VPC Speciality Lending says its total NAV per share return was 0.85% for 2016. They declared dividends of 6.00 pence per ordinary share. Declared dividends were below the 8.0% targeted at the time of the IPO, with the underperformance being largely attributable to lower-than-expected returns from the company’s marketplace loan investments, due to higher-than-expected loss curves and loan seasoning. By contrast, their balance sheet investments performed in line with expectations throughout the year with low volatility.
During 2016 the Investment Manager reallocated capital from marketplace to balance sheet investments with a substantial amount of progress made during the year. The company has generated higher returns from balance sheet lending than marketplace lending to date, and balance sheet loans made to our portfolio companies including online and non-bank lending platforms are secured by the loan book, with the platforms taking the first loss on any defaults by the end borrowers and the investments benefiting from excess spread. Balance sheet lending therefore represents a better alignment of interest with the company and mitigates credit risk. This reallocation process will continue in 2017. During the year, the percentage of NAV invested in balance sheet deals increased from 22% to 51%, while over the same period capital invested in marketplace investments decreased from 58% to 26%. This capital reallocation process will take time to complete organically as the marketplace portfolio had a remaining weighted average life of 18 months at year end (excluding prepayments).
The ordinary share price was disappointing in 2016, declining by 16.67% and closing the year at 78.75p, representing a 17.33% discount to the year-end NAV per share. In light of this significant disparity, a share buyback programme was initiated in December 2016. As at 31 December 2016, a total of 1.5 million shares had been repurchased at an average price of 77.25p.
The Avant securitisation residuals, which are held at fair value, have been a key aspect of weak capital returns due to a moderate increase in the underlying loss curve projections compounded by significant gearing. Exposure to these residuals has continued to shrink and was 5.2% of NAV as at 31 December 2016.
VSL : VPC Speciality Lending shifting funds to balance sheet lending