TIDMVSL
RNS Number : 7889X
VPC Specialty Lending Invest. PLC
28 April 2023
28 April 2023
VPC SPECIALTY LING INVESTMENTS PLC
(the "Company" or " Parent Company ") with its subsidiaries
(together) the "Group")
ANNUAL FINANCIAL REPORT FOR THE YEARED 31 DECEMBER 2022
The Board of Directors (the "Board") of VPC Specialty Lending
Investments PLC (ticker: VSL) present the Company's Annual
Financial Report for the year ended 31 December 2022 (the "Annual
Report").
ABOUT
VPC Specialty Lending Investments PLC (the "Company" or "VSL")
provides asset-backed lending solutions to emerging and established
businesses ("Portfolio Companies") with the goal of building
long-term, sustainable income generation. VSL focuses on providing
capital to vital segments of the economy, which for regulatory and
structural reasons are underserved by the traditional banking
industry. Among others, these segments include small business
lending, working capital products, consumer finance and real
estate. VSL offers shareholders access to a diversified portfolio
of opportunistic credit investments originated by non-bank lenders
with a focus on the rapidly developing technology-enabled lending
sector.
The Company's investing activities are undertaken by Victory
Park Capital Advisors, LLC (the "Investment Manager" or "VPC"). VPC
is an established private capital manager headquartered in the
United States with a global presence. VPC identifies and finances
emerging and established businesses globally and seeks to provide
the Company with attractive yields on its portfolio of credit
investments. VPC offers a differentiated private lending approach
by financing Portfolio Companies through asset-backed delayed draw
term loans, which is referred to as "Asset Backed Lending,"
designed to limit downside risk while providing shareholders with
strong income returns. Through rigorous due diligence and credit
monitoring by the Investment Manager, the Company generates stable
income with significant downside protection.
The Annual Report includes the results of the Company (also
referred to as the "Parent Company") and its consolidated
subsidiaries (together the "Group"). The Company (No. 9385218) was
admitted to the premium listing segment of the Official List of the
Financial Conduct Authority ("FCA") (the "Official List") and to
trading on the London Stock Exchange's main market for listed
securities (the "Main Market") on 17 March 2015, raising GBP200
million by completing a placing and offer for subscription (the
"Issue"). The Company raised a further GBP183 million via a C Share
issue on 2 October 2015. The C Shares were converted into Ordinary
Shares and were admitted to the Official List and to trading on the
Main Market on 4 March 2016.
Further information on VPC Specialty Lending Investments PLC is
available at https://vpcspecialtylending.com .
The 2023 Annual General Meeting will be held in June 2023. A
copy of the Notice of the Company's 2023 Annual General Meeting
will be published and made available in due course.
Printed copies of the Annual Report and Notice of the Company's
2023 Annual General Meeting will be posted or made available to the
Company's shareholders.
A copy of the Annual Report will be submitted shortly to the
National Storage Mechanism and will be available for inspection at
https://data.fca.org.uk/a/nsm/nationalstoragemechanism and will
also available on the Company's website at
https://vpcspecialtylending.com/
The following text is extracted from the Annual Report and
Financial Statements of the Company for the year ended 31 December
2022. All page numbers below refer to the Annual Report on the
Company's website.
SUMMARY AND HIGHLIGHTS FOR THE YEAR
The financial and business highlights for the year ended 31
December 2022 are as follows:
v January 2022: Dave Inc., a banking app on a mission to build
products that level the financial playing field reported the
closing of its previously announced business combination with VPC
Impact Acquisition Holdings III, Inc.. On 5 January 2022, the
combined company began trading under the NASDAQ ticker symbol:
"DAVE".
v January 2022: The Company partially exited its equity
investment in Kueski, Inc., realising a gain on the sale of $4.37
million, which was included in the NAV of the Company on 31
December 2021.
v January 2022: On 17 January 2022, one of the Company's
privately held investments, Beforepay, closed its IPO and began
trading on the Australian Stock Exchange under the ticker
"B4P".
v February 2022 : The Company declared its 16th consecutive
dividend of 2.00 pence per share for the three months to 31
December 2021.
v March 2022 : VPC Impact Acquisition Holdings II (NASDAQ: VPCB)
("VPCB"), a special purpose acquisition company sponsored by VPC
Impact Acquisition Holdings Sponsor II, LLC, an affiliate of
Victory Park Capital and FinAccel, the parent company of Kredivo,
the leading AI-enabled digital consumer credit platform in
Southeast Asia, announced the mutual termination of their
previously announced business combination agreement.
v June 2022 : The Company declared its 17th consecutive dividend
of 2.00p per share for the three months to 31 March 2022.
v July 2022: The Company invested in one new asset backed
investment, Loyal Foundry Holdings, Inc. ("Loyal Foundry"). Loyal
Foundry is a leading global platform of non-gaming mobile apps.
v August 2022: ZeroFox Inc., a VPC portfolio company and an
enterprise software-as-a-service leader in external cybersecurity
reported the closing of its previously announced business
combination with L&F Acquisition Corp ("L&F"), a special
purpose acquisition company, and ID Experts Holdings Inc. ("IDX").
