
of Financial Position, the Statement
of Cash Flows, and the related
notes 1 to 18, including asummary
ofsignificant accounting policies.
Thefinancial reporting framework that
has been applied intheir preparation
is applicable law and International
Financial Reporting Standards
(“IFRSs”) asissuedby the International
Accounting Standards Board (“IASB”).
In our opinion, the
accompanying financial
statements:
• give a true and fair view of the
stateof the Company’s affairs
as at 31 March 2022 and of the
Company’s profit for the year
thenended;
• have been properly prepared in
accordance with IFRSs as issued
byIASB; and
• have been prepared in accordance
with the Companies (Guernsey)
Law,2008.
Basis for opinion
We conducted our audit in accordance
with International Standards on Auditing
(UK) (“ISAs (UK)”) and applicable
law. Our responsibilities under those
standards are further described in the
‘Auditor’s responsibilities for the audit
of the financial statements’ section
of our report. We are independent of
the Company in accordance with the
ethical requirements that are relevant
to our audit of the financial statements
in Guernsey, including the UK FRC’s
Ethical Standard as applied to listed
public interest entities, and we have
fulfilled our other ethical responsibilities
in accordance with these requirements.
We believe that the audit evidence
we have obtained is sufficient and
appropriate to provide a basis for
ouropinion.
Conclusions relating
togoingconcern
We are responsible for concluding on
the appropriateness of the directors’
use of the going concern basis of
accounting and, based on the audit
evidence obtained, whether a material
uncertainty exists related to events or
conditions that may cast significant
doubt on the Company’s ability to
continue as a going concern. If we
conclude that a material uncertainty
exists, we are required to draw attention
in our report to the related disclosures
in the financial statements or, if such
disclosures are inadequate, to modify
the auditor’s opinion. Our conclusions
are based on the audit evidence
obtained up to the date of our report.
However, future events or conditions
may cause the Company to cease to
continue as a going concern.
Our evaluation of the directors’
assessment of the Company’s ability
to continue to adopt the going concern
basis of accounting included:
• Obtaining the 12 month going
concern assessment performed
by management, including the
assumptions and sensitivities
prepared by management.
• Challenging the appropriateness
ofmanagement’s forecasts by:
• checking the mathematical
accuracy of the cash flow
forecast;
• assessing historical forecasting
accuracy by comparing to actuals
in prior years;
• assessing the key assumptions
used in the going concern
assessment based on our
knowledge of the Company and
the current economic climate;
• challenging management’s
consideration of downside
sensitivity analysis by applying
further sensitivities to understand
the impact on liquidity including
reverse stress testing; and
• assessing whether management
has taken into account the
principal and emerging risks
noted in the annual report.
• We determined whether there is a
material uncertainty which casts
significant doubt over the ability of
the Company to continue as a going
concern; and
• We assessed the disclosures in the
financial statements relating to going
concern, to ensure they were in
compliance with IAS 1.
In our evaluation of the directors’
conclusions, we considered the inherent
risks associated with the Company’s
business model including effects arising
from macro-economic uncertainties
such as Brexit, Covid-19 and Russia’s
invasion of Ukraine, we assessed
and challenged the reasonableness
of estimates made by the directors
and the related disclosures and we
analysed how those risks might affect
theCompany’s financial resources or
ability to continue operations over the
going concern period.
Based on the work we have performed,
we have not identified any material
uncertainties relating to events
or conditions that, individually or
collectively, may cast significant doubt
on the Company’s ability to continue as
a going concern for a period of at least
twelve months from when the financial
statements are authorised for issue.
In auditing the financial statements,
we have concluded that the directors’
use of the going concern basis of
accounting in the preparation of the
financial statements is appropriate.
In relation to the Company’s reporting
on how they have applied the UK
Corporate Governance Code, we
have nothing material to add or draw
attention to in relation to the directors’
statement in the financial statements
about whether the directors considered
it appropriate to adopt the going
concern basis of accounting.
The responsibilities of the directors with
respect to going concern are described
in the ‘Responsibilities of directors for
the financial statements’ section of
thisreport.
Independent auditor’s report
to the members of Sequoia Economic Infrastructure Income Fund Limited
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
83
OUR APPROACH TO THE AUDIT
Low
Extent of management judgement
Key audit matter Significant risk Other risk
Potential
financial
statement
impact
Regulatory
and compliance
Existence of
non-derivative
and derivative
financial instruments
Going
concern
Revenue
recognition
Valuation of
derivative financial
instruments
Management
override of
control
Valuation of non-derivative
financial assets at fair value
through profit or loss
Low High
In the graph below, we have presented the key audit matters, significant risks and other risks relevant to the audit.
Overview of our audit approach
Overall materiality: £35.5 million, which represents approximately 2% of the Company’s
NetAsset Value (“NAV”) as of 31 March 2022.
Key audit matters were identified as:
• Valuation of non-derivative financial assets at fair value through profit or loss.
Our audit approach was a risk-based substantive audit focused on the investment activities
ofthe Company.
Key audit
matters
Scoping
Materiality
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most
significance in our audit of the financial statements of the current period and include the
most significant assessed risks of material misstatement (whether or not due to fraud) that
we identified. These matters included those that had the greatest effect on: the overall audit
strategy; the allocation of resources in the audit; and directing the efforts of the engagement
team. These matters were addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not provide a separate opinion
onthese matters.
Description
Audit
response
Disclosures
Our results
KAM
84
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Independent auditor’s report continued
to the members of Sequoia Economic Infrastructure Income Fund Limited
Key audit matter
Valuation of non-derivative financial assets at fairvalue through profit or loss £1,770 million
(2021:£1,730 million)
Refer to the Report of the Audit Committee on pages 49 and 50, Note 2 (Non-Derivative financial instruments – fair value
and subsequent measurement), Note 3 (Use of Judgements and Estimates), Note 5 (Financial Risk Management) and Note 6
(Non-derivative financial assets at fair value through profit or loss).
The Company’s investment in Sequoia IDF Asset Holdings S.A. (the “Subsidiary”) is carried at fair value through profit
or loss and represents the most significant proportion of the Company’s net asset value (“NAV”). The fair value of the
Subsidiary reflects its NAV, of which the most significant component is its underlying portfolio of senior and subordinated
economic infrastructure debt and equity investments, loans, bonds and unlisted equity (together, the “Portfolio”).
The underlying Loans and Bonds are primarily valued using market prices obtained from third-party broker quotes and
pricing from syndicate desks. Where such market information is not externally available, the valuations are based on yields
derived from comparable loans and bonds taking into consideration the instrument’s project type and structural and credit
characteristics.
The underlying Unlisted Equity is fair valued principally onadiscounted cash flow basis.
The Company engages a third-party valuation expert (the“Valuation Agent”) to perform a fair market valuation review of
thePortfolio.
The valuation of the Portfolio involves complexity and subjective management judgements and estimates. The magnitude of
the amounts involved means that there is the potential for material misstatement giving rise to a higher risk of misstatement
requiring special audit consideration.
Since the main driver of the Company’s net asset value is the valuation of the Portfolio, this is the area of focus for
stakeholders and a significant audit risk area, and accordingly, this has been reported as a key audit matter.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
85
How our scope addressed the matter
In responding to the key audit matter, we performed the following audit procedures:
• we obtained an understanding of the processes, policies and methodologies, and controls in relation to the
valuationandmeasurement of investments and performed walkthrough tests to assess the design and implementation
ofkeycontrols;
• we assessed whether the 31 March 2022 NAV of the Subsidiary was representative of fair value and agreed significant
inputs of the Subsidiary’s 31 March 2022 NAV to supporting documentation;
• we evaluated the appropriateness of the valuation methodology under IFRS and whether fair value disclosures in the
financial statements are appropriate, complete and in accordance with the requirements ofIFRS;
• for all level 3 investments our procedures included:
• obtaining and inspecting the valuation models of the underlying Portfolio;
• performing detailed testing on a sample of valuation models, testing significant inputs such as the contractual terms,
credit ratings and cash flow projections and agreeing it to supporting evidence; and
• engaging our internal valuation experts to assist us in assessing and analysing the valuation report and the
methodologies and key assumptions used by the Valuation Agent by:
• assessing the scope, competence, capability and objectivity of the Valuation Agent;
• determining whether the valuation methodologies used are consistent with methods usually used by market
participants for similar types of instruments;
• holding discussions with the Investment Adviser and the Valuation Agent to understand how the underlying assets
performed relative to the assumptions underpinning their models and to identify credit and operational issues,
ifany, that may have impacted the valuation of the Portfolio;
• using our internal valuation expert’s knowledge of the market to assess, challenge and corroborate management’s
valuation by reference to prices from pricing vendors, or where the pricing information was not available, deriving
an independent mark-to-market valuation based oninputs for comparable instruments with similar structural and
credit characteristics;
• determining if the key assumptions used in the valuations are reasonable and that the fair value of investments has
been appropriately calculated; and
• testing key inputs/data (risk free rate, comparable bond margins and credit spread) used in the calculation of the
fair value of the Portfolio by verifying the data to third-party sources.
• for non-performing loans our procedures included:
• agreeing contractual terms such as coupon and repayment terms to supporting documentation;
• comparing expected interest receipts to actual cash received and evaluated the Investment Advisor’s credit
memorandums to assess whether there have been specific credit events which would impact the fair value of
theinvestment;
• recalculating the underlying loan to value (LTV) and testing compliance with other covenants as at the year end; and
• performing research using publically available information to assess management’s information andidentify any
contradictory evidence.
• for all loans classified as level 2 our procedures included:
• for level 2 loans valued using information available in the market, we independently obtained prices from Bloomberg
andThompson Reuters or other pricing vendors and compared it to the prices within the valuation model; and
• for level 2 loans valued by management’s expert, we, with the assistance of our internal valuation expert, derived an
independent mark-to-model valuation based on market inputs for comparable instruments with similar structural and
credit characteristics.
Our results
We have not identified any matters to report to those charged with governance in relation to the fair value measurement of
non-derivative financial assets at fair valuethrough profit or loss.
86
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Independent auditor’s report continued
to the members of Sequoia Economic Infrastructure Income Fund Limited
OUR APPLICATION OF MATERIALITY
We apply the concept of materiality both in planning and performing the audit, and in evaluating the effect of identified
misstatements on the audit and of uncorrected misstatements, if any, on the financial statements and in forming the opinion in
the auditor’s report.
Materiality was determined as follows:
Materiality measure Company
Materiality for financial statements
asawhole
We define materiality as the magnitude of misstatement in the financial
statements that individually or in the aggregate, could reasonably be
expected to influence the economic decisions of the users of these
financial statements. We use materiality in determining the nature,
timingand extent of our audit work.
Materiality threshold £35.54 million, which represents approximately 2% of the Company’s NAV
as of 31 March 2022.
Significant judgements made by the
auditor in determining the materiality
In determining materiality, we made the following significant judgements:
• NAV was considered the most appropriate benchmark as the
Company’s primary performance measures for internal and external
reporting are based on NAV; and
• Our materiality threshold was set at the lower end of our acceptable
range due to the Company being a public interest entity and in line with
our methodology.
Performance materiality is used to
drive the extent of our testing
We set performance materiality at an amount less than materiality for
the financial statements as a whole to reduce to an appropriately low
level the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality for the financial statements as a whole.
Performance materiality threshold £21.3 million which is 60% of financial statement materiality.
Significant judgements made by the
auditor in determining the performance
materiality
In determining performance materiality we made the following
significantjudgements:
Performance materiality be set at 60% of materiality as this is an initial audit
and we have no prior experience and we therefore determined itprudent to
use 60%
Significant revision of performance
materiality threshold that was made as the
audit progressed
No significant revisions were made to the performance materiality threshold
during the audit.
Specific materiality We determine specific materiality for one or more particular classes of
transactions, account balances or disclosures for which misstatements
of lesser amounts than materiality for the financial statements as a whole
could reasonably be expected to influence the economic decisions of users
taken on the basis of the financial statements.
Specific materiality We determine a lower specific a materiality for the following areas:
Related party transactions, including Directors remuneration and related
disclosures.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
87
Materiality measure Company
Communication of misstatements to
the audit committee
We determine a threshold for reporting unadjusted differences to the
auditcommittee.
Threshold for communication £1.8 million which is 5% of financial statement materiality and
misstatements below that threshold that, in our view, warrant reporting
onqualitative grounds.
The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential
uncorrected misstatements.
OVERALL MATERIALITY
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
We performed a risk-based audit that requires an understanding of the Company’s business and in particular matters
relatedto:
• the processing and recording of investment activities. The day-to-day management of the Company’s investment portfolio,
the custody of its investments and the maintenance of the Company’s accounting records is outsourced to third-party
service providers. Accordingly, our audit work is focussed on obtaining an understanding of, and evaluating, internal
controls at the Company and the third-party service providers, and inspecting records and documents held by these
third-party service providers. In addition, the Company engages an investment manager, International Fund Management
Limited (“IFML”), to manage the investment portfolio who in turn engages Sequoia Investment Management Company
Limited (Investment Adviser) to manage the investment portfolio. We had interaction with the Investment Manager and
theInvestment Adviser in completing aspects of our audit work;
• we undertook substantive testing on significant transactions, balances and disclosures, the extent of which was based
on various factors such as our overall assessment of the control environment, the effectiveness of controls over individual
systems and the management of specific risks;
• the majority of our substantive testing focused on the audit of the underlying investment portfolio held through the wholly
owned subsidiary and associated disclosures as at the reporting date and the movement in investment holdings during the
year; and
• for subjective estimates made by management on valuing non-derivative financial assets at fair value through profit or loss,
we engaged an internal expert to confirm the appropriateness of the valuation methodology used with consideration to
valuation techniques routinely used by market participants to value similar instruments and to value 100% of non-derivative
financial assets at fair value through profit or loss held at year-end.
Actual Net Asset Value
£1,777 million
FSM
£35.5 million,
2.0%
PM
£21.3 million
60%
TFPUM
£14.2 million
FSM:
Financial statements materiality, PM: Performance materiality, TFPUM: Tolerance for potential uncorrected misstatements
88
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Independent auditor’s report continued
to the members of Sequoia Economic Infrastructure Income Fund Limited
OTHER INFORMATION
The directors are responsible for
the other information. The other
information comprises the information
included in the annual report set out
on pages 55 to58, other than the
financial statements and our auditor’s
report thereon. Our opinion on the
financial statements does not cover
the other information and, except to
the extent otherwise explicitly stated
in our report, we do not express any
form of assurance conclusion thereon.
