By Daniel Lanyon on Wednesday 6 July 2016
The £388m VPC Specialty Lending investment trust has seen a 0.62 per cent fall in its net asset value (NAV) for the month of May.
The news is a blow to investors who have already seen pressure in the trust’s share price that has prompted its discount to widen out to more than 20 per cent over the past six months.
Performance of discount/premium
Overall the portfolio saw a 0.38 per cent revenue return in the month but also a 1 per cent capital loss due to the write down of some of its securitised loans as well as to a lesser extent some currency fluctuations.
Last November VPC led an asset-backed securitisation of US platform Avant's consumer loans alongside private equity giant KKR. A portion of these are the loans that have been written down.
The fund has participated in two securitisations of Avant loans, This month's loss highlights how the leverage in these securitisations is likely to make NAVs more volatile, according to according to analysts at Numis Securities.
“The mark-to-market write-down of securitisations was due to higher than anticipated losses within the loan portfolio, leading to a lower than projected, though positive, yield,” Numis said.
“It is disappointing to see a decline in VPC Speciality Lending’s NAV in May, driven by the underperformance of loans within one of its securitisations.”
VPC Specialty Lending has a target dividend of 8 per cent. which is equivalent to a monthly revenue return of 0.64 per cent, therefore its revenue return for May was significantly behind at 0.38 per cent.
"We believe the fund needs to deliver consistent monthly returns in line with its target before the discount is likely to narrow significantly," Numis added.
According to AltFi Data, VPC Specialty Lending had outerperformed the broader UK marketplace lending space, as measured by the Liberum AltFi Returns index (the LARI) since its launch back in March 2015 until recently.
Performance of VPC Specilaity Lending NAV since launch vs LARI
Source: AltFi Data
The fund hedges its exposure to currencies other than sterling to manage volatility. However, the recent weakness of sterling versus the Dollar following on from the Brexit vote has led to increased margin requirements with its currency counterparties, resulting in cash drag on returns.
Victory Park Capital, which manages the trust, also announced that it will now use 20 per cent of its monthly management fee of 1 per cent of gross assets to buy back its own shares at market prices. However, this will only occur when the shares are trading at a discount and the manager does not holds less than 10 per cent of total voting rights.
Brendan Carroll, Senior Partner of Victory Park Capital Advisors, said: "We have a strong belief in the investment proposition of VPC Speciality Lending plc. We have elected to invest 20 per cent. of our monthly management fee in the shares to demonstrate our commitment and confidence."
VPC Specialty Lending also made initial investments in several platforms in May including Fundbox, a provider of short-term working capital advances to small and medium-sized businesses in the U.S and also bought a new tranche of Elevate Credit.