On 4 August 2022, the combined company began trading under the
NASDAQ ticker symbol: "ZFOX".
v August 2022: The Company declared its 18th consecutive
dividend of 2.00p per share for the three months to 30 June
2022.
v November 2022: The Company declared its 19th consecutive
dividend of 2.00p per share for the three months to 30 September
2022.
v December 2022 : After further consultation with its major
Shareholders, the Board determined that it would be in the
Company's best interests and Shareholders to put forward formal
proposals to Shareholders for a managed wind-down of the Company
instead of the 25% Exit Opportunity. A circular with further
details will be published shortly.
SUBSEQUENT EVENTS
Since the year ended 31 December 2022:
v February 2023: The Company declared its 20th consecutive
dividend of 2.00p per share for the three months to 31 December
2022.
TOP TEN POSITIONS
The table below provides a summary of the top ten exposures of
the Group, net of gearing, as at 31 December 2022. The summary
includes a look-through of the Group's investments in VPC
Synthesis, L.P. and VPC Offshore Unleveraged Private Debt Fund
Feeder, L.P. to illustrate the exposure to underlying Portfolio
Companies as it is a requirement of the investment policy (set out
on pages 130 and 131) to consider the application of the
restrictions in this policy on a look-through basis.
INVESTMENT COUNTRY INVESTMENT TYPE EXPOSURE
======================================================== ================== ==================== ========== ====
Deinde Group, LLC United States Asset Backed Lending 11.76%
========================== ========================================= ============================ ===============
Deinde Group, LLC ("Integra") is an early-stage online provider of unsecured consumer loans to
nonprime borrowers. Integra was founded in March 2014 by Arthur Tretyak (CEO) and is led by a team
of seasoned consumer finance and risk analytics executives. The company is headquartered in Chicago,
IL, and is owned by its management team and employees.
====================================================================================================================
Caribbean Financial Group
Holdings, L.P. Latin America Asset Backed Lending 9.28%
========================== ========================================= ============================ ===============
Caribbean Financial Group Holdings, L.P. ("CFG") is the largest non-bank provider of unsecured
consumer installment loans to the Caribbean market, operating primarily in the western and southern
Caribbean. CFG was founded in 1979, operates over 70 store branches across eight Caribbean and
Latin American countries, and has its most significant operations in Panama, Colombia, and Trinidad
& Tobago. CFG's product offering includes loan sizes ranging from $200 to $13,000, loan terms up
to 84 months with no prepayment penalties, and fully amortizing simple interest loans with equal
monthly payments and rates based on underwriting customers' ability to pay.
====================================================================================================================
Applied Data Finance, LLC United States Asset Backed Lending 8.74%
========================== ========================================= ============================ ===============
Applied Data Finance, LLC provides credit to non-prime and near-prime consumers in select states
across the U.S. The company is headquartered in San Diego, with offices in New York, in addition
to an IT and call center support in Chennai, India. Financings are in the form of installment loans
and range up to $5,000.
====================================================================================================================
Perch HQ, LLC United States Asset Backed Lending 7.55%
========================== ========================================= ============================ ===============
Perch HQ, LLC ("Perch") is a technology-enabled platform that seeks to acquire and operate a diverse
portfolio of e-commerce assets on retail marketplaces. The company aims to acquire underlying brands
and drive value through post-acquisition brand initiatives, including pricing strategy, advertising
strategy, cost savings, supply chain efficiencies, and general Amazon account management optimization.
The company was founded in October 2019 by Chris Bell, former Head of Custom Supply Chain at Wayfair
and principal at Bain & Company.
====================================================================================================================
Razor Group GMBH Germany Asset Backed Lending 6.58%
========================== ========================================= ============================ ===============
Razor Group GmbH ("Razor") is a technology driven consumer goods platform that acquires and operates
a diverse portfolio of branded Amazon third-party seller ("TPS") assets primarily in Europe. Razor
targets brands with EUR100K - EUR3.5 million of seller's discretionary earnings ("Asset-Level EBITDA")
to be acquired at purchase multiples of 1.5x - 5.0x TTM Asset-Level EBITDA.
====================================================================================================================
FinanceApp AG Switzerland Equity Investment 6.19%
========================== ========================================= ============================ ===============
FinanceApp AG ("WeFox") is a software application providing a hybrid technology and an in-person
alternative to the modern insurance broker. The company operates in Switzerland and Germany, acting
as an intermediary between major insurance providers and individual consumers. WeFox creates an
innovative marketplace for the insurance industry, digitizing the management of consumer and broker
insurance portfolios and aggregating data via one secure, easy-to-use platform. Customer users
can view their insurance agreements on their smartphones or computers, allowing them to review
policies and premium pricing, submit claims, and receive superior customer service support all
through the WeFox platform.