Inconnection with our audit of the
financial statements, our responsibility
is to read the other information and, in
doing so, consider whether the other
information is materially inconsistent
with the financial statements or our
knowledge obtained in the audit or
otherwise appears to be materially
misstated. If we identify such material
inconsistencies or apparent material
misstatements, we are required to
determine whether there is a material
misstatement of the financial statements
or a material misstatement of the other
information. If, based on the work we
have performed, we conclude that there
is a material misstatement of this other
information, we are required to report
that fact.
We have nothing to report in this regard.
CORPORATE GOVERNANCE
STATEMENT
The Listing Rules require us to review
the directors’ statement in relation to
going concern, longer-term viability and
that part of the Corporate Governance
Statement relating to the Company’s
compliance with the provisions of the
UK Corporate Governance Statement
specified for our review. Our additional
responsibilities with respect to the
corporate governance statement and
other information are described in the
Reporting on other information section
of this report.
The Company has reported compliance
against the AIC Code of Corporate
Governance (the “Code”) which has
been endorsed by the UK Financial
Reporting Council as being consistent
with the UK Corporate Governance
Code to meet the Company’s
obligations, as an investment company,
under the Listing Rules of the FCA.
Based on the work undertaken as part
of our audit, we have concluded that
each of the following elements of the
Corporate Governance Statement,
included within the continuous risk
management section, the corporate
governance report, the audit and risk
committee report, the Directors’ report
and the Directors’ responsibilities
statement, is materially consistent
with the financial statements or our
knowledge obtained during the audit:
• the directors’ statement in the
financial statements on page
96 about whether the directors
considered it appropriate to
adopt the going concern basis of
accounting in preparing the financial
statements and the directors’
identification of any material
uncertainties to the Company’s
ability to continue to do so over a
period of at least twelve months from
the date ofapproval of the financial
statements;
• the directors’ explanation in the
annual report on page 78 as to how
they have assessed the prospects of
the Company, over what period they
have done so and why they consider
that period to be appropriate, and
their statement as to whether they
have a reasonable expectation that
the Company will be able to continue
in operation and meet their liabilities
as they fall due over the period of
their assessment, including any
related disclosures drawing attention
to any necessary qualifications or
assumptions;
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
89
• the directors’ statement in the
financial statements on page 81 that
they consider the annual report and
financial statements taken as a whole
is fair, balanced and understandable
and provides the information
necessary for shareholders to
assess the Company’s performance,
business model and strategy;
• the directors’ confirmation in the
annual report on page 53 that
they have carried out a robust
assessment of the principal and
emerging risks facing the Company
including the impact of Brexit,
Covid-19, Russia’s invasion of
Ukraine and the disclosures in
theannual report that describe the
principal risks, procedures to identify
emerging risks and an explanation
ofhow they are being managed or
mitigated including the impact of
Brexit, Covid-19, Russia’s invasion
ofUkraine;
• the section of the annual report
on page 67 that describes the
review of the effectiveness of the
Company’s risk management and
internal control systems, covering
all material controls, including
financial, operational and compliance
controls;and
• the section of the annual report
onpages 70 to 72 describing
the work of the audit committee,
including significant issues that the
audit committee considered relating
to thefinancial statements and how
these issues were addressed.
MATTERS ON WHICH WE
AREREQUIRED TO REPORT
BY EXCEPTION
We have nothing to report in respect
of the following matters in relation to
which the Companies (Guernsey) Law,
2008 requires us to report to you if,
inouropinion:
• proper accounting records have
notbeen kept by the Company; or
• the financial statements are not
in agreement with the accounting
records; or
• we have not obtained all the
information and explanations,
which to the best of our knowledge
and belief, are necessary for the
purposes of our audit.
RESPONSIBILITIES
OFDIRECTORS FOR THE
FINANCIAL STATEMENTS
As explained more fully in the directors’
responsibilities statement set out on
page 81, the directors are responsible
for the preparation of the financial
statements which give a true and fair
view in accordance with IFRSs, and for
such internal control as the directors
determine is necessary to enable the
preparation of financial statements that
are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements,
the directors are responsible for
assessing the Company’s ability to
continue as a going concern, disclosing,
as applicable, matters related to going
concern and using the going concern
basis of accounting unless the directors
either intend to liquidate the Company
or to cease operations, or have no
realistic alternative but to do so.
90
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Independent auditor’s report continued
to the members of Sequoia Economic Infrastructure Income Fund Limited
AUDITOR’S
RESPONSIBILITIES FOR THE
AUDIT OFTHE FINANCIAL
STATEMENTS
Our objectives are to obtain reasonable
assurance about whether the financial
statements as a whole are free from
material misstatement, whether due to
fraud or error and to issue an auditor’s
report that includes our opinion.
Reasonable assurance is a high level
ofassurance but is not a guarantee that
an audit conducted in accordance with
ISAs (UK) will always detect a material
misstatement when it exists.
Misstatements can arise from fraud
or error and are considered material
if, individually or in the aggregate,
they could reasonably be expected
to influence the economic decisions
of users taken on the basis of these
financial statements.
Explanation as to
whatextentthe audit
wasconsidered capable
of detecting irregularities,
including fraud
Irregularities, including fraud, are
instances of non-compliance with laws
and regulations. We design procedures
in line with our responsibilities outlined
above to detect material misstatements
regarding irregularities, including fraud.
Owing to the inherent limitations of an
audit, there is an unavoidable risk that
material misstatements in the financial
statements may not be detected, even
though the audit is properly planned
and performed in accordance with the
ISAs (UK).
The extent to which our procedures
are capable of detecting irregularities,
including fraud is detailed below:
• We obtained an understanding of
the legal and regulatory frameworks
applicable to the Company and
the industry in which it operates.
We determined that the following
laws and regulations were most
significant: International Financial
Reporting Standards (“IFRS”) issued
by the International Accounting
Standards Board (“IASB”) and
interpretations issued by the
International Financial Reporting
Interpretations Committee (“IFRIC”),
Companies (Guernsey) Law, 2008,
the Association of Investment
Companies (AIC) Statement of
Recommended Practice (SORP),
UK Corporate governance code,
FCA Listing Rules, FRC Disclosure
Guidance and Transparency Rules,
Principles and recommendations
of the AIC Code of Corporate
Governance and the relevant tax
compliance regulations in the
jurisdictions in which the Company
operates. In addition, we concluded
that there are certain significant
laws and regulations that may have
an effect on the determination of
the amounts and disclosures in the
financial statements and those laws
and regulations relating to health
and safety, employee matters, and
bribery and corruption practices;
• We understood how the Company
is complying with those legal and
regulatory frameworks by, making
inquiries to the management,
and those responsible for legal
and compliance procedures.
Wecorroborated our inquiries
through our review of board
minutes and papers provided
totheAuditCommittee;
• We assessed the susceptibility of
theCompany’s financial statements
to material misstatement, including
how fraud might occur. Audit
procedures performed by the
engagement team included:
• identifying and assessing the
design effectiveness of controls
management has in place to
prevent and detect fraud;
• challenging assumptions
and judgements made by
management in its significant
accounting estimates;
• utilising a valuation specialist
to perform stress testing
on managements’ valuation
calculations;
• identifying and testing journal
entries, that exhibit certain risk
characteristics determined
by the engagement team and
corroborating to supporting
documents to understand
management’s rationale and
economic substance; and
• assessing the extent of
compliance with the relevant
laws and regulations as part of
our procedures on the related
financial statement item.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
91
• In assessing the potential risks of
material misstatement, we obtained
an understanding of:
• the Company’s operations,
including the nature of its revenue
sources, products and services
and its objectives and strategies
to understand the classes of
transactions, account balances,
expected financial statement
disclosures and business risks
that may result in risks of material
misstatement;
• the applicable statutory provisions;
and
• the Company’s control environment,
including:
• the policies and procedures
implemented to comply with the
requirements of its regulator,
including the adequacy of the
training to inform staff of the
relevant legislation rules and other
regulations of the regulator;
• the adequacy of procedures for
authorisation of transactions,
internal review procedures over
the Company’s compliance with
regulatory requirements;
• the authority of, and resources
available to the compliance
officer; and
• procedures to ensure
that possible breaches of
requirements are appropriately
investigated and reported.
• These audit procedures were
designed to provide reasonable
assurance that the financial
statements were free from fraud
or error. The risk of not detecting
a material misstatement due to
fraud is higher than the risk of
not detecting one resulting from
error and detecting irregularities
that result from fraud is inherently
more difficult than detecting
those that result from error, as
fraud may involve collusion,
deliberate concealment, forgery
or intentional misrepresentations.
Also, the further removed
non-compliance with laws and
regulations from events and
transactions reflected in the
financial statements, the less likely
we would become aware of it.
A further description of our
responsibilities for the audit of the
financial statements is located on
the Financial Reporting Council’s
website at: www.frc.org.uk/
auditorsresponsibilities. This description
forms part of our auditor’s report.
OTHER MATTERS WHICH WE
ARE REQUIRED TO ADDRESS
Following the recommendation of the
audit committee, we were appointed by
the Board and approved at the Annual
General Meeting on 8 December 2021
to audit the financial statements for
the year ended 31 March 2022 and
subsequent financial periods.
The non-audit services prohibited
by the FRC’s Ethical Standard were
not provided to the Company and we
remain independent of the Company in
conducting our audit.
Our audit opinion is consistent with the
additional report to the audit committee.
USE OF OUR REPORT
This report is made solely to the
Company’s members, as a body, in
accordance with Section 262 of
The Companies (Guernsey) Law, 2008.
Ouraudit work has been undertaken
sothat we might state to the Company’s
members those matters we are required
to state to them in an auditor’s report
and for no other purpose. To the fullest
extent permitted by law, we do not
accept or assume responsibility to
anyone other than the Company and
the Company’s members as a body, for
our audit work, for this report, or for the
opinions we have formed.
CYRIL SWALE
For and on behalf of Grant Thornton
Limited
Chartered Accountants
St Peter Port
Guernsey
10 July 2022
92
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Note
Year ended
31 March 2022
£
Year ended
31 March 2021
£
Revenue
Net (losses)/gains on non-derivative financial assets at fair value
through profit or loss
6 (27,520,112) 6,958,954
Net (losses)/gains on derivative financial assets at fair value
through profit or loss
7 (39,932,471) 106,075,653
Investment income 9 151,920,575 114,979,084
Net foreign exchange (losses)/gains (1,023,582) 419,582
Total revenue 83,444,410 228,433,273
Expenses
Investment Adviser fees 10 11,836,201 11,253,254
Investment Manager fees 10 349,634 344,938
Directors’ fees and expenses 10 305,202 24 6,127
Administration fees 10 453,630 440,311
Auditor’s fees 188,598 198,590
Legal and professional fees
1
1,327,377 520,366
Valuation fees 821,400 759,500
Custodian fees 255,221 249,084
Listing, regulatory and statutory fees 168,318 148,768
Other expenses 497,617 219,945
Total operating expenses 16, 203,198 14,380,883
Loan finance costs 15 4,522,522 4,094,586
Total expenses 20,725,720 18,475,469
Profit and total comprehensive income for the year 62,718,690 20 9, 9 57, 8 0 4
Basic and diluted earnings per Ordinary Share 13 3.55p 12.62p
1. Legal and professional fees includes an amount of £666,019 in the current year in respect of fees relating to the Fund’s investment in Bulb Energy.
All items in the above statement are from continuing operations.
Statement of comprehensive income
For the year ended 31 March 2022
The accompanying notes on pages 96 to 119 form an integral part of the Financial Statements.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
93
Statement of changes in Shareholders’ equity
For the year ended 31 March 2022
Year ended
31 March 2022 Note
Share capital
£
Retained
(losses)/
earnings
£
Total
£
At 1 April 2021 1,831,856,145 (12,725,764) 1,819,130,381
Issue of Ordinary Shares during the year, net of issue costs 12 5,534,386 — 5,534,386
Total comprehensive income for the year — 62,718,690 62,718,690
Dividends paid during the year 4 — (110,340,625) (110,340,625)
At 31 March 2022 1,837,39 0,531 (60,347,699) 1,777,042,832
Year ended
31 March 2021 Note
Share capital
£
Retained
(losses)/
earnings
£
Total
£
At 1 April 2020 1,719,065,509 (119,200,238) 1,599,865,271
Issue of Ordinary Shares during the year, net of issue costs 12 112,79 0,6 3 6 — 112,790,636
Total comprehensive income for the year — 20 9,9 5 7, 8 0 4 20 9, 9 57, 8 0 4
Dividends paid during the year 4 — (103,483,330) (103,483,330)
At 31 March 2021 1,831,856,145 (12,725,764) 1,819,130,381
The accompanying notes on pages 96 to 119 form an integral part of the Financial Statements.
94
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Statement of financial position
At 31 March 2022
Note
31 March 2022
£
31 March 2021
£
Non-current assets
Non-derivative financial assets at fair value through profit or loss 6 1,770,022,999 1,730,455,551
Current assets
Cash and cash equivalents 8 8,759,040 20,018,189
Trade and other receivables 14 143,092,101 108,061,966
Derivative financial assets at fair value through profit or loss 7 17,536,6 84 51,501,035
Total current assets 169,387,825 179,581,190
Total assets 1,939,410,824 1,910,0 3 6,741
Current liabilities
Loan payable 15 — 83,894,203
Trade and other payables 16 3,855,430 3 , 4 8 7, 8 07
Derivative financial liabilities at fair value through profit or loss 7 37,143,642 3,524,350
Total current liabilities 40,999,072 90,906,360
Non-current liabilities
Loan payable 15 121,368,920 —
Total liabilities 162,367,992 90,906,360
Net assets 1,777,042,832 1,819,130,381
Equity
Share capital 12 1,837,39 0,531 1,831,856,145
Retained losses (60,347,699) (12,725,764)
Total equity 1,777,042,832 1,819,130,381
Number of Ordinary Shares 12 1,768,238,998 1,763,120,710
Net asset value per Ordinary Share 100.50p 10 3.18 p
The Financial Statements on pages 92 to 119 were approved and authorised for issue by the Board of Directors on
8 July 2022 and signed on its behalf by:
SANDRA PLATTS
Director
The accompanying notes on pages 96 to 119 form an integral part of the Financial Statements.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
95
Statement of cash flows
For the year ended 31 March 2022
Note
Year ended
31 March 2022
£
Year ended
31 March 2021
£
Cash flows from operating activities
Profit for the year 62,718,690 20 9, 9 57, 8 0 4
Adjustments for:
Net losses/(gains) on non-derivative financial assets at fair value through profit or loss 6 27,520,112 (6,958,954)
Net losses/(gains) on derivative financial assets at fair value through profit or loss 7 39,932,471 (106,075,653)
VFN interest capitalised 6 (7,309,761) —
Investment Adviser fees settled through issue of Ordinary Shares 878,10 0 842,142
Net foreign exchange loss/(gain) 1,023,582 (419,582)
Loan finance costs 15 4,522,522 4,094,586
Increase in trade and other receivables (excluding finance costs) 14 (33,004,700) (18,752,224)
Increase in trade and other payables (excluding finance costs) 16 45,287 294,102
96,326,303 82,982,221
Cash received on settled forward contracts 43,775,627 61,655,940
Cash paid on settled forward contracts (16,124,456) (44,633,971)
Purchases of investments 6 (399,588,003) (4 01, 5 57,473 )
Sales of investments 6 339,810,204 229,553,308
Net cash inflow/(outflow) from operating activities 64,199,675 (71,999,975)
Cash flows from financing activities
Proceeds from issue of Ordinary Shares, net of issue costs
1
— 108,633,236
Proceeds from loan drawdowns 15 36,023,268 175,18 3,485
Loan repayments 15 — (125,000,000)
Payment of loan finance costs (5,772,304) (3,365,984)
Dividends paid (excluding scrip dividends)
2
(105,684,339) (10 0,168,072)
Net cash (outflow)/inflow from financing activities (75,433,375) 55,282,665
Net decrease in cash and cash equivalents (11,233,700) (16,717, 310)
Cash and cash equivalents at beginning of year 20,018,189 37,5 81,6 9 8
Effect of foreign exchange rate changes on cash and cash equivalents during the year (25,449) (846,19 9)
Cash and cash equivalents at end of year 8,759,040 20,018,189
1. Excludes non-cash transactions. For details, refer to note 12.
2. Excludes non-cash transactions. For details, refer to note 4.
The accompanying notes on pages 96 to 119 form an integral part of the Financial Statements.
