Old Mutual Global Investors’ stake in the VPC Specialty Lending fund has fallen below 6 per cent for the first time, according to regulatory filings.
The £358m VPC Specialty Lending investment trust is the second largest portfolio offering investors exposure to the nascent market for online lending and has high profile backers in the form of Invesco Perpetual’s Mark Barnett and Neil Woodford among others.
It was launched back in March 2015 and like many of its peers such as P2P Global Investments, the largest listed portfolio, it initially moved to a hefty premium. Today, however, because of bearishness to the sector and more specific issues with its underlying book, it now sits on its widest discount since launch. To combat the effect, VPC has been buying back its own shares in 2017.
Old Mutual was the third largest shareholder of the investment trust at its launch back in 2015, but it has been selling some of its exposure to the investment trust
According to Altfi Data, the trust's net asset value (NAV) had outperformed the broader UK marketplace – as measured by the AltFi Data Marketplace Lending Returns Index - since its inception until around September 2016. More recently, its NAV has fallen behind the index. It’s total return, which includes its share price movement, illustrated below in the orange line demonstrates these movements have hit investors such as Old Mutual hard.
The managers of the fund have been moving into greater balance sheet exposure instead of loans from p2p and marketplace lending platforms in recent months. Balance Sheet loans now represent more than half of the invested portfolio, compared to 43 per cent in June 2016. The managers say that 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.