====================================================================================================================
FinAccel Pte Ltd Singapore Asset Backed Lending 5.65%
========================== ========================================= ============================ ===============
FinAccel Pte Ltd ("FinAccel") provides underbanked Indonesian consumers with a digital credit platform
(d/b/a Kredivo) to finance e-commerce purchases, pay bills and secure personal loans at competitive
interest rates. The Kredivo platform allows users to secure 30-day "interest-free" point-of-sale
loans to finance small ticket e-commerce purchases up to $200. Eligible Kredivo users are also
offered interest-bearing point-of-sale installment loans to finance larger e-commerce transactions
up to $2,200. Kredivo operates as a digital credit card and the underlying transaction engine with
a dedicated checkout embedded into over 250 e-commerce merchant websites and a mobile application
that facilitates direct merchant purchases.
====================================================================================================================
Heyday Technologies, Inc. United States Asset Backed Lending 4.30%
========================== ========================================= ============================ ===============
Heyday Technologies, Inc. ("Heyday") is a tech enabled platform that seeks to acquire and aggregate
a diverse portfolio of retail assets which are sold primarily via e-commerce marketplaces. Heyday
primarily targets Amazon Marketplace third-party sellers ("TPS"). The company aims to acquire underlying
brands/seller at 2-5x earnings, and drive value through post-acquisition brand management initiatives
and underlying multiple expansion. Heyday aims to differentiate itself from other TPS aggregators
in the novel ecosystem by investing heavily and early in its technology and analytics capabilities
thereby allowing the company to easily identify and optimize operating improvements within its
portfolio at scale.
====================================================================================================================
Elevate Credit, Inc. United States Asset Backed Lending 3.18%
========================== ========================================= ============================ ===============
Elevate Credit, Inc. ("Elevate") is a lender of unsecured short-term cash advances and installment
loans to individuals primarily through the internet. Elevate provides consumers with access to
responsible and transparent credit options within the non-prime lending industry. Elevate currently
offers and/or supports the following products: U.S. installment loans (Rise), lines of credit (Elastic)
and credit cards (Today Card).
====================================================================================================================
Heyday Technologies, Inc. United States Equity Investment 3.11%
========================== ========================================= ============================ ===============
Heyday Technologies, Inc. ("Heyday") is a tech enabled platform that seeks to acquire and aggregate
a diverse portfolio of retail assets which are sold primarily via e-commerce marketplaces. Heyday
primarily targets Amazon Marketplace third-party sellers ("TPS"). The company aims to acquire underlying
brands/seller at 2-5x earnings, and drive value through post-acquisition brand management initiatives
and underlying multiple expansion. Heyday aims to differentiate itself from other TPS aggregators
in the novel ecosystem by investing heavily and early in its technology and analytics capabilities
thereby allowing the company to easily identify and optimize operating improvements within its
portfolio at scale.
--------------------------------------------------------------------------------------------------------------------
ENQUIRIES
For further information, please contact:
Victory Park Capital via Jefferies or Winterflood
Gordon Watson (below) info@vpcspecialtylending.com
Sora Monachino
Jefferies International Limited Tel: +44 20 7029 8000
Stuart Klein
Gaudi le Roux
Winterflood Securities Limited Tel: +44 20 3100 0000
Joe Winkley
Neil Morgan
Montfort Communications Tel: + 44 (0)7798 626282 / +44
Matthew Jervois (0)7717 857736
Gay Collins vpc@montfort.london
Link Company Matters Limited (Company Tel: +44 20 7954 9567
Secretary) Email: VPC@linkgroup.co.uk
STRATEGIC REPORT
CHAIRMAN'S STATEMENT
In last year's Chairman's Statement, I noted that while 2021 was
a year of exceptional progress and strong returns for its
shareholders, as 2022 unfolded, there was much to feel apprehensive
about. In the event, although the threat of COVID-19 faded
somewhat, Russia's invasion of Ukraine was a geopolitical event
that indeed had broader implications for the global economy. It was
also a year when central banks attempted to counter rising
inflation with a program of interest rate hikes that affected
businesses and consumers. These factors all contributed to a
turbulent economic and geopolitical backdrop, and also impacted the
performance and the longer-term prospects of the VPC Specialty
Lending Investments PLC ("VSL" or the "Company") itself. Despite
economic and geopolitical turbulence and uncertainty, the Company's
core asset backed lending business continued to perform in line
with expectations; however, the equity and publicly traded
investments experienced continued unrealised losses. Nonetheless
the Board will propose to shareholders that the Company change its
investment policy to one providing for the orderly winding down of
the Company - more detail on which the Board expects will be
published shortly after certain regulatory approvals are
received.
In light of the recent situation with Silicon Valley Bank
("SVB") and Signature Bank ("SB"), the Company has reviewed all
portfolio company exposure and overall indirect exposure is
considered to be low. As at 27 April 2023, there is no exposure to
SB and minor exposure to SVB, as all impacted portfolio companies
with meaningful balances at SVB, were able to transfer almost all
of their deposits out of the bank. Small deposit amounts may remain
at SVB to pay out expenses as balances wind down and/or new
accounts are opened.
To note, the Group, Company and the Investment Manager do not
have a direct banking relationship with SVB or SB.