96
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Notes to the Financial Statements
For the year ended 31 March 2022
1. GENERAL INFORMATION
Sequoia Economic Infrastructure
Income Fund Limited (the
“Company”) was incorporated and
registered in Guernsey under the
Companies (Guernsey) Law, 2008 on
30December2014. The Company’s
registration number is 59596 and it is
regulated by the GFSC as a registered
closed-ended collective investment
scheme under The Registered
Collective Investment Scheme Rules
and Guidance 2021. The Company is
listed and began trading on the Main
Market of the London Stock Exchange
and was admitted to the premium
segment of the Official List of the UK
Listing Authority on 3 March 2015.
The Company makes its investments
through its subsidiary Sequoia IDF
Asset Holdings S.A. (the “Subsidiary”,
together the “Fund”). The Company
controls the Subsidiary through a
holding of 100% of its shares. The
Company further invests in the
Subsidiary through the acquisition of
Variable Funding Notes (“VFNs”) issued
by the Subsidiary. The Subsidiary is
domiciled in Luxembourg.
Through its Subsidiary, the Company
invests in a diversified portfolio of
senior and subordinated economic
infrastructure debt investments.
During the prior year, as a result of
the restructuring of a borrower group
in which the Subsidiary had invested,
the Subsidiary acquired 100% of the
shares of three newly incorporated
Delaware-domiciled investment holding
entities (the “Underlying Subsidiaries”),
as follows:
• Fussell Circus Capital, Inc.
• Mears Square Advisors, Inc.
• Bajtos Lane Management, Inc.
With effect from 28 January 2015,
Sequoia Investment Management
Company Limited (the “Investment
Adviser”) was appointed as the
Investment Adviser and Sanne
Fund Management (Guernsey)
Limited (formerly International Fund
Management Limited) (the “Investment
Manager”) was appointed as the
Investment Manager.
2. SIGNIFICANT ACCOUNTING
POLICIES
Statement of compliance
The Annual Financial Statements (the
“Financial Statements”), which give a
true and fair view, have been prepared
in accordance with International
Financial Reporting Standards
(“IFRS”) issued by the International
Accounting Standards Board (“IASB”)
and interpretations issued by the
International Financial Reporting
Interpretations Committee (“IFRIC”) and
are in compliance with the Companies
(Guernsey) Law, 2008, the Listing Rules
and the FCA Disclosure Guidance and
Transparency Rules.
Basis of preparation
The Company’s Financial Statements
have been prepared on a going
concern basis under the historical
cost convention, as modified by the
revaluation of financial instruments
measured at fair value through profit or
loss.
The preparation of financial statements
in conformity with IFRS requires the
Directors to make estimates and
assumptions that affect the reported
amounts of assets and liabilities at the
date of the Financial Statements and
the reported amounts of revenues and
expenses during the reporting period.
Actual results could differ from those
estimates. Significant estimates and
judgements are discussed in note3.
The principal accounting policies
adopted are set out below.
The Directors believe that the Annual
Report and Financial Statements
contain all of the information required
to enable Shareholders and potential
investors to make an informed appraisal
of the investment activities and profits
and losses of the Company for the
year to which it relates and does not
omit any matter or development of
significance.
In accordance with the investment
entities exemption contained in IFRS 10,
“Consolidated Financial Statements”,
the Board has determined that the
Company satisfies the criteria to be
regarded as an investment entity
and that the Company provides
investment-related services. As a result,
the Company is required to only prepare
separate Financial Statements under
IFRS and measures its investment
in its Subsidiary at fair value. This
determination involves a degree of
judgement (see note 3 for further
details).
Going concern
The Directors have reviewed the
Company’s holdings in cash and
cash equivalents and investments,
including a consideration of the
revaluation losses arising on certain
investments as a result of the COVID-19
pandemic and the market uncertainty
relating to the Ukraine-Russia war.
In conducting this review, the Board
has also assessed the Company’s
cash flows for the next 12 months
andconsidered the sustainability of the
environmental and social impact of the
Company’s activities. Partly as a result
of the Company’s large capital raise
in early March 2020, its balance sheet
was exceptionally strong when the
consequences of COVID-19 impacted
on financial markets, with a very low
level of gearing. The balance sheet was
further strengthened by another capital
raise in March 2021. Moreover, the
losses that were incurred at the 2020
year end – which have continued to
reverse as the investments mature and
their valuations accrete to par – were
unrealised, and therefore have no direct
effect on the solvency of the business.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
97
The risk of realised losses arising
through loans defaulting is limited to a
few specific investments, representing
a small proportion of the Company’s
investment portfolio. The Directors
also note that the reduction in the level
of cash income during the prior year,
resulting from the impact of COVID-19
and an oil supply glut on certain of
the Fund’s investments, haslargely
reversed during the current year as
several borrowers who had been
permitted to capitalise interest during
the COVID-19 pandemic have resumed
paying cash interest. The interest
income cash flows of the Fund remains
sufficient to cover operating costs and
to pay the Company’s target dividend.
As a result of this review, the Directors
have concluded that it is appropriate
to adopt the going concern basis in
preparing the Financial Statements
as the Company, despite the ongoing
effects of the COVID-19 pandemic
and the effects of the ongoing
Ukraine-Russia war, has a strong
balance sheet and adequate financial
resources to meet its liabilities as they
fall due.
Amended accounting
standards effective and
adopted
In August 2020, the IASB completed
its “Replacement issues in the context
of the IBOR reform” project, which has
amended certain existing standards,
effective for periods commencing on or
after 1 January 2021.
The adoption of these amended
standards has had no material impact
on the Financial Statements of the
Company.
Amended accounting
standards applicable to future
reporting periods
• IAS 1 (amended), “Presentation of
Financial Statements” (amendments
regarding the classification of
liabilities and the disclosure of
accounting policies, effective for
periods commencing on or after
1January 2023);
• IAS 8 (amended), “Accounting
Policies, Changes in Accounting
Estimates and Errors” (amendments
regarding the definition of
accounting estimates, effective for
periods commencing on or after
1January2023); and
• IAS 37 (amended), “Provisions,
Contingent Liabilities and Contingent
Assets” (amendments regarding the
costs to include when determining
whether a contract is onerous,
effective for periods commencing on
or after 1 January 2022).
In addition, the IASB has completed the
following projects:
• “Annual Improvements to IFRS
Standards 2018-2020”, published in
May 2020. This project has amended
certain existing standards effective
for accounting periods commencing
on or after 1 January 2022; and
• “Amendments updating a reference
to the Conceptual Framework”,
published in May 2020. This project
has amended certain existing
standards effective for accounting
periods commencing on or after
1January 2022.
The Directors do not anticipate that the
adoption of these amended standards
in future periods will have a material
impact on the Financial Statements of
the Company.
Investment income
Investment income is recognised
in profit or loss of the Statement of
Comprehensive Income on the effective
interest rate method basis and includes
interest income from the Company’s
investment in VFNs issued by the
Subsidiary and from cash and cash
equivalents.
VFN interest
Interest on VFNs issued by the
Subsidiary is paid to the Company
on a quarterly basis. VFN interest is
calculated on an accruals basis, as
the amount of revenue receivable in
the quarter by the Subsidiary deriving
from its investments and cash and cash
equivalents, less any expenses due or
payable by the Subsidiary.
Net gains/(losses) on financial
assets at fair value through
profit or loss
Net gains/(losses) on financial assets
at fair value through profit or loss
consists of realised and unrealised
gains and losses on both non-derivative
and derivative financial assets at fair
value through profit or loss, and are
recognised in profit or loss in the
Statement of Comprehensive Income.
Gains or losses on non-derivative
financial instruments are calculated as
described in the section “Non-derivative
financial instrument – fair value and
subsequent measurement” within this
note; gains or losses on derivative
financial instruments are calculated as
described in the section “Derivative
financial instruments – fair value and
subsequent measurement” within this
note.
Expenses
Expenses of the Company are
recognised in profit or loss of the
Statement of Comprehensive Income
on an accruals basis.
98
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Notes to the Financial Statements continued
For the year ended 31 March 2022
2. SIGNIFICANT ACCOUNTING
POLICIES CONTINUED
Share-based payments
(equity-settled)
In accordance with the terms of the
Investment Advisory Agreement, one
tenth of the Investment Adviser’s fee is
settled through the issue of Ordinary
Shares in the Company. Services
received in exchange for the grant of any
share-based payments are measured
at the fair value of the services received.
Share-based payments are recognised
as an expense in profit or loss of the
Statement of Comprehensive Income and
in equity as an increase in share capital.
Ordinary Shares
The Ordinary Shares of the Company
are classified as equity based on
the substance of the contractual
arrangements and in accordance
withthe definition of equity instruments
under IAS 32. The proceeds from the
issue of Ordinary Shares are recognised
in the Statement of Changes in
Shareholders’ Equity, net of issue costs.
Cash and cash equivalents
Cash comprises current deposits with
banks. Cash equivalents are short-term,
highly liquid investments that are
readily convertible to known amounts
of cash, are subject to an insignificant
risk of changes in value, and are held
for the purpose of meeting short-term
cash commitments rather than for
investments or other purposes. Certain
amounts of the Company’s cash may be
held as collateral against the Company’s
forward foreign exchange trading
facilities (see note 8).
Financial instruments
Classification
The Company classifies its financial
assets and financial liabilities into
categories in accordance with IFRS 9,
“Financial Instruments”.
Financial assets and liabilities at
fair value through profit and loss
Financial assets and liabilities classified
in this category are designated by
management on initial recognition
as part of a group of financial assets
and/or liabilities which are managed
and their performance evaluated on
a fair value basis, in accordance with
a documented investment strategy.
This category includes the Company’s
investment in shares and VFNs issued
by the Subsidiary and forward foreign
exchange contracts. The investment
entities exception to consolidation
in IFRS 10, “Consolidated Financial
Statements” requires subsidiaries of
an investment entity to be accounted
for at fair value through profit or loss in
accordance with IFRS 9.
Financial assets
atamortisedcost
This category comprises cash and
cash equivalents and trade and
other receivables, other than prepaid
expenses.
Financial liabilities
atamortisedcost
This category comprises loans payable
and trade and other payables.
Recognition and initial
measurement
Financial assets and financial liabilities
at fair value through profit or loss are
measured initially at fair value, being
the transaction price, on the trade
date. Transaction costs on financial
assets at fair value through profit or loss
are expensed immediately. Financial
assets or financial liabilities not at fair
value through profit or loss are initially
recognised at fair value plus transaction
costs that are directly attributable to
their acquisition or issue.
Non-derivative financial
instruments – fair value and
subsequent measurement
After initial measurement, the Company
measures non-derivative financial assets
classified at fair value through profit
or loss at their fair values. Changes
in fair value are recorded within “Net
gains/(losses) on non-derivative
financial assets at fair value through
profit or loss” in the Statement of
Comprehensive Income. This account
includes foreign exchange differences
but excludes VFN interest income.
“Fair value” is the price that would
be received to sell an asset or paid
to transfer a liability in an orderly
transaction between market participants
at the measurement date in the
principal or, in its absence, the most
advantageous market to which the
Company has access at that date.
The fair value of a liability reflects its
non-performance risk.
If there is no quoted price in an active
market, the Company uses valuation
techniques that maximise the use
of relevant observable inputs and
minimise the use of unobservable
inputs. The chosen valuation technique
incorporates all of the factors that
market participants would take into
account in pricing a transaction.
Pleaserefer to note 6 for further details.
Non-derivative financial
instruments – amortised cost
measurement
After initial measurement, otherfinancial
liabilities are measured at amortised
cost using the effective interest rate
method. The amortised cost of a
financial asset or financial liability is
the amount at which the financial
asset or financial liability is measured
on initial recognition, minus principal
repayments, plus or minus the
cumulative amortisation using the
effective interest rate method of any
difference between the initial amount
recognised and the maturity amount,
minus any allowance for expected
creditlosses.
The calculation of the effective
interest rate applicable to the
Company’s RCF incorporates any
appropriate adjustment related to the
sustainability-linked interest margin.
At each reporting date, the Company
measures the loss allowance on
financial assets carried at amortised
cost at an amount equal to the lifetime
expected credit losses, if the credit
risk has increased significantly since
initial recognition. If, at the reporting
date, the credit risk has not increased
significantly since initial recognition, the
Company measures the loss allowance
at an amount equal to 12-month
expected credit losses. The expected
credit losses are estimated based on
the Company’s historical credit loss
experience, adjusted for factors that
are specific to the financial asset,
general economic conditions and an
assessment of both the current as well
as the forecast direction of conditions
at the reporting date, including the time
value of money where appropriate.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
99
The measurement of expected credit
losses is a function of the probability
of default, loss given default (i.e. the
magnitude of the loss if there is a
default) and exposure at the default.
The assessment of the probability
of default and loss given default is
based on historical data adjusted
byforward-looking information.
As at 31 March 2022 and
31March2021, the carrying amount of
the short-term receivables and payables
approximate their fair value.
