VICTORY Park Capital Specialty Lending (VPC) has continued its expansion into balance sheet lending by upping its investment in online secured lender Borro.
The alternative finance-focused investment trust now has the largest stake in the firm, which provides loans secured on luxury assets, owning around 49 per cent.
The remaining 51 per cent is owned by other vehicles manged by VPC, the investment trust said in a stock market announcement on Thursday.
“We are supporters of Borro’s restructured business, and its new management team, and therefore we have agreed to expand our investment in Borro, alongside VPC’s other vehicles,” Andrew Adcock, chairman of VPC, said.
“We see the opportunity for our shareholders to benefit from a potential increase in the value of the equity over the long term, whilst continuing to make positive returns on our lending to Borro.”
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It comes after VPC reported improved returns in the third quarter, as it continues to re-position its portfolio towards balance sheet lending.
The fund delivered a net revenue return of 2.35 per cent over the period. This was offset by a net capital return of -1.15 per cent, amounting to a net total return of 1.2 per cent.
This is an improvement on the second quarter, when the net revenue return of 1.84 per cent was offset by a net capital return of -2.42 per cent, for a net total return of -0.58 per cent.
However, VPC said that the performance of its investment portfolio still remains “sharply polarised”, with its balance sheet investment returns faring far better than its marketplace returns, at 2.57 per cent and -0.39 per cent respectively.
The London-listed trust announced late last year that it was winding down its underperforming marketplace lending portfolio, after losses triggered substantial writedowns.
However, analysts were unsure of the latest move.
“Making equity investments in early stage lending platforms will clearly have a very different risk profile to debt investments secured on loans originated through the platform,” Numis said in a note.
“The value of the equity investment has not been disclosed and therefore we believe it makes it difficult for investors to assess the risk-profile of the fund.
“The restructuring of Borro also highlights the potential conflicts with being both the debt and equity of the same platform.
“VPC is currently trading at a 16.7 per cent discount, but we remain wary of the fund given that we believe that the balance sheet approach has led to a focus on high interest rate/high default platforms, with a bias towards US consumers, and that the performance of these is yet to be tested in difficult times.”