VPC Specialty Lending shareholders approve wind-down
VPC Specialty Lending (VSL) has had its new fee terms narrowly approved as part of a managed wind-down that was given the green light by shareholders yesterday.
99 per cent of shareholders agreed to the alternative finance focused-fund’s proposal to wind down the company, but the new fee terms proved more controversial.
83,042,929 votes were cast in favour of amending the terms, versus 66,210,261 against and 4,390,156 which were withheld, according to the fund’s announcement on the London Stock Exchange.
“The board engaged with shareholders during the period ahead of the general meeting and is aware of the concerns raised by certain shareholders who voted against [the changed fee terms],” VSL said. “Notwithstanding this, the board notes that a majority of those voting supported the resolution, and the board continues to consider that the resolution is in the best interests of the company and its shareholders as a whole.”
Late last year, VSL proposed to enter a managed wind-down, following investor pressure regarding its low share price.
It said due to the current level of the discount of the share price to net asset value (NAV), it would be better to wind down the company rather than implement the 25 per cent exit opportunity which it had previously proposed.
“It was not a surprise to see the managed wind-down approved, with 99 per cent of shares cast in favour,” said Numis analysts. “The vote on the revised fee terms was more controversial with Staude and Metage Capital writing an open-letter to the board highlighting their concerns that it disincentivises the timely return of capital. Ultimately, the new terms were also passed, but with only 56 per cent of votes cast in favour.”
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Shareholders Staude and Metage had raised several concerns about the performance fee, particularly that retaining the current high water mark (the highest peak in value the fund has ever reached) disincentivises returning capital at NAV.
Going forward, the performance fee will change to be based on cash returned. It will be conditional on aggregate cash returned being greater than a high water mark of £317.6m, which compares to April’s NAV of £265.9m and a market capitalisation of £200m.
It will increase to 20 per cent based on the cash returned over the five per cent per year total return, relative to the April 2017 NAV.
Effectively, the manager will receive 20 per cent of cash distributions after 104p (the high water market of 114p in 2021, minus dividends distributed since then) has been returned.
Management fees will remain at one per cent of NAV, except if net assets are less than £50m, which will lead to fees of £500,000 per year in the next year, £350,000 in the second year, and £200,000 for the third year. Subsequently, it will return to one per cent of net assets.
Listed debt funds have fallen out of favour in recent years and VSL has struggled to attract investor support despite solid returns. In 2020, it lost a few major shareholders including Invesco and Woodford Investment Management which cemented its demise.
“We believe a challenge to attracting demand is the unusual strategy which is a combination of lending to niche and emerging lending businesses, as well as equity stakes,” Numis said. “We believe part of the
reason the fund has struggled to attract demand is that it is difficult to put in a ‘bucket’ for many shareholders, with a higher return/risk profile than a typical debt fund, given exposure to both lending facilities and equity stakes of, often emerging, specialist lending platforms.”
VSL will now start the managed wind-down process, which is expected to take a lengthy period of time due to the illiquid nature of the assets, which are loans to specialist lenders.
The board expects the first distribution at the end of 2023 or early 2024, with much of the
portfolio being realised in three to five years.
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