East Capital closes Power Utilities fund, returns money to Explorer

Swedish manager East Capital’s Power Utilities Fund is to pay €14.2m next week to East Capital Explorer – a Nasdaq OMX listed investment company – as part of the process of closing the fund.

Remaining proceeds in the utilities fund are expected to be paid out in early 2013. Data from East Capital shows the fund’s NAV is down -44.27% since launch in December 2007.

Mia Jurke, CEO of East Capital Explorer said: “We fully support the decision to close down the fund and the power utilities sector will no longer be one of East Capital Explorer’s key investment themes. The risk in the sector has increased significantly and at the same time we see many interesting investment opportunities elsewhere in today’s attractively valued market, especially among domestic oriented companies and real estate in the Baltics”.

Explorer, which uses East Capital as its investment manager, has generated a negative pre-tax return of -2.6% from its investment in the utilities fund, which has underperformed its benchmark by about 56% between December 2007 to the end of November 2012. Explorer originally invested €81m in the fund, but has been withdrawing its money since 2010. As of the end of November its holding in the utilities fund was worth €25.4m, or about 9% of the total NAV of the investment company.

Peter Elam Håkansson, representing East Capital as investment manager of Explorer, said: “Due to increased regulatory risks, governmental intervention and unclear reform direction in the sector, we have now decided to terminate the fund. We believe that there may still be selective investment opportunities in the power utilities sector; however, not enough for a separate strategy”.

The Power Utilities fund had aimed to benefit from the expected consolidation and liberalization of the Russian utilities sector.

Explorer is mainly invested in East Capital’s specialist funds, but also makes direct investments into private and public companies.

Recently an extraordinary general meeting approved plans to enable the investment company’s board to redeem up to 5% of outstanding shares, which Jurke said provides “a possibility for our shareholders to receive a cash distribution corresponding to a yield of 8%.”

 

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