2022 HIGHLIGHTS
v Gross Revenue Return of 12.63% offset by Gross Capital Return
of -15.13% for the year;
v Total Net Asset Value (NAV) return of -6.97% for the year and
56.91% from inception-to-date;
v Total Shareholder return of -1.19% for the year and 38.69%
from inception-to-date;
v Strong performance of the asset backed lending investments
with revenue returns of 10.70%; and
v The Company declared its 20th consecutive quarterly dividend
of 2.00p per share for the three-month period to December 2022 in
February 2023.
THE COMPANY'S BUSINESS
It was a year of significantly different investment performance
between the debt and equity portfolios. However, credit performance
was resilient. For the twelve months to the end of December 2022,
the NAV per share of the Company decreased -6.97% on a total return
basis, comprising a NAV per share reduction from 114.14p to 98.19p,
plus the 8.00p of dividends paid in 2022. During the year, the
traded share price fell from 92.20p to 83.10p. Dividends paid
during the year were in line with the dividend of 8.00p per year
set out in the IPO Prospectus ("the Target Dividend") and fully
covered by the revenue returns. Paying dividends in line with the
Target Dividend continues to be the near-term target of the
Company.
During the year, the weighted average coupon on the Company's
asset backed investments increased to 14.65% at 31 December 2022
from 10.41% at 31 December 2021 as the Company saw a rise in
short-term interest rates.
As we announced on 22 December 2022, the commitment the Board
made to Shareholders in 2020 (the "25% Exit Opportunity") was to
offer Shareholders an Exit Opportunity for up to 25% of the shares
in issue following the June 2023 Annual General Meeting, should the
shares continue to trade at an average discount greater than 5%
over the first quarter of 2023. Three measures of future
performance were put in place in 2020, with the intention of
offering the 25% Exit Opportunity in the event that all three
measures could not be met.
Various steps were taken from 2020 through 2022 to find a
solution that would reduce the discount to NAV. While some of those
Shareholder-focused initiatives (including meetings with existing,
new, and potential Shareholders) bore some fruit, the discount to
NAV nonetheless remained stubbornly wide.
In 2022, while it was understood by the Board that two of the
three measures of future performance would be achieved, the Board
and its advisers believed that the third measure of reducing the
discount to NAV would not be met. Further, the Board and its
advisers took the view that the 25% Exit Opportunity alone would
not have a lasting impact on the discount and that it might have a
potentially detrimental impact on the Company's Shareholders. If
the 25% Exit Opportunity was realised, the Company would shrink in
size, resulting in the Company's shares potentially becoming less
liquid and the ratio of fees and other costs potentially increasing
as a proportion of NAV. After further consultation with its major
Shareholders, the Board announced on 22 December 2022 that it would
be in the best interests of the Company and Shareholders to put
forward formal proposals to Shareholders for a managed wind-down of
the entire Company instead of the 25% Exit Opportunity.
The Company expects shortly to issue a circular inviting
shareholders to vote on two resolutions - the first to approve
revisions to the investment policy of the Company so that the
Company's assets can be realised in an orderly manner in order to
provide a managed exit over time for all Shareholders; and the
second (to be voted on by independent shareholders) to approve
proposed amendments to the terms of the Investment Management
Agreement between the Company and the Investment Manager,
principally concerning the way in which the Investment Manager is
remunerated. The purpose of this is to reflect the change in the
Company's investment objective and policy and to better align the
interests of the Shareholders and the Investment Manager. The
resolution relating to the Investment Management Agreement will be
voted on by independent shareholders only because it is a related
party transaction under the Listing Rules. Full details will be
contained in the Circular, but the Board, who have been so advised
by its advisors, feels that the proposal is both fair and
reasonable as far as shareholders are concerned and incentivises
the Manager to undertake the winding up process efficiently and in
a way that optimises value and decreases risk for shareholders.
THE COMPANY'S IMPACT
The Investment Manager continues to operate and invest
responsibly, ethically, and fairly, and the Board remains committed
to reviewing the Investment Manager's Environmental, Social and
Governance ("ESG") policy. If during the course of an investment,
VPC becomes aware of any material ESG risks, such ESG risks are
documented in an Investment Committee memorandum and presented to
the Investment Committee for review. VPC develops an action plan to
address such risks as applicable. In addition, the Investment
Manager continues to be a signatory of the United Nations
Principles for Responsible Investment ("PRI"), the leading global
network for investors committed to integrating ESG considerations
into long-term investment decision-making.
OPERATIONAL RESILIENCE
There were a few consistent themes observed across the broader
market throughout 2022: asset backed security spreads widened, both
interest rates and inflation rose, equity markets were volatile,
and there were lower transaction volumes for new capital raising.
In the financial technology sector, the theme was a strong shift of
investor interest and valuation from growth to profitability. To
that end, many Portfolio Companies that overbuilt for growth in
2021 have enacted varying degrees of headcount reductions and other
cost-cutting initiatives. The Board is aware that such cost-cutting
initiatives can introduce elements of operational risk for the
portfolio companies and this is being closely watched.
