VICTORY Park Capital (VPC) Specialty Lending Investments is winding down its peer-to-peer lending portfolio, after losses triggered substantial writedowns last month.
The London-listed fund, which makes P2P and balance sheet investments, said on Tuesday that its revenue return (including income) for October fell to -1.25 per cent, from 0.16 per cent in September.
Its revenue return was 78 basis points, offset by a capital loss of -203 basis points, equating to a net return of -125 basis points (or -1.25 per cent).
This was mainly due to capital losses within “certain marketplace investments,” which made up the lion’s share of the decline, as well as losses from securitised loans through US platform Avant.
The fund invests in a wide range of online lenders worldwide, including UK firms Assetz Capital and Funding Circle and US platforms Prosper and LoanMart.
Cormac Leech, principal at VPC, would not disclose which marketplace/P2P investments had been written down, but acknowledged that last month’s losses were “on the lumpy side”.
“The key thing is that the marketplace lending (MPL) portfolio is not quite seasoned, while the balance sheet side of investments is doing really well,” he told Peer-to-Peer Finance News.
He said that accounting procedures had led to front-loaded gains during the first nine months of the portfolio’s existence, which steeply dropped off causing headwinds now.
VPC is moving more of its capital into balance sheet investments, as they typically offer higher returns with less leverage. Last month, the fund said that it had streamlined its whole loans portfolio to focus more on balance sheet lending.
“When marketplace loans get repaid, we don’t invest them back into MPL but use them for balance sheet lending,” said Leech.
The average balance sheet loan tends to come with a highly attractive 16 per cent coupon for the fund, meaning that the portfolio would need to see major losses to lose money.
“A lot of things would need to go wrong to lose money on our balance sheet loans,” said Leech. “It’s a much safer way to invest and it means the platform has skin in the game which is important to investors.
“VPC is super experienced on the balance-sheet lending side. It has a stronger track record on this than MPL.”
The fund has already made a drastic change to the weighting of its portfolio. At the end of last year, MPL loans made up 58 per cent of investments, with balance sheet loans equating for just 22 per cent. Now, MPL loans make up 40 per cent and balance sheet loans account for 47 per cent.
VPC has made around $4.6bn (£3.7bn) of investments in alternative lending platforms since 2010. But market conditions have been challenging of late, particularly due to the Brexit-induced weakening of the pound. Its shares are currently trading at around a 25 per cent discount to net asset value.
The investment fund said at the time of its half-year results in September that it would start using 20 per cent of its monthly management fees to purchase the fund’s shares while they are trading at a discount, to boost confidence during difficult market conditions.
Shares were trading 1.75 per cent lower at 70.25p at 15.06 GMT.