Derivative financial instruments
– fair value and subsequent
measurement
The Company holds derivative financial
instruments to minimise its exposure to
foreign exchange risks and from time to
time may also hold derivative financial
instruments to minimise its exposure
to interest rate risks or for economic
leveraging. Derivatives are classified as
financial assets or financial liabilities (as
applicable) at fair value through profit
or loss and are initially recognised at
fair value; attributable transaction costs
are recognised in profit or loss in the
Statement of Comprehensive Income
when incurred. Subsequent to initial
recognition, derivatives are measured
at fair value and changes thereto are
recorded within “Net gains/(losses)
on derivative financial instruments at
fair value through profit or loss” in the
Statement of Comprehensive Income.
This account includes foreign exchange
differences but excludes interest
income. The fair values of derivative
transactions are measured using their
market prices at the reporting date.
Derecognition
A financial asset is derecognised when
the contractual rights to the cash flows
from the financial asset expire, or when
the financial asset and substantially
all the risks and rewards thereof
aretransferred.
A financial liability is derecognised when
it is extinguished, discharged, cancelled
or expires.
Foreign currency
Functional and presentation
currency
The Financial Statements of the
Company are presented in the currency
of the primary economic environment
in which the Company operates (its
functional currency). The Directors
have considered the primary economic
currency of the Company; the currency
in which the original finance was raised;
the currency in which distributions will
be made; and ultimately what currency
would be returned to Shareholders if the
Company was wound up. The Directors
have also considered the currency to
which the Company’s investments are
exposed. On balance, the Directors
believe that Sterling best represents
the functional currency of the Company
during the year. Therefore, the books
and records are maintained in Sterling
and, for the purpose of the Financial
Statements, the results and financial
position of the Company are presented
in Sterling, which has been selected
as the presentation currency of the
Company.
Transactions and balances
Foreign currency transactions are
translated into the functional currency
using the exchange rates prevailing at
the dates of the transactions. Foreign
currency balances at the year end are
translated into the functional currency
at the exchange rates prevailing at the
year-end date. Foreign exchange gains
and losses resulting from the settlement
of such transactions and from the
translation at year-end exchange
rates of monetary assets and liabilities
denominated in foreign currencies
are recognised in profit or loss of the
Statement of Comprehensive Income.
Non-monetary items measured at
historical cost are translated using
the exchange rates at the date of the
transaction. Non-monetary items
measured at fair value are translated
using the exchange rates at the date
when fair value was determined.
Dividends
Interim dividends paid to Shareholders
are recorded through the Statement of
Changes in Shareholders’ Equity when
they are declared to Shareholders. Final
dividends are recorded through the
Statement of Changes in Shareholders’
Equity when they are approved by
Shareholders. The payment of any
dividend by the Company is subject to
the satisfaction of a solvency test as
required by the Companies (Guernsey)
Law, 2008.
Segmental reporting
The Chief Operating Decision Maker,
which is the Board, is of the opinion
that the Group is engaged in a single
segment of business, through its
investment in the Subsidiary, being
investment in senior and subordinated
infrastructure debt instruments and
related and/or similar assets, with the
aim of providing sustained long-term
distributions and capital appreciation.
The financial information used by
the Chief Operating Decision Maker
to manage the Group presents the
business as a single segment.
Segment information is measured
onthe same basis as that used in the
preparation of the Group’s Consolidated
Financial Statements.
The Company receives no revenues
from external customers. Other
than the Subsidiary, which is a
Luxembourg company, and its
UnderlyingSubsidiaries, which are
Delaware companies, the Company
holds no non-current assets in any
geographical area other than Guernsey.
100
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Notes to the Financial Statements continued
For the year ended 31 March 2022
3. USE OF JUDGEMENTS AND ESTIMATES
The preparation of Financial Statements in accordance with IFRS requires the Board to make judgements, estimates and
assumptions that affect the application of policies and the reported amounts of assets and liabilities and income and expenses.
The estimates and associated assumptions are based on various factors that are believed to be reasonable underthe
circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on a semi-annual basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision
and future periods if the revision affects both current and future periods.
The principal judgements and estimates are as follows:
Judgements
Functional currency
Refer to note 2 “Functional and presentation currency”.
Investment entity
The Board has determined that the Company has all the elements of control as prescribed by IFRS 10 in relation to the
Subsidiary and the Underlying Subsidiaries, as the Company owns 100% of the equity of the Subsidiary (which in turn
owns 100% of the equity of the Underlying Subsidiaries), is exposed and has rights to the returns of the Subsidiary and the
Underlying Subsidiaries, and has the ability either directly or through the Investment Adviser to affect the amount of its returns
from the Subsidiary and Underlying Subsidiaries.
The Company provides investment management services and has a number of investors who pool their funds to gain access
to these services and investment opportunities that they might not have had access to individually. The Company, being listed
on the Main Market of the London Stock Exchange, obtains funding from a diverse group of external Shareholders, to whom
it has committed that its business purpose is to invest funds solely for the returns from capital appreciation and investment
income.
The Company has only one direct investment – the Subsidiary – in which it holds 100% of the equity, however its investment
in the Subsidiary is used to acquire exposure to a portfolio comprising a large number of investments. The fair value method
is used to represent the Subsidiary’s performance in its internal reporting to the Board, and to evaluate the performance of
the Subsidiary’s investments and to make investment decisions for mature investments. Those investments have documented
maturity/redemption dates, or will be sold if other investments with better risk/reward profile are identified, which the Directors
consider demonstrates a clear exit strategy.
The Subsidiary serves as an asset holding company and does not provide investment-related services.
Accordingly, when the Subsidiary is assessed based on the structure of the Company and its Subsidiary as a whole as a
means of carrying out activities, the Board has concluded that the Company satisfies sufficient of the criteria above to meet
the definition of an investment entity. As a result, under the terms of IFRS 10, the Company is not permitted to consolidate the
Subsidiary, but must measure its investment in the Subsidiary at fair value through profit or loss. The Company has determined
that the fair value of the Subsidiary is the Subsidiary’s net asset value and has concluded that the Subsidiary meets the
definition of an unconsolidated subsidiary under IFRS 12 and has made the necessary disclosures.
Estimates
Fair value of non-derivative and derivative financial instruments at fair value through profit or loss
The Company records its investment in the Subsidiary and in forward foreign exchange contracts at fair value. Details of the
valuation methodologies applied in determining the fair value of the Subsidiary and its underlying infrastructure investments are
disclosed in note 6. The valuations of forward foreign exchange contracts are prepared with reference to prevailing exchange
rates. The Directors consider that these valuations represent the best estimate of the fair values of the Company’s investment
in the Subsidiary and its underlying infrastructure investments and in forward foreign exchange contracts.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
101
4. DIVIDENDS
The Company’s dividend policy, in the absence of any significant restricting factors, is to pay dividends totalling 6.25p per
Ordinary Share per annum for the foreseeable future. The Company pays dividends on a quarterly basis.
The Company declared the following dividends on its Ordinary Shares during the year ended 31 March 2022:
Period to Payment date
Dividend rate
per Ordinary Share
(pence)
Net dividend
payable
(£) Record date Ex-dividend date
31 March 2021 24 May 2021 1.5625 27,548,73 0 30 April 2021 29 April 2021
30 June 2021 6 September 2021 1.5625 27,577,235 30 July 2021 29 July 2021
30 September 2021 3 December 2021 1.5625 27,599,092 29 October 2021 28 October 2021
31 December 2021 4 March 2022 1.5625 27,615,56 8 28 January 2022 27 January 2022
On 21 April 2022, the Company declared an interim dividend of 1.5625p per Ordinary Share in respect of the quarter ended
31March 2022. The dividend was paid on 27 May 2022.
The Company paid the following dividends on its Ordinary Shares during the year ended 31 March 2021:
Period to Payment date
Dividend rate
per Ordinary Share
(pence)
Net dividend
payable
(£) Record date Ex-dividend date
31 March 2020 22 May 2020 1.5625 25,854,241 24 April 2020 23 April 2020
30 June 2020 28 August 2020 1.5625 25,854,241 24 July 2020 23 July 2020
30 September 2020 27 November 2020 1.5625 25,880,531 23 October 2020 22 October 2020
31 December 2020 5 March 2021 1.5625 25,894,317 29 January 2021 28 January 2021
Under Guernsey law, the Company can pay dividends in excess of its retained earnings provided it satisfies the solvency test
prescribed by the Companies (Guernsey) Law, 2008. The solvency test considers whether the Company is able to pay its
debts when they fall due, and whether the value of the Company’s assets is greater than its liabilities. The Company satisfied
the solvency test in respect of all dividends declared or paid in the year.
At an Extraordinary General Meeting of the Company held on 25 February 2020, Shareholders authorised the Directors to offer
Shareholders a scrip dividend alternative instead of cash in respect of dividends declared by the Company until the AGM of the
Company to be held in 2022. On 10 July 2020, the Company published a circular setting out the terms of the scrip dividend
alternative. The first such dividend to include the scrip dividend alternative was paid in August 2020.
During the year ended 31 March 2022, the amount of dividends for which Shareholders took up the scrip dividend alternative
was £4,656,286 (2021: £3,315,258).
5. FINANCIAL RISK MANAGEMENT
The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management
framework. The Company’s risk management policies are established to identify and analyse the risks faced by the Company,
to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies are reviewed
regularly to reflect changes in market conditions and the Company’s activities. Below is a non-exhaustive summary of the risks
that the Company is exposed to as a result of its use of financial instruments:
Market risk
Market risk is the risk that changes in market factors such as foreign exchange rates, interest rates and equity prices will affect
the Company’s income and/or the value of its holdings in financial instruments.
The Company’s exposure to market risk comes mainly from movements in the value of its investment in the Subsidiary and
on a look-through basis to the underlying investments in the Subsidiary’s portfolio. Changes in credit spreads (in the case of
bond or loan investments) or in discount rates (in the case of private equity investments) may further affect the Subsidiary’s net
equity or net income, and hence the value of the Company’s investment in the Subsidiary.
The objective of market risk management is to manage and control market risk exposures within acceptable parameters while
optimising the return on risk. The Company’s strategy for the management of market risk is driven by its investment objective
to provide investors with regular, sustained, long-term distributions and capital appreciation from a diversified portfolio of
senior and subordinated economic infrastructure investments, which are held in a portfolio at the Subsidiary level. The various
components of the Company’s market risk are managed on a daily basis by the Investment Manager in accordance with
policies and procedures in place, as detailed below.
102
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Notes to the Financial Statements continued
For the year ended 31 March 2022
5. FINANCIAL RISK MANAGEMENT CONTINUED
Market risk continued
In addition, the Company, through its Subsidiary, intends to mitigate market risk generally by not making investments that
would cause it to have exposure to any one individual infrastructure asset exceeding 10% of the Fund’s investments at the
time of investment. The Subsidiary’s market positions are monitored on a quarterly basis by the Board of Directors and by the
Investment Manager at the point of investment and on an ongoing basis.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes
in market interest rates. The Subsidiary’s interest-bearing financial assets and liabilities expose it to risks associated with the
effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows.
The Company is exposed to cash flow interest rate risk in respect of its cash and cash equivalents and the floating rate debt
investments held by the Subsidiary and to fair value interest rate risk in respect of the fixed rate debt investments held by the
Subsidiary.
As the Company and the Subsidiary have no investment restrictions which would confine their investment universe to
short-dated issues, the Investment Manager is mindful that fixed interest portfolios with longer durations may be subject to
relatively greater adverse effects of a rising interest rate environment and inflationary considerations.
Interest rate risk is mitigated through the diversification of assets by duration and jurisdiction and with maintaining in excess of
50% of its portfolio in floating rate or inflation-linked debt.
Interest receivable on bank deposits or payable on loans or bank overdraft positions will be affected by fluctuations in interest
rates. Interest rate risk on cash and cash equivalents and loans payable is not considered significant.
The following table shows the profile of the Subsidiary’s investment portfolio:
31 March 2022 31 March 2021
Range of
interest rates £
Range of
interest rates £
Investments with floating interest rates 0.00% to 13.01% 903,607,228 0.00% to 12.73% 930,981,531
Investments with fixed interest rates 0.00% to 18.00% 885,571,623 0.00% to 11.00% 771,596,280
Non-interest-bearing investments N/A 15,353,710 N/A 12,532,958
Financial assets at fair value through profit or loss (note 6) 1,804,532,561 1,715,110,769
The following table shows the Directors’ best estimate of the sensitivity of the Subsidiary’s portfolio of investments to stressed
changes in interest rates, with all other variables held constant. The table assumes parallel shifts in the respective forward yield
curves and is based on the modified duration of the assets.
Possible reasonable change in interest rate
31 March 2022
effect on net
assets and profit
or loss
£
31 March 2021
effect on net
assets and profit
or loss
£
+1% (37,3 82,019) (35,066,547)
-1% 40,110,729 38,05 6,10 0
The possible change in the interest rate of 1% is regarded as reasonable in view of the current low level of global interest rates.
Under the terms of the Prospectus, the Company is permitted to use interest rate hedging instruments to protect against
exposure to interest rate risk. However, no such hedging arrangements were entered into during the prior or current years
andnone were in place at the prior or current year end.
Currency risk
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
foreign exchange rates.
The Company is directly exposed to currency risk in respect of its cash and cash equivalents and derivatives denominated in
currencies other than Sterling, and indirectly through its investment in the Subsidiary.
The functional and presentational currency of the Company is Sterling. The Company invests in its Subsidiary through
VFNs denominated in various currencies other than the functional currency, currently US Dollar, Euro, Australian Dollar and
Norwegian Krone. The Subsidiary in turn invests in financial instruments and enters into transactions that are denominated
in currencies other than the functional currency. Consequently, the Company is exposed to risk that the exchange rate of its
functional currency relative to other foreign currencies may change in a manner that has an adverse effect on the fair value or
future cash flows of the Company’s financial assets or liabilities.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
103
The Investment Manager monitors the exposure to foreign currencies and reports to the Board on a regular basis. The
Investment Manager measures the risk of the foreign currency exposure by considering the effect on the net asset value and
income of a movement in the rates of exchange to which the assets, liabilities, income and expenses are exposed. A currency
hedging programme is in place at the Company level, in line with the intentions stated in the Prospectus, to protect against the
effects of currency exposure on the future income arising from the underlying portfolio of investments held by the Subsidiary.
The total net foreign currency exposure of the Company and the Subsidiary combined at the year end was as detailed in the
following table. These figures have been presented on a combined basis, as there exist foreign currency assets and liabilities in
both the Company and the Subsidiary, and the forward foreign exchange contracts held at the Company level (see note 7) are
taken out to hedge currency exposure existing at the Subsidiary level.
