Chrysalis (CHRY), the £367m growth capital fund embarked on a three-year wind-down, has had to knock £16.1m off its valuation after the audit of its half-year results revealed an error in the assessment of wefox, the online insurer.
An incorrect calculation of the “waterfall”, or allocation of value to the different investors in wefox, reduced Chrysalis’ net asset value (NAV) at 31 March by 3.33p per share to 133.94p, replacing the 137.27p reported on 5 May.
This means the NAV fell by 31.43p or 19% in the first quarter of the year, rather than the 17% decline reported eight weeks ago.
The disclosure is awkward coming as chair Andrew Haining insisted the current 44% discount between the share price and NAV was too wide. He had to acknowledge the importance of reassuring investors in the validity of its valuations as the company looks to realise the value of the concentrated portfolio through disposals and exits, having never fully recovered from the 2021-22 growth stock crash.
“We hope to build more confidence in our portfolio approach so that the market can clearly see that the target of returning NAV whilst maximising IRR [internal rate of return] for shareholders over a three-year period is achievable,” Haining said.
It also further strains the relationship with outgoing fund managers Richard Watts and Nick Williamson at Chrysalis Investment Partners (CIP) after they responded angrily to being served six-months’ notice by the board in February.
“The board is reviewing the process which led to this error with the external valuer, the AIFM [alternative investment fund manager] and the investment adviser to ensure appropriate steps are taken to avoid any errors going forward,” Chrysalis said.
Ahead of the termination of CIP’s contract on 20 August, Chrysalis has signed terms with the “necessary individuals and service providers” to transfer reporting, finance, legal and risk management as it becomes a self-managed investment company.
Sam Dobbyn, the former Urban Exposure boss appointed to the board at the same time as CIP was sacked, now leads management of the portfolio. Last week he gained board observer status at Starling bank as Watts stood down as director of Chrysalis’ largest investment.
The interims showed a 22% fall in NAV in the six months to 31 March following the wefox revision. Starling, accounting for 57.9% of the portfolio, Klarna and wefox drove 32.3p of the 37.7p decline in NAV.
Chrysalis said Starling’s reduction reflected the 20% fall in its listed peer group in the market turmoil in March after the US led war on Iran rather than any loss in operational momentum. The challenger bank saw its Engine platform win a fourth contract while its core business continued to grow customer and underlying users “following positive regulatory engagement” in the wake of the FCA’s £29m fine two years ago for lax financial crime controls.
Klarna’s New York listed shares crashed 63% as fears of disruption by artificial intelligence combined with economic uncertainty emanating from the Middle East led to a profits warning, although Chrysalis said its underlying growth remained strong with gross merchandise volume up 33% year on year in the first quarter. It represented 6.5% of net assets at 31 March.
Since the half-year end, Chrysalis has invested a further €7m in wefox, now a 6.2% holding at £39.8m, as part of a larger funding round in which it secured improved economic terms. Similarly, this month it made an additional £8.5m acquisition of shares in Smart Pension, enhancing its position in the fintech’s equity structure. It is Chrysalis’ second biggest holding at 19.1% of the portfolio.
It also sold $8.9m of Klarna shares and its remaining £2.5m stake in money transfer specialist Wise to help repay the £17.8m balance on its Barclays debt facility.
During the half-year it bought back £29.3m of shares, taking the total returned to shareholders this way to £117.4m since September 2024. In its second quarter update on 5 May, it formally discontinued buybacks. Under a new allocation policy, future returns of capital will depend on cash from asset sales.
Our view
James Carthew, head of investment company research, said: “This is a disappointing update from Chrysalis. The good news is that Klarna’s share price has risen from $13.09 at 31 March to $20.24 today, but this remains a long way short of the manager’s pre-IPO valuation and half the September 2025 IPO price.”
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