The Board believes risk management will remain a critical
function throughout the wind-down process. The Investment Manager
is committed to promoting a culture of proactive risk management
and controls across its portfolio of investments. VPC has itself
developed a culture of risk management. A team of 20 Risk and
Operations professionals assess and monitor Portfolio Companies and
related activities on a daily, weekly, or monthly basis using
proprietary, technology-driven analytic tools. VPC's combination of
deep credit and structuring expertise, the ability to navigate
uncertain market conditions, and an adherence to consistent risk
management will assist the Investment Manager to stay disciplined
during the proposed wind-down process.
OUTLOOK
At the time of writing, fears of a U.S. recession and the
COVID-19 global pandemic have somewhat abated, and there are
encouraging signs that any recession may be mild. The Investment
Manager expects modest origination activity may persist through
much of 2023 and mergers will continue to gain popularity across
the e-commerce space. VPC and its Portfolio Companies remain
focused on mitigating external credit risks and managing downside
protection in legacy assets. More details on the outlook for the
Company can be found on page 17 of the Investment Manager's
Report.
In the wake of the collapse of SVB, the Board expects that there
will be many lessons learned in the market served by SVB. The
Investment Manager will continue to employ prudent risk management
practices and encourage its portfolio managers to be thoughtful
about their risk exposure.
Finally, the Board wants to thank all Shareholders for their
continued support as it works towards a successful wind-down of the
Company. We will update you on our progress in our monthly
reports.
Graeme Proudfoot
Chair
27 April 2023
INVESTMENT MANAGER'S REPORT
ABOUT VPC
The Company's investment manager is Victory Park Capital
Advisors, LLC ("VPC", the "Firm", or the "Investment Manager"), an
SEC-registered, established private capital manager. The Investment
Manager was founded in 2007 and is headquartered in Chicago,
Illinois, with additional resources in New York, Los Angeles, San
Francisco, and London. VPC provides custom financing solutions
across the private capital spectrum, focusing on asset-rich
companies with significant corporate governance and a strong growth
trajectory. VPC invests in both emerging and established businesses
across various industries in the U.S. and abroad that often cannot
access traditional sources of capital.
As of 31 December 2022, the Investment Manager had invested
approximately $9.1 billion across more than 200 investments since
inception. Additionally, throughout its history, VPC has developed
a significant culture of risk management. A team of 20 Risk &
Operations professionals proactively assess and monitor Portfolio
Companies and related activities on a daily, weekly, or monthly
basis using proprietary, technology-driven analytic tools. Further,
while investment returns are important, VPC places great
significance on the <1%cumulative principal loss since
inception. VPC believes strong return and risk metrics result from
a combination of deep credit and structuring expertise, the ability
to navigate uncertain market conditions, and a significant
adherence to risk management.
The Investment Manager was founded by Richard Levy and Brendan
Carroll , who have worked together for more than two decades across
multiple credit cycles and market environments. As of December 31,
2022, VPC employs 53 professionals across its Investment, Risk
& Operations, Legal, and Investor Relations teams. For more
information, please visit www.victoryparkcapital.com .
ESTABLISHED CREDIT MANAGER
v Founded prior to the global financial crisis in 2007 by Richard Levy
and Brendan Carroll
v VPC has long-standing experience investing opportunistically amidst volatility
and market complexities
v Headquartered in Chicago with resources in New York, Los Angeles, San
Francisco, and London
v Investment Manager of the Company since its IPO in 2015
PRIVATE CREDIT SOLUTIONS
v Private credit specialist with a focus on capital preservation across
multiple market environments
v Lender to both established and emerging businesses across various industries
in the U.S. and abroad
v Extensive experience lending to companies across the credit spectrum
DEVELOPED RISK MANAGEMENT CULTURE & PROCESS
v Deeply embedded risk culture
v VPC leverages proprietary risk tools and analytics to drive underwriting
and portfolio management decisions
v Customised monitoring and reporting process allows for granular analysis
across multiple dimensions
STRATEGY AND BUSINESS MODEL
PROTECTIVE DEAL STRUCTURING
The Company's investments are typically structured as delayed
draw, floating rate, and senior-secured term loans with significant
credit enhancements. Portfolio Companies draw capital over time,
subject to availability under their borrowing base, covenant
compliance and underlying collateral performance. Utilising this
structure provides added transparency into capital deployment as
Portfolio Companies provide notice to VPC of present and expected
future funding requests on the debt facilities. In addition, given
the delayed draw structure, the at-risk capital on day one is
typically not fully funded and grows over the life of an
investment. VPC is able to monitor performance and become more
familiar with the business and collateral prior to lending
additional capital. Structuring floating-rate loans has allowed VPC
to benefit from the meaningful increase in spread as rates have
risen in recent quarters. Additionally, VPC is predominantly the
agent and sole lender in the transaction. Alternatively, in a
syndicated transaction, there may be misalignment among lenders due
to varying interests, leading to an inability to manage risk
appropriately. As the agent and sole lender, VPC can better
maximise value for Shareholders. Lastly, VPC's loans are typically
shorter in duration (two to five years), which is generally
attractive for borrowers looking for near-term solutions and
beneficial for VPC to mitigate risk further.