31 March 2022
£
31 March 2021
£
USD exposure
Financial assets at fair value through profit or loss 1,006,916,909 8 9 7, 519, 8 0 3
Forward foreign exchange contracts (968,553,620) (941,322,553)
Cash and cash equivalents 30,860,267 13,512,834
Trade and other receivables 9,761,497 10,15 4,6 28
Loan payable (42,626,352) (11,594,203)
Trade and other payables (108,791) (16,771)
Net USD exposure 36,249,910 (31,746,262)
EUR exposure
Financial assets at fair value through profit or loss 78,813,768 4 47,7 3 9, 3 3 0
Forward foreign exchange contracts (571,624,503) (494,974,427)
Cash and cash equivalents 25,719,623 4,519,290
Trade and other receivables 7,295,584 5,715,214
Trade and other payables (26,147) (48,672)
Net EUR exposure (59,821,675) ( 37, 0 4 9, 2 6 5 )
NOK exposure
Financial assets at fair value through profit or loss 19,366,717 18,000,714
Forward foreign exchange contracts (18,312,662) (22,648,464)
Cash and cash equivalents 467,594 436,276
Trade and other receivables 157,688 179,529
Net NOK exposure 1,679,337 (4,031,945)
AUD exposure
Financial assets at fair value through profit or loss 8,215,427 42,223,203
Forward foreign exchange contracts (9,174,312) (41,317,761)
Cash and cash equivalents — —
Trade and other receivables 1,033,775 682,259
Net AUD exposure 74,890 1, 5 87,701
Total exposure (21,817,538) (71,239,771)
Possible
reasonable change
in exchange rate
31 March 2022
net exposure
£
31 March 2022
effect on
net assets and
profit or loss
£
Possible
reasonable change
in exchange rate
31 March 2021
net exposure
£
31 March 2021
effect on
net assets and
profit or loss
£
USD/GBP +/- 5% 36,249,910 +/- 1,812,496 +/- 5% (31,746,262) -/+ 1,587,313
EUR/GBP +/- 5% (59,821,675) -/+ 2,991,084 +/- 5% ( 3 7,0 4 9, 2 6 5) -/+ 1,852,463
NOK/GBP +/- 5% 1,679,337 +/- 83,967 +/- 5% (4,031,945) -/+ 201,597
AUD/GBP +/- 5% 74,890 +/- 3,745 +/- 5% 1,5 87,701 +/- 79,385
104
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Notes to the Financial Statements continued
For the year ended 31 March 2022
5. FINANCIAL RISK MANAGEMENT CONTINUED
Market risk continued
Currency risk continued
The possible change in exchange rates of 5% is regarded as reasonable, as this is the approximate volatility during the course
of the year of Sterling against the major currencies to which it is exposed.
The following table details the split of currencies based on fair value of bonds and loans in the Subsidiary’s investment portfolio:
Currency
31 March 2022
£
31 March 2021
£
Sterling 291,219,740 3 0 9,6 27,719
US Dollar 1,006,916,909 897, 519, 8 0 3
Euro 478,813,768 4 47,73 9, 3 3 0
Norwegian Krone 19,366,717 18,000,714
Australian Dollar 8,215,427 42,223,203
Total 1,804,532,561 1,715,110,769
Credit and counterparty risk
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it
has entered into with the Company or the Subsidiary or a vehicle in which the Company or Subsidiary invests, resulting in a
financial loss to the Company. It arises principally from debt securities held, and also from derivative financial assets and cash
and cash equivalents. For risk management reporting purposes, the Company considers and aggregates all elements of credit
risk exposure (such as individual obligation default risk, country risk and sector risk).
In respect of the debt investments, credit risk is the risk that the fair value of a loan (or more generally, a stream of debt
payments) will decrease due to a change in the borrower’s ability to make payments, whether that change is an actual default
or a change in the borrower’s probability of default.
The Investment Manager’s management of the Subsidiary’s portfolio is underpinned by the ongoing monitoring and mitigation
of credit risk in the portfolio to ensure that any credit events or institutional ratings changes are identified in a timely manner.
The following table analyses the external ratings of the Subsidiary’s portfolio investments, calculated using all available ratings
for the portfolio investments from Standard & Poor’s, Moody’s and Fitch.
Standard & Poor’s rating (or equivalent)
31 March 2022
£
31 March 2021
£
BB- to BB+ 29,472,563 56,382,852
B- to B+ 149,609,675 213,78 2,120
CCC- to CCC+ 12,051,520 670,107
Unrated 1,613,398,803 1,444,275,690
1,804,532,561 1,715,110,769
Prior to any investment purchase, the Investment Adviser provides a credit memorandum to the Investment Manager which
includes a Sequoia Credit Rating (based on an in-house rating system, which takes into account certain facets of the
investment, including the issuer’s security, financial statements, debt covenants and the type of debt) for the debt investment,
along with a recommendation to purchase the asset. The Investment Manager vets the recommendation and liaises with the
Risk Committee where appropriate.
The mitigation of credit risk starts with the Investment Adviser’s Investment Committee, which monitors risks associated with
potential debt investments and makes recommendations for acquisitions whilst allocating a Sequoia Credit Rating.
The Investment Adviser formally performs credit reviews of the full portfolio at least semi-annually or as and when a particular
“Credit Event” occurs.
Five investments rated in the CCC band at the year end have been downgraded during the current and prior years from B or
above.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
105
The table below analyses the Company’s maximum exposure to credit risk for the components of the Statement of
FinancialPosition.
31 March 2022
£
31 March 2021
£
Non-derivative financial assets at fair value through profit or loss 1,770,022,999 1,730,455,551
Cash and cash equivalents 8,759,040 20,018,189
Trade and other receivables 140,558,541 107, 6 23,9 0 5
Derivative financial assets at fair value through profit or loss 17,53 6,684 51,501,035
1,936,877,264 1,909,598,680
In line with the Company’s original Prospectus, a cash management policy has been put in place. Cash deposits will only be
placed with banks that hold a short-term rating of at least A-1, P-1 or F1 from Standard & Poor’s, Moody’s or Fitch respectively
and no more than 40% of net assets may be placed with any one bank at any time. The Investment Manager carefully manages
this process ensuring uninvested cash is dispersed to adequately rated banks whilst maximising interest received. The Bank of
New York Mellon, as Custodian, holds cash in relation to the portfolio operations and in order to settle investment transactions.
At the year end, the Standard & Poor’s short-term credit rating of Bank of New York Mellon was A-1+ (2021: A-1+).
For operational purposes, the Company’s policy is to utilise banks with an investment grade rating or higher (A-3, P-3 or
F3 from Standard & Poor’s, Moody’s or Fitch respectively). The Company’s operational cash is held with the Royal Bank of
Scotland International Limited (“RBSI”). During the year, the Company has used AFEX Markets plc (“AFEX”), Global Reach
Partners (“Global Reach”), Investec Bank (Channel Islands) Limited (“IBCI”), Macquarie Bank Limited (“Macquarie”), Monex
Europe Limited (“Monex”), Morgan Stanley, Nomura Bank International (“Nomura”), RBSI and TTT Moneycorp Limited
(“Moneycorp”) to undertake forward foreign exchange transactions. Hedging collateral may be held with these institutions
ifrequired.
At the year, end the short-term credit ratings of these institutions were as follows (Standard & Poor’s unless otherwise specified):
AFEX, Global Reach and Moneycorp: no rating; IBCI: F2 (Fitch); Macquarie: A-1; Monex: B (Fitch); Morgan Stanley: A-2; Nomura:
F1 (Fitch); and RBSI: A-2 (2021: AFEX, Global Reach and Moneycorp: no rating; IBCI: F2 (Fitch); Macquarie: A-1; Monex: B (Fitch);
and RBSI: A-2).
Bankruptcy or insolvency of any of the above financial institutions may cause the Company’s rights with respect to the cash
held to be delayed or limited. The Company monitors its risk by regularly monitoring the credit ratings of these financial
institutions.
Credit risk arising on debt securities held by the Subsidiary is constantly monitored by the Investment Manager. Credit risk is
mitigated by the diversification of assets by maturity profile and jurisdiction.
The Subsidiary’s exposure to credit risk in respect of its investments, based on the country of registration, is summarised
below:
31 March 2022
£
31 March 2021
£
United States of America/Canada 911,301,521 812,492,696
Europe 488,770,168 454,503,091
United Kingdom 315,087,310 329,926,631
Australia 89,373,562 118,188 ,351
Subsidiary financial assets at fair value through profit or loss (note 6) 1,804,532,561 1,715,110,769
The table below summarises the Subsidiary’s portfolio concentrations:
Largest portfolio
holding of a
single asset
% of total
portfolio
Average
portfolio holding
% of total
portfolio
31 March 2022 3.59 1.32
Largest portfolio
holding of a
single asset
% of total
portfolio
Average
portfolio holding
% of total
portfolio
31 March 2021 3.79 1.39
106
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Notes to the Financial Statements continued
For the year ended 31 March 2022
5. FINANCIAL RISK MANAGEMENT CONTINUED
Credit and counterparty risk continued
The following table summarises the Subsidiary’s exposure to market risk, based on its concentration by industry:
31 March 2022
£
31 March 2021
£
Accommodation 91,727,585 185,205,708
Power 340,451,637 232,318,888
Renewable energy 164,221,483 207,202,711
Telecommunication, media and technology 502,016,613 265,414,467
Transport 149,302,523 254,637,163
Transportation equipment 198,033,196 226,102,271
Utilities 120,128,618 15 7, 978 ,6 61
Other 238,650,906 186,250,900
Subsidiary financial assets at fair value through profit or loss (note 6) 1,804,532,561 1,715,110,769
Activities undertaken by the Company and the Subsidiary may give rise to settlement risk. Settlement risk is the risk of loss due
to the failure of an entity to honour its obligations to deliver cash, securities or other assets as contractually agreed.
For the majority of transactions, settlement risk is mitigated by conducting settlements through a broker to ensure that a
trade is settled only when both parties have fulfilled their contractual settlement obligations. Settlement limits form part of the
credit approval and limit monitoring processes. The Investment Manager also conducts reviews of the settlement process and
Custodian to ensure a stringent settlement process is in place.
Liquidity risk
Liquidity risk is the risk that the Company or the Subsidiary will encounter difficulty in meeting the obligations associated with
its financial liabilities that are settled by delivering cash or another financial asset.
The Company’s policy and the Investment Manager’s approach to managing liquidity risk in both the Company and the
Subsidiary is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both
normal and stress conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.
In accordance with the AIFMD, the Company has implemented a liquidity policy that is consistent with its underlying obligations
and redemption policy, in accordance with the requirements relating to quantitative and qualitative risk limits and which
considers both funding and trading liquidity.
The Investment Manager manages the Company’s liquidity risk by taking into account the liquidity profile and strategy of the
Company and at the Subsidiary level primarily through investing in a diverse portfolio of assets. Liquidity risk mitigation will be
sought through careful selection of assets, asset duration, asset liquidity profiling through loan market interaction, geographical
focus, currency allocations, cash management and other Company considerations.
Given the Company’s permanent capital structure as a closed-ended fund, it is not exposed to redemption risk. However,
the financial instruments of the Company and the Subsidiary include derivative contracts traded over-the-counter and debt
investments, which are not traded in an organised public market and which may be illiquid.
The overall liquidity risk of the Company and the Subsidiary is monitored on a quarterly basis by the Board of Directors and
on an ongoing basis by the Investment Manager. Shareholders will have no right of redemption and must rely, in part, on the
existence of a liquid market in order to realise their investment.
There are no Company assets subject to special arrangements arising from their illiquid nature.
With the exception of the loan payable (see note 15) and certain forward foreign exchange contracts (see note 7),the Company’s
accounts receivable and financial liabilities at 31 March 2022 will all mature within four months of the reportingdate.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
107
Operational risk
Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the processes,
technology and infrastructure supporting the Company’s activities relating to financial instruments, either internally or on the
part of service providers, and from external factors other than credit, market and liquidity risks such as those arising from legal
and regulatory requirements and generally accepted standards of investment management behaviour.
Operational risk is managed so as to balance the limiting of financial losses and reputational damage with achieving the
investment objective of generating returns to investors.
The Investment Manager works with the Board to identify the risks facing the Company and the Subsidiary. The key risks are
documented and updated in the Risk Matrix by the Investment Manager.
The primary responsibility for the development and implementation of controls over operational risk rests with the Board.
This responsibility is supported by the development of overall standards for the management of operational risk, which
encompasses the controls and processes at the service providers and the establishment of service levels with the service
providers.
The Directors’ assessment of the adequacy of the controls and processes in place at service providers with respect to
operational risk is carried out through having discussions with and reviewing reports from the Investment Manager, who
conducts regular discussions with the service providers.
Capital management
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to
sustain future development of the Company. Capital is managed in accordance with the investment policy, in pursuit of its
investment objectives. Share buy-backs may be utilised to manage any discount of share price to NAV, and the Company
has introduced a scrip dividend facility to enhance share ownership where this will be accretive to NAV. There are no duration
restrictions on the investments acquired by the Subsidiary. Target annual returns for investors in the Company are an income
return of 5% to 6% and a capital return of 1% to 2%.
The Company may employ leverage for short-term liquidity or investment purposes. During the year, the Company has
maintained an RCF of £280 million (with effect from 15 November 2021, £325 million) with a consortium of three banks
(witheffect from 15 November 2021, four banks) led by Royal Bank of Scotland International Limited (see note 15).
6. NON-DERIVATIVE FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Year ended
31 March 2022
£
Year ended
31 March 2021
£
Cost at the start of the year 1,796,521,620 1,6 24 , 517,4 5 5
VFNs purchased during the year 399,588,003 4 01, 5 57,473
VFNs redeemed during the year (339,810,204) (229,553,308)
Capitalised interest on VFNs 7,309,761 —
Cost at the end of the year 1,863,609,180 1,796,521,620
Net unrealised losses on non-derivative financial assets at the end of the year (93,586,181) (66,066,069)
Non-derivative financial assets at fair value through profit or loss at the end of the year 1,770,022,999 1,730,455,551
No VFN interest was capitalised during the prior year.
The following table provides a reconciliation of the financial assets at fair value through profit or loss of the Subsidiary to the
Company’s financial assets at fair value through profit or loss:
31 March 2022
£
31 March 2021
£
Subsidiary’s non-derivative financial assets at fair value through profit or loss 1,804,532,561 1,715,110,769
Subsidiary’s net current (liabilities)/assets (34,509,562) 15,344,782
Company’s non-derivative financial assets at fair value through profit or loss 1,770,022,999 1,730,455,551
None of the Subsidiary’s non-derivative financial assets at fair value through profit or loss is subject to any special
arrangements arising from their illiquid nature.
