VPC Specialty Lending fund sees income growth but NAV hit

By Daniel Lanyon on Tuesday 4 July 2017

Alternative LendingDigital Banking

The second largest listed UK fund specialising investing in online lending is aiming to restore market confidence.

The £350m VPC Specialty Lending fund saw a fall in its net asset value [NAV] of 0.68 per cent in May after a 0.62 per cent income return but a -1.3 per cent capital loss. It's income return was the fifth consecutive payout increase.

Last year the closed-ended portfolio began to transition into greater balance sheet lending exposure at the expense of P2P and marketplace lending exposure.

May’s numbers show performance was impacted by losses on the latter, mainly from Avant, Prosper and Funding Circle Europe loans) was also a drag (-0.27 per cent).

Avant Securitisations  knocked off -0.66 per cent and equity positions in platforms -0.32 per cent, particularly New York listed Elevate whose share price fell 15.2 per cent in May.

However, the Balance Sheet loans continued to perform strongly, with no credit losses, contributing monthly income of 0.70 per cent.

Share buybacks have been another shift in strategy in 2017, and appear to be working. The fund’s discount today is 10.7 per cent, compared to 25 per cent in 2016.

Analysts at Numis Securities say the portfolio transition away from marketplace and into balance sheet loans is under way, meaning  a high cash balance of 19 per cent of net assets, but the potential for further narrowing is limited unless the fund can build a record of more consistent NAV performance.

It is disappointing to see another NAV decline from VPC Speciality Lending, with the Avant Securitisations continuing to create volatility in the returns”

“Performance has also been mixed from VPC’s Equity positions and marketplace loans. VSL continues to differentiate itself by focusing the portfolio on balance sheet loans, which the manager favours due to the protection of the platform taking the first loss.”

“We have some concerns that the Balance Sheet approach can lead towards a bias towards platforms with higher risk/return loans, demonstrated by the average APR on one of its platforms being 47 per cent.”

“Over the last 12 months, the NAV total return is flat. The fund is currently paying quarterly dividends of 6p pa, equivalent to a yield of 7.2 per cent on the current share price, versus a target at launch of 8 per cent.”

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