As one of the pioneers of financial services lending, VPC has
structuring expertise and long-standing industry relationships,
enabling it to secure preferential capacity to lock up attractive,
long-term economics through structured facility upsizes with
meaningful over-collateralization. VPC lends against a narrowly
defined and dynamic collateral pool, which reduces adverse
selection risk. Collateral is tested regularly to help avoid
deterioration of the collateralised assets. If needed, VPC can
foreclose on collateral and control the liquidation of assets to
protect its investments and minimise losses. With the
collateralised nature of the underlying investments within the
Company's portfolio, under most scenarios, even with a default on
the instrument, the Company would expect to recover most or all the
investment. This robust structuring, monitoring and
collateralization has allowed the Company to minimize credit losses
and record minimal expected credit losses as required by IFRS
9.
VPC's investments typically also include meaningful credit
enhancements including first loss equity subordination, robust
covenant packages, extensive reporting requirements and monitoring,
corporate guarantees, first lien priority, and transparency and
control over cash. VPC is able to 'control cash' by ring-fencing
the collateral in a blocked account or special purpose vehicle
("SPV"). VPC also structures a right of first refusal ("ROFR") for
most credit investments, allowing for control of the refinancing
processes and ultimately creating an additional captive sourcing
funnel for the investment portfolio. Lastly, VPC's loans are
secured against liens and equity pledges on the corporate entity or
collateral, further providing multiple avenues of structural
protection.
VPC is further able to support the growth of its Portfolio
Companies, as it has the flexibility to invest with small and large
Portfolio Companies alike and to continue to finance a Portfolio
Company as it grows in size. Each additional draw request from a
Portfolio Company requires an Investment Committee meeting, where
the Investment Team is responsible for presenting a detailed update
on the Portfolio Company and the rationale behind the funding
before it is approved. As in all transactions, unanimous consent
from the Investment Committee must be given prior to any new
funding being released. VPC believes this feature uniquely
positions the Firm to grow alongside its Portfolio Companies and
effectively mitigates risk as fundings are thoughtfully paced out
in line with performance.
HIGHLY SELECTIVE DEAL SOURCING
VPC has a cultivated sourcing network powered by investment
professionals across the U.S. and London, creating a wide funnel of
investment opportunities. Additionally, VPC has a local presence in
five major cities in the U.S. and U.K., providing real-time "boots
on the ground" for investment opportunities. The Investment Manager
leverages an internal database to target attractive businesses and
undertakes extensive outreach with management teams to diligence
new investment opportunities. The network includes investment
banks, business brokers, restructuring firms, private equity
managers, venture capital firms, and law and accounting firms.
Furthermore, VPC has long-standing relationships with Portfolio
Company management teams, industry professionals, and experts in
various sectors that bolster its access to transactions. When
positioned as a premier financing solution, the Investment
Manager's executive board adds credibility and further provides VPC
with a differentiated sourcing channel. Together, these efforts
result in a robust pipeline of new investment opportunities built
through trusted relationships, industry knowledge, and reliable
partnerships.
More than 80% of the Firm's deal flow is sourced directly. This
highlights the strength of VCP's relationships and its reputation
as a flexible financing solutions provider. Notably, VPC only
invests in approximately 1% of its deal flow which exemplifies its
high barrier to entry.
BEST-IN-CLASS RISK MANAGEMENT
VPC's significant emphasis on risk management is the backbone of
its investing ethos. As discussed above, VPC has 20 dedicated Risk
& Operations professionals that proactively monitor Portfolio
Companies daily, weekly, or monthly, utilising sophisticated,
technology-driven analytics tools. VPC leverages iLevel and
Tableau, which have been customised for VPC's high-touch approach
to risk management, to enhance further its ability to assess,
manage and monitor risk and trends on a real-time basis.
At VPC, risk management is closely involved throughout the life
cycle of an investment, from underwriting and structuring to
monitoring and, ultimately, maturity. VPC has a well-established
Risk Team, which is an objective, independent function that reports
directly to the Investment Committee. The Senior Risk Team meets
with the Executive Team twice-weekly to discuss any material risk
issues and key initiatives. More broadly, the Investment Committee
meets two to three times a week to collectively address and manage
potential risks as appropriate. Additionally, the Risk Team will
often travel on-site to meet with Portfolio Companies throughout
the duration of the investment to ensure key metrics are being met
and collateral performance is in line with expectations.
To bolster VPC's risk management efforts further, reputable
third-party consultants may be used to assess specific,
industry-related risks. Industry publications such as 2nd Order
Solutions white papers are regularly reviewed for broader credit
market trends that may influence VPC's investments. As a result of
this best-in-class adherence to risk, VPC is proud to report a
cumulative net principal loss of less than 1% since inception.
After considering any post-default recoveries, the less than 1% net
loss1 represents the net principal shortfall on both completed and
active investments. VPC places great significance on its
institutional infrastructure and risk management process to
structure, execute, monitor, and manage risk within the
portfolio.