108
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Notes to the Financial Statements continued
For the year ended 31 March 2022
6. NON-DERIVATIVE FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS CONTINUED
The Company’s net gains/(losses) on non-derivative financial assets at fair value through profit or loss in the year comprises
thefollowing:
Year ended
31 March 2022
£
Year ended
31 March 2021
£
Unrealised foreign exchange gains/(losses) on VFNs 44,119,923 (116,070,950)
Capitalised interest on VFNs 7,309,761 —
Unrealised (loss)/gain on revaluation of the Subsidiary (71,640,035) 123,029,904
Net (losses)/gains on non-derivative financial assets at fair value
through profit or loss (20,210,351) 6,958,954
On a look-through basis, the Fund’s cumulative net gains on non-derivative financial assets at fair value through profit or loss as
at 31 March 2022 comprises the following:
Year ended
31 March 2022
£
Year ended
31 March 2021
£
Subsidiary
Investment income during the year 131,663,372 124,057,619
Net return on financial assets and liabilities during the year, including foreign exchange and
VFN interest payable (217,749,529) ( 7,4 9 6 , 8 6 4)
Net other income during the year 14,446,122 6,469,149
Subsidiary (losses)/gains during the year (71,640,035) 123,029,904
Subsidiary losses brought forward (28,127,6 63) (151,157,567)
Subsidiary losses carried forward at the end of the year (99,767,698) (28 ,12 7, 6 6 3 )
Company
Unrealised foreign exchange (losses)/gains on VFNs brought forward (37,938,4 06) 78,132,544
Unrealised foreign exchange gains/(losses) on VFNs during the year 44,119,923 (116,070,950)
Net losses on non-derivative financial assets at fair value through profit or loss
carried forward at the end of the year (93,586,181) (66,066,069)
Fair value measurement
IFRS 13 requires that a fair value hierarchy be established that prioritises the inputs to valuation techniques used to measure
fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value
hierarchy under IFRS 13 are as follows:
• Level 1: inputs that are quoted market prices (unadjusted) in active markets for identical instruments;
• Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as
prices) or indirectly (derived from prices). This category includes instruments valued using: quoted market prices in active
markets for similar instruments; quoted for identical or similar instruments in markets that are considered less than active; or
other valuation techniques in which all significant inputs are directly or indirectly observable from market data; and
• Level 3: inputs that are unobservable. This category includes all instruments for which the valuation technique includes
inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation.
This category includes instruments that are valued based on quoted prices for similar instruments but for which significant
unobservable adjustments or assumptions are required to reflect differences between the instruments.
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the
basis of the lowest level input that is significant to the fair value measurement. For this purpose, the significance of an input
is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require
significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance
of a particular input to the fair value measurement requires judgement, considering factors specific to the asset or liability.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
109
The determination of what constitutes “observable” requires the exercise of judgement. Observable data is considered to be
market data that is readily available, regularly distributed or updated, reliable, not proprietary, and provided by independent
sources that are actively involved in the relevant market.
The Company’s investment in the Subsidiary, through the acquisition of shares and the issue of VFNs, is classified within
Level3, as it is not traded and contains unobservable inputs. The Board considers that the NAV of the Subsidiary is
representative of its fair value.
31 March 2022
Level 1
£
Level 2
£
Level 3
£
Total
£
Assets
Non-derivative financial assets at fair value through profit or loss — — 1,770,022,999 1,770,022,999
Derivative financial assets at fair value through profit or loss — 17,536,684 — 17,53 6,68 4
Total — 17,536,6 84 1,770,022,999 1,787,559,683
Liabilities
Derivative financial liabilities at fair value through profit or loss — 37,14 3,642 — 37,143,642
Total — 37,14 3,642 — 37,143,642
31 March 2021
Level 1
£
Level 2
£
Level 3
£
Total
£
Assets
Non-derivative financial assets at fair value through profit or loss — — 1,730,455,551 1,730,455,551
Derivative financial assets at fair value through profit or loss — 51,501,035 — 51,501,035
Total — 51,501,035 1,730,455,551 1,781,956,586
Liabilities
Derivative financial liabilities at fair value through profit or loss — 3,524,350 — 3,524,350
Total — 3,524,350 — 3,524,350
During the year there have been no transfers between levels of the fair value hierarchy. Such transfers are recognised at the
end of the reporting period in which the change has occurred.
Movements in the Company’s Level 3 financial instruments during the year were as follows:
Year ended
31 March 2022
£
Year ended
31 March 2021
£
Opening balance 1,730,455,551 1,551,492,432
Purchases 399,588,003 4 01, 5 57,473
Sales (339,810,204) (229,553,308)
Capitalised interest 7,309,761 —
Net (losses)/gains on non-derivative financial assets in the year (27,520,112) 6,958,954
Closing balance 1,770,022,999 1,730,455,551
110
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Notes to the Financial Statements continued
For the year ended 31 March 2022
6. NON-DERIVATIVE FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS CONTINUED
Fair value measurement continued
The investments held by the Subsidiary in the underlying portfolio are classified within the fair value hierarchy as follows:
31 March 2022
Assets
Level 1
£
Level 2
£
Level 3
£
Total
£
Non-derivative financial assets at fair value through profit or loss — 773,506,515 1,031,026,046 1,804,532,561
31 March 2021
Assets
Level 1
£
Level 2
£
Level 3
£
Total
£
Non-derivative financial assets at fair value through profit or loss — 947,203,656 767, 9 07,113 1,715,110,769
The Subsidiary’s Level 3 investment valuations are calculated by discounting future cash flows at a yield appropriate to
comparable infrastructure loans or bonds (with such yield assessed primarily from publicly available sources and secondarily
in consultation with brokers and syndicate desks). Spread data will also be cross-referenced to recently priced primary market
transactions if possible. When identifying comparable loans or bonds, for the purpose of assessing market yields, structural
and credit characteristics and project type are also considered.
The equity investments arising from the restructuring of a borrower group during the year have been fair valued principally on a
discounted cash flow basis.
During the year, 20 investments, with a total value of £538,351,566, were transferred from Level 3 to Level 2 of the fair value
hierarchy. Such transfers are recognised at the end of the reporting period in which the change has occurred.
The following table summarises the significant unobservable inputs the Company used to value its Subsidiary’s underlying
investments categorised within Level 3 at 31 March 2022. The table is not intended to be all-inclusive but instead captures the
significant unobservable inputs relevant to our determination of fair values.
31 March 2022
Type Sector
Fair value
£
Primary
valuation technique
Significant
unobservable inputs
Range
input
Private debt Accommodation 4,536,829 Discounted cash flow Discount rate 7. 2%-7.2%
Private debt Power 233,183,201 Discounted cash flow Discount rate 6.7%-12.6%
Private debt Renewable energy 137,697,394 Discounted cash flow Discount rate 4.0%-8.5%
Private debt TMT 312,833,991 Discounted cash flow Discount rate 5.4%-9.0%
Private debt Transport 93,657,988 Discounted cash flow Discount rate 0.0%-9.0%
Private debt Transport assets 59,249,231 Discounted cash flow Discount rate 5.6%-15.2%
Private debt Utilities 43,137,892 Discounted cash flow Discount rate 8.0%-9.5%
Private equity Utilities 15,353,710 Discounted cash flow Discount rate 20.0%-30.0%
Private debt Other 109,982,544 Discounted cash flow Discount rate 6.2%-19.3%
Securitisations
(ABS)
Transport assets 21,393,265
Unadjusted broker
quote
N/A N/A
1,031,026,046
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
111
31 March 2021
Type Sector
Fair value
£
Primary
valuation technique
Significant
unobservable inputs
Range
input
Private debt Accommodation 47, 9 3 5 ,70 2 Discounted cash flow Discount rate 7. 2%-7.2%
Private debt Power 172,493,544 Discounted cash flow Discount rate 7.1% -12.4%
Private debt Renewable energy 137, 5 41,4 4 6 Discounted cash flow Discount rate 4.0%-8.5%
Private debt TMT 101,012,673 Discounted cash flow Discount rate 5.7%-9.0%
Private debt Transpor t 69,426,284 Discounted cash flow Discount rate 5.8%-8.5%
Private debt Transport assets 64,909,902 Discounted cash flow Discount rate 5.5%-5.5%
Private debt Utilities 85,473,024 Discounted cash flow Discount rate 5.1%-20.0%
Private equity Utilities 12,532,958 Discounted cash flow Discount rate 19.9%-30.0%
Private debt Other 55,454,319 Discounted cash flow Discount rate 5.8%-14.3%
Securitisations
(ABS)
Transport assets 21,127, 26 0
Unadjusted broker
quote
N/A N/A
767,9 07,113
The following table shows the Directors’ best estimate of the sensitivity of the Subsidiary’s Level 3 investments to changes in
the principal unobservable input, with all other variables held constant.
Unobservable input
Possible
reasonable change
in input
31 March 2022
effect on
net assets and
profit or loss
£
31 March 2021
effect on
net assets and
profit or loss
£
Discount rate +1% (30,045,418) (22,659,763)
-1% 32,266,790 24,704,688
The possible changes in the discount rate of 1% are regarded as reasonable in view of the current low level of global
interestrates.
Valuation techniques for the investment portfolio of the Subsidiary
With effect from 18 April 2017, the Company engaged PricewaterhouseCoopers LLP (“PwC”) as Valuation Agent, with
responsibility for reviewing the valuations applied by the Investment Adviser in relation to the acquisition of loans and bonds
on a monthly basis. The principles and techniques utilised by the Investment Adviser and reviewed by PwC during the year in
calculating the valuations are described below.
Performing portfolio assets
Valuations of performing portfolio loans and bonds are based on actual market prices (bid-side prices) obtained from
third-party brokers and syndicate desks if available (such brokers to be agreed with the Investment Adviser); if such prices are
not available, then valuations are calculated by discounting future cash flows at a yield appropriate to comparable infrastructure
loans or bonds (with such yield assessed primarily from publicly available sources and secondarily in consultation with brokers
and syndicate desks). Spread data will also be cross-referenced to recently priced primary market transactions if possible.
When identifying comparable loans or bonds, for the purpose of assessing market yields, the following will be taken
intoaccount:
• project type: jurisdiction, sector, project status, transaction counterparties such as construction companies, facility
management providers;
• structural characteristics: maturity and average life, seniority, secured/unsecured, amortisation profile, cash sweeps, par
versus discount; and
• credit characteristics: credit ratios (e.g. equity cushion, asset cover/LTV, debt service coverage ratios or equivalent, debt/
EBITDA), ratings and ratings trajectory.
In calculating the net present value of future cash flows on loans with uncertain cash flows (such as cash-sweep mechanisms),
“banking base case” cash flows are used unless there is clear evidence that the market is using a valuation based upon
another set of cash flows.
112
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Notes to the Financial Statements continued
For the year ended 31 March 2022
6. NON-DERIVATIVE FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS CONTINUED
Valuation techniques for the investment portfolio of the Subsidiary continued
Performing portfolio assets continued
In the case of discount loans with step-up margins, the assumption will be that market discounts are calculated on a
yield-to-worst basis, unless there is clear evidence that the market convention for that loan is different.
For variable rate loans and bonds, for the purposes of projecting cash flows, the market convention of simple compounding to
the next interest payment date is used and swap rates for subsequent interest payments, unless there is clear evidence that
the market convention for that loan or bond is different.
The equity investments arising from the restructuring of a borrower group during the year have been fair valued principally on a
discounted cash flow basis.
Non-performing portfolio assets
Valuations of non-performing portfolio loans and bonds are based on actual market prices obtained from third-party brokers if
available, otherwise the net present value of future expected loan cash flows will be calculated, estimated on the basis of the
median outcome and discount rate that reflects the market yield of distressed/defaulted loans or bonds.
In assessing the median outcome cash flows, a project/corporate model that reflects the distressed state of the project will be
used in order to assess a range of potential outcomes for expected future cash flows with regard to, for example, interest or
principal recoveries and timing. The Investment Adviser will work closely with the Valuation Agent and they will have access
to the Investment Adviser’s own model, analysis and internal valuations. These valuations are subject to a high degree of
management oversight and ultimate approval by the Investment Manager.
In the opinion of the Investment Adviser, as at 31 March 2022, there were three non-performing assets in the portfolio
(2021:two) with a total value of £86.6 million (2021: £78.7 million).
Finalising the net asset value
Once the appropriate position price has been determined to be applied to each investment, the calculation of the Subsidiary’s
net asset value is finalised through the following steps:
• conversion of each investment into GBP based on month-end foreign exchange rates;
• reconciliation of any interest accrued since issue of the most recent coupon; and
• aggregation of the investments into a single Fund NAV position statement.
7. DERIVATIVE FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
As at 31 March 2022, the Company had the following outstanding commitments in respect of open forward foreign exchange
contracts, by currency and by counterparty.
31 March 2022
Selling currency
Currency
amount
Buying
currency
GBP
amount
£
Unrealised
gains
£
Unrealised
losses
£
Net unrealised
gains/(losses)
£
USD 1,374,767,700 GBP 1,011,565,915 2,149,958 (35,119,60 0) (32,969,642)
EUR 657,100,000 GBP 571,624,503 12,740,907 (1,147,537) 11,593,370
NOK 218,000,000 GBP 18,312,662 — (612,065) (612,065)
AUD 16,500,000 GBP 9,174,312 — (264,440) (264,440)
1,610,677,392 14,890,865 (37,14 3,642) (22,252,777)
Buying currency
USD 60,000,000 GBP (43,012,294) 2,645,819 — 2,645,819
(43,012,294) 2,645,819 — 2,645,819
1,567,6 65,098 17,536,684 (37,14 3,642) (19,606,958)
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
113
Counterparty
Unrealised
gains
£
Unrealised
losses
£
Net unrealised
gains
£
Global Reach — (1,371,023) (1,371,023)
Investec Bank 3,614,476 (9,539,921) (5,925,445)
Macquarie 12,483,675 (3,863,531) 8,620,144
Morgan Stanley — (490,671) (490,671)
Nomura 980,010 (15,032,218) (14,052,208)
RBSI 458,523 (6,846,278) (6,387,75 5)
17,53 6,684 (37,143,642) (19,606,958)
31 March 2021
Selling currency
Currency
amount
Buying
currency
GBP
amount
£
Unrealised
gains
£
Unrealised
losses
£
Net unrealised
gains/(losses)
£
USD 1, 26 4 , 9 67,70 0 GBP 941,322,553 27,0 97, 528 (3,194,249) 23,903,279
EUR 588,500,000 GBP 527, 4 0 9 , 212 24,389,659 — 24,389,659
NOK 268,000,000 GBP 22,648,464 13,848 (118,165) (104,317)
AUD 75,000,000 GBP 41, 317,761 — (120,166) (120,16 6)
1,532,697,990 51,501,035 (3,432,580) 48,068,455
Buying currency
EUR 38,000,000 GBP (32,434,785) — (91,770) (91,770)
(32,434,785) — (91,770) (91,770)
1,500,263,205 51,501,035 (3,524,350) 47, 976 , 6 8 5
Counterparty
Unrealised
gains
£
Unrealised
losses
£
Net unrealised
gains
£
AFEX 103,104 (78,961) 24,14 3
Investec Bank 7,318 , 8 8 5 (28,459) 7, 2 9 0,426
Macquarie 28,914,661 (264,247) 28,650,414
Monex 288,802 — 288,802
Moneycorp 1,673,609 (312,053) 1,361,556
RBSI 13, 201,974 (2,840,630) 10,361,344
51,501,035 (3,524,350) 47, 976,6 8 5
All forward foreign exchange positions at the year end were held with Global Reach, Investec Bank (Channel Islands) Limited,
Macquarie Bank Limited, Morgan Stanley, Nomura Bank International or the Royal Bank of Scotland International, as noted
above. There are no master netting arrangements in place.
