VPC reports resilience in asset-backed lending portfolio
The strong performance of VPC Specialty Lending Investments’ (VPC) asset-backed lending portfolio was outweighed by weakness on its equity side in 2023.
According to the firm’s 2023 annual report, by year-end its asset-backed lending investments represented approximately 73 per cent of the total investment portfolio.
VPC benefitted from continued increases in short-term interest rates during the year, which it said, “underscored the power of variable-rate loans” and kept the asset-backed lending side strong.
The firm reported a gross revenue return increase of 13.93 per cent in 2023, offset by a gross capital unrealised loss of 18.34 per cent.
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According to the lender’s financial results to 31 December 2023, its net asset value (NAV) total return fell by 9.45 per cent for the year, but was up 47.44 per cent from inception to date.
Although capital returns were negative, the firm’s fintech portfolio continued to produce consistently positive revenue returns.
Since shareholders agreed to realise the company’s assets at a general meeting held in June 2023, the investment manager has achieved the repayment of several asset-backed fintech investments.
These included, in December 2023 and January 2024, full repayment of its debt investments in Applied Data Finance, Elevate Credit, and Koalafi (formerly known as West Creek Financial). These three investments returned $38m (£30.6m) of gross proceeds, before required repayments of its gearing facility.
Furthermore, a twenty-fourth consecutive quarterly dividend of 2p per share was paid for the three-month period to December 2023, in February 2024.
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“With inflation remaining high in many advanced economies, a major theme throughout the year was the continued tightening of monetary policy through the raising of interest rates, which constrained spending by business and consumers”, said chairman Graeme Proudfoot.
“This made for a difficult environment for the company’s equity portfolio, which continued to experience setbacks. Additionally, the ecommerce industry experienced various challenges in 2023, including competition growth, supply-chain interruptions, and increased regulations. The company’s ecommerce portfolio was negatively affected by these industry changes, which also detracted from the company’s performance.”
Proudfoot said the wide discount to NAV at which the company’s shares traded was also a challenge.
While discounts have narrowed from their widest point in October 2023, they remain in the double digits. This was one of the reasons the directors recommended the managed wind-down, which shareholders approved in June.
“Despite the unfavourable and uncertain environment, the company’s core asset-backed lending business continued to perform well in 2023. This component of the portfolio benefitted from rising short-term interest rates for most of the year because most of its loans have variable rates,” he added.
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