[1] Loss Ratio reflects the cumulative net principal loss over
the full life of each investment as a percentage of cumulate gross
invested capital for the VPC Credit Strategies. VPC's historical
track record data is tracked based on net loss rather than default
and recovery ratios. VPC requires an executed NDA before further
sharing additional information around potential defaults and
recoveries, as well as historical examples of investments where a
workout or liquidation was warranted. As mentioned above, VPC's
historical loss ratio is minimal, at less than 1.00% since 2007.
For active investments, any unrealised value is determined based on
the fair market value of the outstanding investment.
REVIEW OF 2022 PERFORMANCE
The Company completed the year with a total NAV return of
-6.97%, a gross revenue return of 12.63% and a gross capital return
of -15.13%. The Company's revenue return remained in line with
expectations, thereby supporting the 8.00p per year dividend yield
for Shareholders as set out in the IPO Prospectus ("the Target
Dividend"). In February 2023, the Company declared its twentieth
consecutive quarterly dividend payment of 2.00p per share for the
three months to 31 December 2022, and the dividend was paid to
Shareholders in March 2023. During the year, the weighted average
coupon on the Company's asset backed investments increased to
14.65% at 31 December 2022 from 10.41%.
2022 was characterized by economic and geopolitical turbulence
and uncertainty, including fears surrounding the COVID-19 global
pandemic, Russia's invasion of Ukraine, and central banks' attempts
to counter rising inflation with interest rate hikes. For example,
in January 2022, the Fed Funds rate was 0%-0.25%. By the end of the
year, after seven rate increases from the US Federal Reserve, it
stood at 4.25%-4.5%, its highest level in 15 years, with the
promise of further hikes in 2023.
Despite economic and geopolitical turbulence and uncertainty,
the Company's core loan business continued to perform in line with
expectations, benefiting from the rising short-term interest rate
environment throughout 2022 and further illustrating the power of
variable rate loans. The Company's core asset backed lending
business represented approximately 67% of the total investment
portfolio at year-end and continued to perform in line with
expectations.
The Company's equity interests derive from its core lending
business and provide it with equity participation without
contributing equity risk capital. The mark down of equity prices
during the year, specifically within the financial technology and
e-commerce sectors, impacted the value of the Company's equity
holdings and contributed to the negative total NAV return.
Unrealised losses were also driven by the decrease in value of the
Company's holdings in publicly traded investments. However, the
unrealised losses on investments were due to Company investments
being marked to publicly-traded prices, driven generally by the
weaker market environment, rather than specific issues with
underlying Portfolio Companies. Therefore, VPC does not view these
mark downs as an indicator of concern to the underlying Portfolio
Companies and are confident the lending to these businesses remains
well secured.
VPC's long-standing reputation and relationships with Portfolio
Company management teams, industry professionals and experts
continued to facilitate a differentiated deal pipeline. The Company
was able to take advantage of market dislocation and closed four
new asset backed investments during the year on attractive terms,
which may not have been available to VPC in prior periods.
Overall, 2022 demonstrated the merit of VPC's approach to
structured credit lending to technology-enabled businesses and a
strong culture of risk management, which has proven particularly
important during a volatile year. VPC has made additional
investments in human capital throughout the year as it continues to
grow, hiring 18 individuals across its front office, Operations,
and Investor Relations teams, a testament to VPC's growth
ambitions, its reputation, and standing within the investment
management industry.
INVESTMENTS
To meet the Company's investment objectives within pre-defined
portfolio limits, capital was allocated across several Portfolio
Companies, focusing on portfolio-level diversification. As of 31
December 2022, the Company's investments were diversified across 48
different Portfolio Companies across the U.S., UK, Europe,
Australia, Asia, and Latin America and the Company had exposure to
24 Portfolio Companies through asset backed loans.
VPC believes that its short-duration, non-correlated
asset-intensive investments provide insulation across volatile
environments, particularly during times of uncertainty (e.g., the
Great Financial Crisis, ongoing impacts from the COVID-19 pandemic,
etc.), and the Firm is equipped with an institutional risk
infrastructure and independent risk management process focused on
downside protection. Conversely and more prominently, the equity
portfolio experienced continued unrealised negative returns,
generally driven by the normalisation of equity instrument returns,
ongoing volatile market conditions, and lower recent equity raises
by comparable companies within the financial technology and
e-commerce sectors. Lastly, unrealised losses were driven by the
decrease in value of the Company's publicly traded investments.
GEARING AND CAPITAL MARKETS
The Company selectively employs gearing to enhance returns
generated by the underlying credit assets. Gearing is structured to
limit the borrowings to individual SPVs holding the assets to
ensure the gearing providers have no recourse to the Company. Given
the breadth of VPC's portfolio, the Company has a distinct
competitive advantage in securing these gearing facilities at
attractive rates. During the year, the Look-Through Gearing Ratio
remained relatively consistent. Having started the year at 0.34x,
it ended the year at 0.35x, as VPC continued to take a conservative
approach to liquidity and risk management with the gearing
facilities.
The Company's level of gearing may increase as a result of
further drawdowns to honour commitments to funds under existing
contractual arrangements, revaluations of the portfolio or
realisation of assets at less than their carrying value. An
increased level of gearing would increase Shareholders' exposure to
realisation values.
