VPC Specialty Lending posts loss driven by equity volatility
VPC Specialty Lending Investments has declared a dividend of 4p per share for the six months to 30 June, although it has revealed a loss of 4.06 per cent on a net asset value (NAV) basis.
The investment company, which provides asset-backed lending to emerging and established businesses, is trading on a 20.95 per cent discount to NAV, according to the group’s half-year results published today.
Its total net loss over the period was £12.88m, compared with a return of £39.95m over the same period in 2021.
“It has been an unpredictable and volatile macroeconomic environment,” said Graeme Proudfoot, chairman.
“After two years of resilience during the pandemic, 2022 has brought further economic and geopolitical challenges. These include persistently high inflation, a rising interest rate environment, and war in Ukraine. I am therefore encouraged that our investment manager has continued to manage risk effectively while supporting portfolio companies.”
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The overall negative NAV return over the period was mainly due to the fall in the equity interests the company had in high-growth technology businesses. The equity proportion of the portfolio has fallen from 26 per cent to 22 per cent during the period, partly because of sales and partly because of market movements.
A big portion of the losses were attributed to the company’s investment in Bakkt Holdings, a digital asset platform in the US. But despite the volatility in the market, inception-to-date return has been 0.73 per cent.
The trust’s core lending business represents 70 per cent of the total portfolio. The group said it continues to benefit from a secure lending position, delivering minimal capital losses and high level of income generation.
In the first six months, the company generated gross revenue returns of 5.88 per cent as a percentage of NAV from its balance sheet investments.
The smallest portion of the portfolio, representing approximately 1.4 per cent, is the company’s investments in the special purpose acquisition company (Spac) market. In the current macro-economic environment, Spacs have also suffered, impacting the overall return of the portfolio.
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The company is feeling the double-edged sword of rising interest rates. While its loans, primarily consisting of senior secured floating rate credit facilities, have seen returns increase, rising rates may impact the ability of borrowers to pay off their debt.
However, the company continues to believe that its portfolio is in a strong position. In addition it is seeing an increase in demand for private debt, creating opportunities for investors.
Victory Park Capital Advisors, the investment manager of the trust, noted: “With inflation reaching new heights and interest rates on the rise, the company believes inflows to private debt – and specifically strategies focused on asset-backed lending – will continue as investors seek alternatives to traditional fixed income. VPC’s asset-backed, senior secured credit strategy aims to offer higher yields and greater structural protections than traditional lenders, with an emphasis on capital preservation and income generation across market cycles.”
VPC Specialty Lending has delivered a 46.7 per cent return over three years, versus the Debt – Direct Lending sector’s 26.6 per cent performance, according to the Association of Investment Companies.
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