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VPC Specialty Lending discount moves to 30% as it announces dividend still below target

By Daniel Lanyon on 18th November 2016

The closed-ended alternative lending fund has reported its third dividend of year, again below its 2p target. 



The £392m VPC Specialty Lending investment trust has announced a dividend of 1.5p for the three-month period to 30 September, according to regulatory filings.


This comes at a time when the its discount to its net asset value [NAV] has reached 30.3 per cent, a sharp move from 22 per cent three weeks ago.


As one of the largest funds investing in the online lending market, VPC Specialty Lending has attracted investors bullish on the wider sector including Neil Woodford and Invesco Perpetual’s Mark Barnett who collectively own about half of the trust’s shares.


It made quick gains in the early days following its launch in March 2015 mostly due to its move to a premium. However, after a somewhat tricky year to date it has shifted its strategy amid lower than expected quarterly dividends of 1.5p rather than is 2p target. This latest dividend is its third at this below target level.


The trust's share price has fallen as a consequence to its lowest level since the fund's launch this year.


VPC Speciality Lending's Share Price since launch



Source: Google


VPC recently announced that it had accelerated a strategic shift to balance sheet lenders, moving away from its previous preference for loans originated through p2p platforms


The portfolio's total return has been hit hard by weakness in its share price, a move to a discount of more than 22 per cent at present as well as several other issues in recent months relating to its portfolio and currency hedging positions.


The managers of the fund say this has prompted the strategic move into greater balance sheet exposure instead of loans from p2p and marketplace lending platforms. Balance Sheet loans now represent 51 per cent of the invested portfolio, compared to 43 per cent in June.  They believe ongoing ‘industry illiquidity’ has created attractive opportunities for balance sheet lending.


Balance sheet loans are made through a special purpose vehicle [SPV] with a platform using the cash to originate loans. This means the fund’s counter-party risk is with the platform in a balance sheet loan, but the risk is mitigated by the platform suffering the first losses from defaults, as well as by the SPV holding loans as collateral.


Analysts at Numis Securities note that as the fund targets a dividend of 8 per cent per year and the past three quarterly dividends have been below this level at 1.5p it will fall short of expectations.


They add that despite a substantial discount to net asset value appearing potentially attractive, there is little scope for its discount to narrow until the fund consistently delivers monthly returns more closely in-line with its target


The dividend will be paid on 19 December 2016 to shareholders on the register as at 25 November 2016. The ex-dividend date is 24 November 2016.


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