The forward foreign exchange positions at the year end have various maturity dates ranging from 8 April 2022 to
14December2023 (2021: 1 April 2021 to 29 July 2022).
The net (losses)/gains on forward foreign exchange contracts in the year comprises both realised and unrealised losses
asfollows:
Year ended
31 March 2022
£
Year ended
31 March 2021
£
Net realised gains on forward foreign exchange contracts during the year 27,651,171 17,0 21,9 6 9
Net unrealised (losses)/gains on forward foreign exchange contracts during the year (67,583,642) 89,053,684
Net (losses)/gains on forward foreign exchange contracts during the year (39,932,471) 106,075,653
As at 31 March 2022, £185 (2021: £nil) was held as collateral in margin accounts.
114
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Notes to the Financial Statements continued
For the year ended 31 March 2022
8. CASH AND CASH EQUIVALENTS
31 March 2022
£
31 March 2021
£
Cash held on call or overnight deposit accounts 8,759,040 20,018,189
8,759,040 20,018,189
Under the terms of its forward foreign exchange trading agreements with Global Reach Partners, Investec Bank (Channel
Islands) Limited, Macquarie Bank Limited, Morgan Stanley, Nomura International and Royal Bank of Scotland International,
the Company may be required in certain circumstances to retain balances in collateral accounts representing the applicable
margin on each facility. As at 31 March 2022, £185 (2021: £nil) was held in collateral accounts.
9. INVESTMENT INCOME
Year ended
31 March 2022
£
Year ended
31 March 2021
£
Investment income on financial assets carried at amortised cost:
Cash and cash equivalents — 633
Investment income on the Company’s non-derivative financial assets at fair value through profit
and loss
151,920,575 114,978 ,4 51
151,920,575 114,979,084
10. RELATED PARTIES AND OTHER MATERIAL CONTRACTS
Transactions with Investment Adviser and Investment Manager
Investment Adviser
Sequoia Investment Management Company Limited (the “Investment Adviser”) was appointed as the Investment Adviser
with effect from 28 January 2015. With effect from 1 September 2018, the Investment Adviser is entitled to receive from the
Company a base fee calculated as follows:
• 0.74% of the market value of the investments (excluding committed but not yet invested investments and cash) owned by
the Subsidiary up to £1 billion; plus
• 0.56% of the market value of the investments (excluding committed but not yet invested investments and cash) owned by
the Subsidiary in excess of £1 billion.
All such fees are payable quarterly. 10% of the Investment Adviser’s fee is applied in subscribing for Ordinary Shares in the
Company, which the Investment Adviser shall retain with a three-year rolling lock-up (such that those Ordinary Shares may
not be sold or otherwise disposed of by the Investment Adviser without the prior consent of the Company before the third
anniversary of the date of issue of the relevant Ordinary Shares). During the year, £1,171,029 was paid to the Investment Adviser
in respect of such fees, of which £878,100 was settled by means of share-based payments.
On 1 June 2021, the Company issued 262,589 Ordinary Shares to the Investment Adviser in relation to fees payable for the
quarter ended 31 March 2021.
On 27 August 2021, the Company issued 259,457 Ordinary Shares to the Investment Adviser in relation to fees payable for the
period ended 30 June 2021.
On 26 November 2021, the Company issued 280,150 Ordinary Shares to the Investment Adviser in relation to fees payable for
the period ended 30 September 2021.
On 8 March 2022, the Investment Adviser acquired 294,645 Ordinary Shares in the market in relation to fees payable for the
period ended 31 December 2021.
On 10 May 2022, the Investment Adviser acquired 300,644 Ordinary Shares in the market in relation to fees payable for the
quarter ended 31 March 2022.
The Investment Advisory Agreement can be terminated by either party giving not less than six months’ written notice.
The Investment Adviser’s appointment will be automatically terminated upon termination of the Investment Manager’s
appointment under the Investment Management Agreement.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
115
Investment Manager
Sanne Fund Management (Guernsey) Limited (formerly International Fund Management Limited) (the “Investment Manager”)
was appointed as the Investment Manager with effect from 28 January 2015. With effect from 1 December 2016, the
Investment Manager was entitled to receive a management fee for AIFM services calculated as follows:
• if the Company’s NAV is less than £200 million, 0.075% per annum of the value of the Company’s NAV; plus
• if the Company’s NAV is more than £200 million and less than £400 million, 0.05% per annum of the Company’s NAV not
included above; plus
• if the Company’s NAV is more than £400 million and less than £500 million, 0.04% per annum of the Company’s NAV not
included above; plus
• if the Company’s NAV is more than £500 million, 0.015% per annum of the Company’s NAV not included above.
The fee is subject to an annualised minimum of £80,000 applied on a monthly basis and is payable monthly in arrears. With effect
from 2 May 2017, the management fee was capped at £320,000 per annum, subject to an annual inflation-linked increase
(with effect from 1 May 2022: £370,779; with effect from 1 May 2021: £350,121; with effect from 1 May 2020: £344,269).
The Investment Management Agreement can be terminated by either party giving not less than six months’ written notice.
Ordinary Shares held by related parties
The shareholdings of the Directors in the Company were as follows:
31 March 2022 31 March 2021
Name
Number of
Ordinary Shares
Percentage of
Ordinary Shares
in issue
Number of
Ordinary Shares
Percentage of
Ordinary Shares
in issue
Robert Jennings (Chair) (with other members of his family) 242,666 0.01% 242,666 0.01%
Jan Pethick (with his spouse) 263,820 0.01% 263,820 0.01%
Jon Bridel (held by a connected party) 30,000 0.00% 10,452 0.00%
Sandra Platts (in a family Retirement Annuity Trust Scheme) 27,953 0.00% 26,776 0.00%
Sarika Patel 5,000 0.00% — —
Tim Drayson 39,000 0.00% — —
On 25 April 2022, James Stewart’s spouse acquired 10,000 Ordinary Shares in the Company.
As at 31 March 2022, the Investment Adviser held an aggregate of 3,089,021 Ordinary Shares (2021: 3,458,102 Ordinary
Shares), which is 0.17% (2021: 0.20%) of the issued share capital.
As at 31 March 2022, the members of the Investment Adviser’s founding team held an aggregate of 692,643 Ordinary Shares
(2021: 692,643 Ordinary Shares), which is 0.04% (2021: 0.04%) of the issued share capital.
As at 31 March 2022, the Investment Manager held an aggregate of 50,000 Ordinary Shares (2021: 50,000 Ordinary Shares),
which is 0.00% (2021: 0.00%) of the issued share capital.
Directors’ fees
The Directors, who are the key management personnel of the Company, receive fees for their services as Directors. During the
year, the Directors received fees of £301,175 (2021: 264,750). As at 31 March 2022, there were no Directors’ fees outstanding
(2021: £nil). For details of the structuring of the Directors’ remuneration, please refer to the Directors’ remuneration report on
pages 75 to 76.
Other material contracts
Administrator
With effect from 28 January 2015, Sanne Fund Services (Guernsey) Limited (formerly Praxis Fund Services Limited) (the
“Administrator”) was appointed as the Administrator. With effect from 1 June 2016, the Administrator is entitled to receive from
the Company a base fee calculated as follows and payable monthly:
• if the Company’s NAV is less than £300 million, 0.07% per annum of the value of the Company’s NAV; plus
• if the Company’s NAV is more than £300 million and less than £400 million, 0.05% per annum of the Company’s NAV not
included above; plus
• if the Company’s NAV is more than £400 million, 0.04% per annum of the Company’s NAV not included above.
The base fee is subject to a minimum of £65,000 applied on a monthly basis and was capped at £300,000 per annum, subject
to an annual inflation-linked increase (with effect from 1 May 2022: £331,178; with effect from 1 May 2021: £312,728; with effect
from 1 May 2020: £307,500). The Administrator is also entitled to a fee for company secretarial services based on time costs.
The Administration Agreement can be terminated by either party giving not less than 90 days’ written notice.
116
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Notes to the Financial Statements continued
For the year ended 31 March 2022
10. RELATED PARTIES AND OTHER MATERIAL CONTRACTS CONTINUED
Other material contracts continued
Subsidiary Administrator
With effect from 28 January 2015, TMF Luxembourg S.A. (the “Subsidiary Administrator”) was appointed as the administrator
of the Subsidiary. With effect from 1 January 2022, the Subsidiary Administrator is entitled to receive an annual fee from the
Subsidiary of €85,001 (£71,592) (with effect from 1 January 2021: €60,074 per annum (£50,597)).
Custodian
With effect from 27 February 2015, The Bank of New York Mellon (the “Custodian”) was appointed as the Custodian. The
Custodian is entitled to receive fees, as agreed from time to time, for services provided as portfolio administrator, depositary,
calculating agent, account bank and custodian.
The Custodian Agreement can be terminated by either party giving not less than 60 days’ written notice.
The amounts charged for the above-mentioned fees during the year ended 31 March 2022 and outstanding at 31 March 2022
are as follows:
Year ended
31 March 2022
Charge for
the year
£
Amounts
outstanding at
31 March 2022
£
Investment Adviser’s fees 11,836,201 2,961,858
Administration fee 453,630 —
Investment Manager’s fees 349,634 —
Directors’ fees and expenses 305,202 —
Sub-administration fee
1
96,791 49,013
Fees payable to the Custodian
1
750,720 236,000
13,792,178 3,246,871
Year ended
31 March 2021
Charge for
the year
£
Amounts
outstanding at
31 March 2021
£
Investment Adviser’s fees 11,253,254 2,831,830
Administration fee 440,311 16,209
Investment Manager’s fees 344,938 —
Directors’ fees and expenses 24 6,127 —
Sub-administration fee
1
50,703 14,013
Fees payable to the Custodian
1
790,333 220,614
13,125,666 3,082,666
1. Includes expenses of both the Company and the Subsidiary.
Overdraft facility
On 15 February 2016, the Company entered into an overdraft facility with the Royal Bank of Scotland International Limited with
a limit of £1,500,000. As at 31 March 2022, this facility had not been utilised.
Loan collateral
With effect from 15 November 2021, security for an RCF of £325 million (previously £280 million) (see note 15) with a
consortium of banks led by the Royal Bank of Scotland International Limited was provided by, inter alia, a charge over the bank
accounts of the Company, a charge over the shares in the Subsidiary held by the Company and a charge on the assets of the
Subsidiary.
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
117
11. TA X STATUS
The Company is exempt from Guernsey income tax and is charged an annual exemption fee of £1,200 under The Income Tax
(Exempt Bodies) (Guernsey) Ordinance 1989.
12. SHARE CAPITAL
The Company’s Ordinary Shares and C shares are classified as equity. Incremental costs directly attributable to the issue of
Ordinary Shares and C shares are recognised as a deduction in equity and are charged to the relevant share capital account.
The Company undertakes that it shall ensure that its records and bank accounts are operated in such a way that the assets
attributable to the Ordinary Shares and the C shares can be separately identified. On the conversion of C shares to Ordinary Shares,
C Shareholders shall be allocated an appropriate number of Ordinary Shares, calculated by reference to the conversion ratio.
The authorised share capital of the Company is represented by an unlimited number of shares of nil par value, to which the
following rights are attached:
(a) dividends: Ordinary Shareholders and C Shareholders are entitled to receive, and participate in, any dividends or other
distributions resolved to be distributed from their respective pools of assets in respect of any accounting period or other
period, provided that no calls or other sums due by them to the Company are outstanding;
(b) winding up: On a winding up, the Ordinary Shareholders and C Shareholders shall be entitled to the surplus assets
remaining in their respective pools of assets after payment of creditors; and
(c) voting: Ordinary Shareholders have the right to receive notice of and to attend, speak and vote at general meetings of the
Company and each holder being present in person or by proxy shall upon a show of hands have one vote and upon a poll one
vote in respect of every Ordinary Share held. C Shareholders have no right to attend or vote at any meeting of the Company,
except that the consent of C Shareholders is required for any alteration to the Memorandum or Articles of the Company; for the
passing of any resolution to wind up the Company; and for the variation or abrogation of the rights attached to the C shares.
The Company may acquire its own Ordinary Shares, up to a maximum number of 14.99% per annum of the Ordinary Shares
inissue.
There were no C shares in issue during either the current or prior years.
Issued share capital
Ordinary Shares
31 March 2022
Ordinary Shares
Number
31 March 2021
Ordinary Shares
Number
Share capital at the beginning of the year 1,763,120,710 1,654,671,448
Share capital issued and fully paid 5,118,288 108,449,262
Total share capital at the end of the year 1,768,238,998 1,763,120,710
Issued share capital
Ordinary Shares
31 March 2022
Ordinary Shares
£
31 March 2021
Ordinary Shares
£
Share capital at the beginning of the year 1,831,856,145 1,719,065,509
Share capital issued and fully paid 5,534,386 114,157,4 0 0
Share issue costs — (1,366,764)
Total share capital at the end of the year 1,837,39 0,531 1,831,856,145
During the year, 802,196 Ordinary Shares have been issued to the Investment Adviser in relation to fees payable for the period
from 1 April 2021 to 31 December 2021, at an average issue price of 109.46p per Ordinary Share (see note 10).
During the year, 4,316,092 (2021: 3,134,822) Ordinary Shares were issued in respect of scrip dividends totalling £4,656,286
(2021: £3,315,258).
13. BASIC AND DILUTED EARNINGS PER SHARE
Year ended
31 March 2022
Year ended
31 March 2021
Profit for the financial year £62,718,690 £ 20 9,9 57,8 0 4
Weighted average number of Ordinary Shares 1,765,918,903 1,664,130,350
Basic and diluted earnings per Ordinary Share 3.55p 12.62p
The weighted average number of Ordinary Shares is based on the number of Ordinary Shares in issue during the year under
review, as detailed in note 12.
There were no dilutive financial instruments in issue during the years ended 31 March 2022 or 31 March 2021.
118
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
Notes to the Financial Statements continued
For the year ended 31 March 2022
14. TRADE AND OTHER RECEIVABLES
31 March 2022
£
31 March 2021
£
VFN interest receivable 140,058,541 107, 6 2 3 , 9 0 5
Other receivables 500,000 —
Prepaid finance costs 2,400,865 375,430
Other prepaid expenses 132,695 62,631
143,0 92 ,101 108,061,966
The other receivable represents a deposit paid in respect of the Custodian’s legal fees relating to the Company’s investment in
Bulb Energy.
15. LOAN PAYABLE
On 6 December 2017, the Company executed a 36-month £100 million multi-currency RCF with the Royal Bank of Scotland
International Limited (“RBSI”) as lead arranger. On 9 August 2018, the Company exercised a £50 million incremental accordion
tranche of the RCF, with the same maturity date as the initial RCF. During the prior year, the facility was extended by a further
£130 million to £280 million and the maturity date extended by a year to 6 December 2021. In November 2021, the facility was
refinanced and increased to £325 million for a further term of three years with a £75 million accordion facility. The proceeds of
the loan are to be used in or towards the making of investments in accordance with the Company’s investment policy.
The loan imposes an interest cover test and is secured by, inter alia, a charge over the bank accounts of the Company, a
charge over the shares in the Subsidiary held by the Company and a charge on the assets of the Subsidiary. In accordance
with the Company’s investment policy, any borrowings undertaken by the Company will not exceed 20% of the value of the
assets of the Company less its liabilities. Should the value of the underlying assets held in the Subsidiary fall below a certain
level, further margin calls may be made by RBSI; however, no margin calls were made during the current or prior years.
For the year ended 31 March 2022
GBP facility
GBP
USD facility
GBP
Total
GBP
Balance brought forward 72,300,000 11,594, 203 83,894,203
Drawdowns 6,000,000 30,023,268 36,023,268
Capitalised loan interest and fees 442,568 5,039 447,607
Foreign exchange revaluations — 1,003,842 1,003,842
Balance carried forward 78,742,568 42,626,352 121,368,920
For the year ended 31 March 2021
GBP facility
GBP
USD facility
GBP
Total
GBP
Balance brought forward 35,000,000 — 35,000,000
Drawdowns 162,300,000 12,883,485 175,183,4 8 5
Repayments (125,000,000) — (125,000,000)
Foreign exchange revaluations — (1,289,282) (1,289,282)
Balance carried forward 72,300,000 11,594,203 83,894,203
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
119
Interest on the loan is charged at a rate of SONIA (or equivalent) plus 2.0% per annum (2021: LIBOR (or EURIBOR for any
loan denominated in Euro) plus 2.1% per annum). The facility is sustainability-linked, with margin premium or discount of up
to 0.05% linked to the ESG score of the SEQI investment portfolio as verified by an independent limited assurance process,
with effect from 1 July 2022. The sustainability feature of the RCF underlines the Company’s commitment to its long-term
sustainable investment initiative. Loan interest of £3,449,846 (2021: £3,358,494) and upfront, facility and break fees of
£1,072,676 (2021: £736,092) have been recognised as expenses in the Statement of Comprehensive Income during the year.
For the year ended 31 March 2022
GBP facility
GBP
USD facility
GBP
Total
GBP
Balance brought forward 72,300,000 11,594, 203 83,894,203
Drawdowns 6,000,000 30,023,268 36,023,268
Capitalised loan interest and fees 442,568 5,039 447,607
Foreign exchange revaluations — 1,003,842 1,003,842
Balance carried forward 78,742,568 42,626,352 121,368,920
For the year ended 31 March 2021
GBP facility
GBP
USD facility
GBP
Total
GBP
Balance brought forward 35,000,000 — 35,000,000
Drawdowns 162,300,000 12,883,485 175,183,4 8 5
Repayments (125,000,000) — (125,000,000)
Foreign exchange revaluations — (1,289,282) (1,289,282)
Balance carried forward 72,300,000 11,594,203 83,894,203
The carrying value of the loan is considered to be a reasonable approximation of its fair value.
16. TRADE AND OTHER PAYABLES
31 March 2022
£
31 March 2021
£
Investment Advisory fee payable 2,961,858 2,831,830
Loan interest payable 521,452 19 9,116
Other payables 372,120 456,861
3,855,430 3 ,4 8 7, 8 07
17. COMMITMENTS
As at 31 March 2022, £66.3 million (2021: £62.7 million) was committed by the Subsidiary to new or existing investments.
These commitments will be settled from the existing cash reserves of the Company and the Subsidiary and through
drawdowns from the Company’s RCF.
18. SUBSEQUENT EVENTS
On 21 April 2022, the Company declared an interim dividend of 1.5625p per Ordinary Share in respect of the quarter ended
31March 2022. The dividend was paid on 27 May 2022.
On 10 May 2022, the Investment Adviser acquired 300,644 Ordinary Shares in the market in relation to fees payable for the
quarter ended 31 March 2022.
There have been no other significant events since the year end which would require revision of the figures or disclosures in the
Financial Statements.
120
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
DIRECTORS
Robert Jennings, CBE
(Independent non-executive Chair)
Sandra Platts
(Senior Independent non-executive
Director)
Jan Pethick
(Independent non-executive Director)
Jon Bridel
(Independent non-executive Director)
Sarika Patel
(Independent non-executive Director,
appointed 4 August 2021)
Tim Drayson
(Independent non-executive Director,
appointed 1 January 2022)
James Stewart
(Independent non-executive Director,
appointed 1 January 2022)
REGISTERED OFFICE
Sarnia House
Le Truchot
St Peter Port
Guernsey GY1 1GR
INVESTMENT ADVISER
Sequoia Investment
Management Company
Limited
Kent House, 6th Floor
14-17 Market Place
London W1W 8AJ
INDEPENDENT AUDITOR
(WITH EFFECT FROM
7 DECEMBER 2021)
Grant Thornton Limited
Lefebvre House
Lefebvre Street
St Peter Port
Guernsey GY1 3TF
INDEPENDENT AUDITOR
(UNTIL 7 DECEMBER 2021)
KPMG Channel Islands Limited
Glategny Court
Glategny Esplanade
St Peter Port
Guernsey GY1 1WR
ADMINISTRATOR AND
SECRETARY
Sanne Fund Services
(Guernsey) Limited (formerly
Praxis Fund Services Limited)
Sarnia House
Le Truchot
St Peter Port
Guernsey GY1 1GR
SUBSIDIARY ADMINISTRATOR
TMF Luxembourg S.A.
46A, Avenue JF Kennedy
L-1855 Luxembourg
LEGAL ADVISER
(AS TO UK LAW)
Cameron McKenna Nabarro
Olswang LLP
78 Cannon Street
London EC4N 6AF
LEGAL ADVISER (AS TO
GUERNSEY LAW)
Mourant
Royal Chambers
St Julian’s Avenue
St Peter Port
Guernsey GY1 4HP
CUSTODIAN
Bank of New York Mellon
1 Canada Square
London E14 5AL
INVESTMENT MANAGER
Sanne Fund Management
(Guernsey) Limited
(formerly International
FundManagement Limited)
Sarnia House
Le Truchot
St Peter Port
Guernsey GY1 1GR
REGISTRAR
Computershare Investor
Services (Guernsey) Limited
1st Floor, Tudor House
Le Bordage
St Peter Port
Guernsey GY1 1DB
BROKER
Jefferies International Limited
100 Bishopsgate
London EC2N 4JL
VALUATION AGENT
PricewaterhouseCoopers LLP
7 More London Riverside
London SE1 2RT
COMMUNICATIONS ADVISER
Tulchan Communications LLP
85 Fleet Street
London EC4Y 1AE
Officers and advisers
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
121
DISCLOSURE OF DIRECTORSHIPS IN PUBLIC COMPANIES LISTED ON RECOGNISED STOCK
EXCHANGES
The Directors who held office during the year have held the following directorships in other public companies during the year:
Company name Stock Exchange
Robert Jennings, CBE
3i Infrastructure plc (resigned 16 July 2021) London Stock exchange – Main Market
Sandra Platts
NB Global Floating Rate Income Fund Limited (resigned 14 June 2021) London Stock Exchange – Main Market
Taylor Maritime Investments Limited (appointed 28 April 2021) London Stock Exchange – Main Market
UK Commercial Property REIT (resigned 31 December 2021) London Stock Exchange – Main Market
Marble Point Loan Financing Limited London Stock Exchange – SFS
Jon Bridel
DP Aircraft 1 Limited London Stock Exchange – SFS
Fair Oaks Income Limited London Stock Exchange – SFS
SME Credit Realisation Fund Limited (in wind-down) London Stock Exchange – Main Market
The Renewables Infrastructure Group Limited (resigned 27 May 2022) London Stock Exchange – Main Market
Sarika Patel
abrdn Equity Income Trust plc London Stock Exchange – Main Market
Foresight Sustainable Forestry Company plc (appointed 26 October 2021) London Stock Exchange – Main Market
SDCL Energy Efficiency Income Trust plc (appointed 1 January 2022) London Stock Exchange – Main Market
Jan Pethick None
James Stewart None
Tim Drayson None
122
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
ALTERNATIVE PERFORMANCE MEASURES USED IN THE ANNUAL REPORT
Portfolio yield-to-maturity/Gross portfolio return
Portfolio yield-to-maturity is the total annualised return anticipated on a portfolio of interest-bearing investments, discounted
for the time value of money and based on the assumption that the investments are held to their maturity. This provides a useful
measure of likely projected returns on a portfolio.
NAV per Ordinary Share
NAV per Ordinary Share is a calculation of the Company’s NAV divided by the number of Ordinary Shares in issue and provides
a measure of the value of each Ordinary Share in issue.
Ordinary Share (discount)/premium to NAV
Ordinary Share (discount)/premium to NAV is the amount by which the Ordinary Share price is lower/higher than the NAV per
Ordinary Share, expressed as a percentage of the NAV per Ordinary Share, and provides a measure of the Company’s share
price relative to the NAV.
Internal rate of return (“IRR”)
Internal rate of return is a calculation of the prospective or retrospective annualised profitability of an investment over a number
of years, the IRR being the discount rate that would make the net present value of the actual or potential cash flows from the
investment equal to zero. This provides a useful measure of the profitability of an investment, on either a NAV or share price
basis.
Total NAV/share price return
Total NAV return/total share price return are calculations showing how the NAV/share price per share has performed over
a period of time, taking into account dividends paid to Shareholders. It is calculated on the assumption that dividends are
reinvested at the prevailing NAV/share price on the last day of the month that the shares first trade ex-dividend. This provides a
useful measure to allow Shareholders to compare performances between investment funds where the dividend paid may differ.
Year ended 31 March 2022
Total NAV
return
Total share
price return
Opening NAV/share price per share 103.18p 104.20p
Closing NAV/share price per share (a) 100.50p 102.80p
Dividends paid (b) 6.25p 6.25p
Weighted average NAV/share price per share on month end ex-dividend (c) 100.47p 105.64p
Dividend adjustment factor (d = b / c +1) (d) 1.0622 1.0592
Adjusted closing NAV/share price per share (e = a x d) (e) 106.75p 108.88p
Total NAV/share price return 3.5% 4.5%
Appendix
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
123
Cash dividend cover
Cash dividend cover is the ratio of a company’s operating cash flow divided by its total dividend payments, and is used as a
measure of the extent to which a company is able to generate sufficient cash flow to pay its dividends.
For financial year 2022 the dividend cash cover calculation is as follows:
Item
Amount
(£m)
Cash interest received 112.02
Consent fees received in cash 1.19
Prepayment fees 4.47
Upfront fees/discounts amortised 15.43
Cash expenses (21.04)
Net cash income 112.07
Dividend paid 105.68
Dividend cash cover 1.06x
Ongoing charges ratio (“OCR”)
The ongoing charges ratio of an investment company is the annual percentage reduction in shareholder returns as a result
of recurring operational expenditure. Ongoing charges are classified as those expenses which are likely to recur in the
foreseeable future, and which relate to the operation of the company, excluding investment transaction costs, financing
charges and gains or losses on investments. The OCR is calculated as the total ongoing charges for a period divided by the
average net asset value over that period.
Year ended 31 March 2022 Year ended 31 March 2021
The Company
£
The Subsidiary
£
Total
£
The Company
£
The Subsidiary
£
Total
£
Total expenses 20,725,720 903,240 21,628,960 18,475,469 904,324 19,379,793
Non-recurring expenses (5,977,811) — (5,977,812) (4,826,872) — (4,826,872)
Total ongoing expenses 14,747,909 903,240 15,651,149 13,648,597 904,324 14,552,921
Average NAV 1,795,666,866 1,663,645,419
Ongoing charges ratio (using
AIC methodology)
0.87% 0.87%
124
Sequoia Economic Infrastructure Income Fund Limited
Annual Report and Accounts 2022
For further information, please contact:
SEQUOIA INVESTMENT
MANAGEMENT COMPANY
LIMITED
+44 (0)20 7079 0480
Steve Cook
Dolf Kohnhorst
Randall Sandstrom
Greg Taylor
JEFFERIES INTERNATIONAL
LIMITED
+44 (0)20 7029 8000
Neil Winward
Gaudi le Roux
TULCHAN COMMUNICATIONS
(FINANCIAL PR)
+44 (0)20 7353 4200
Martin Pengelley
Elizabeth Snow
Laura Marshall
SANNE FUND SERVICES
(GUERNSEY) LIMITED
(FORMERLY PRAXIS
FUND SERVICES LIMITED)
(COMPANY SECRETARY)
+44 (0)1481 755530
Matt Falla
Katrina Rowe
ABOUT SEQUOIA ECONOMIC
INFRASTRUCTURE INCOME
FUND LIMITED
The Company seeks to provide
investors with regular, sustained,
long-term distributions and capital
appreciation from a diversified portfolio
of senior and subordinated economic
infrastructure debt investments. The
Company is advised by Sequoia
Investment Management Company
Limited.
LEI: 2138006OW12FQHJ6PX91
Contacts
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GY1 1GR
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Sequoia Economic Infrastructure Income Fund LimitedAnnual Report and Accounts 2022
Sequoia Economic Infrastructure Income Fund LimitedAnnual Report and Accounts 2022