ESG INVESTMENT CONSIDERATIONS
VPC has a long history of commitment to Environmental, Social
and Governance ("ESG") considerations as part of its investment
process and firm-wide operations. In 2018, VPC launched a
partnership with the International Finance Corporation ("IFC"), the
private sector arm of the World Bank, to provide credit to
businesses in emerging markets. Since the initial policy in 2018,
the policy and processes around how VPC integrates ESG into its
investment strategies and firm operations have expanded in scope
and sophistication.
VPC's ESG policy is considered in all investment decisions. Part
of the policy involves clearly defining what the Company will and
will not invest in, as specific industries and business practices
are not supported. Another important piece of the ESG programme
involves understanding the risks and potential risks related to
ESG, and identifying, mitigating and remediating any issues.
Perhaps most importantly, the ESG policy creates accountability
throughout the organisation and across Portfolio Companies.
VPC approaches ESG holistically to understand the full range of
potential ESG risks for any given investment. For each investment
underwritten, the applicable ESG factors are identified and mapped
out with a due diligence plan to understand the relevant risks and
mitigants related to those factors. With fintech investments, the
Investment Manager focuses on the "Social" aspects of ESG, as those
typically have the most significant overall impact on the business.
VPC looks to invest in fintech companies that support financial
inclusion and positively impact customers and other stakeholders.
That means having products that are transparent and structured in a
way that is fair to customers and promotes financial health. It
also means having proper controls and systems to safeguard against
harmful tactics or business practices.
As VPC has expanded into new investment categories, this
frequently means re-evaluating ESG factors and risks in those
specific areas. It is VPC's responsibility to educate itself about
the key issues relating to any potential investment. VPC must set
appropriate standards in these areas and discuss issues with all
relevant partners.
As part of VPC's standard risk management process, it actively
monitors Portfolio Companies across all dimensions, including ESG.
It has frequent touchpoints with Portfolio Companies and receives
extensive reporting to identify potential issues. It also holds
weekly Investment Committee meetings to discuss any potential
concerns and how to address or remediate them. Equally important,
VPC regularly engages with Portfolio Companies to understand how
they are thinking about ESG-related issues and to share best
practices. Given that VPC works with many early-stage, high growth
companies, it aims to act as a resource to Portfolio Companies as
they grow and develop their ESG practices over time.
In August 2021, VPC announced it had become a signatory of the
United Nations-supported Principles for Responsible Investment
("PRI"), further demonstrating its commitment to integrating ESG
considerations into its investment decision making processes. PRI
is the pre-eminent institution advocating for ESG issues to be at
the forefront of investment decision making and VPC is proud to be
a signatory. This demonstrates that VPC takes its responsibility to
drive positive impact, both within the financial services industry
and in society, very seriously and that it is committed to
responsible investing for the long term.
Lastly, the Investment Manager is committed to maintaining a
culture of good governance, as well as policies and procedures to
assist with all aspects of diversity, as the Company's activities
benefit from a wide range of skills, knowledge, experience,
backgrounds, and perspectives. VPC formally published its DEI
Policy in October 2021 and prioritised Diversity, Equity and
Inclusion (DEI) goals for recruitment in Q3 of 2021 to diversify
points of view and idea generation. To this end, VPC set formal
goals of increasing the female population by 20% and ethnic
diversity by 200% within the next five years. To date, VPC has
exceeded those goals by increasing the female and ethnically
diverse population by 64% and 500%, respectively.
OUTLOOK
As noted above, the Company completed the year with a total NAV
return of -6.97%, a gross revenue return of 12.63% and a gross
capital return of -15.13%. It was a bifurcated year regarding
investment performance, with credit performance remaining
resilient. Importantly, the Company's revenue return remained in
line with expectations, thereby supporting the dividend yield for
Shareholders.
Many of the Investment Manager's peers and Portfolio Companies
have not seen interest rates at these levels before, and rates are
expected to continue trending up from here. In 2023, VPC expects
equity valuations will be flat or down, an environment that
encourages companies to be measured on valuation expectations. As
such, Portfolio Companies are de-prioritising growth and instead
working to reduce operating expenses to extend cash runway and/or
generate free cash flow.
In specific credit market sectors in which the Company is
invested, the Investment Manager market and risk commentary is as
follows:
v Consumer: In the consumer space, consumer credit has exhibited
signs of softening across multiple asset classes; however, metrics
remain largely within historical norms and mirror those of 2019.
Inflation continues to be a primary driver of pressure on
consumers, particularly those in the lower income brackets. The
Investment Manager is starting to see early indications of cracks
in the strong employment environment and some segments of the
economy are showing more significant weakness, such as subprime and
lower income bands and certain geographic regions.
v E-Commerce: In E-Commerce, while many of the supply chain
challenges from early 2022 have eased, inflation and rising rates
has put pressure on margins. Additionally, many retail and
e-commerce companies are facing inventory challenges. Generally,
higher prices are not fully offsetting the pressure on margins, and
reductions in force have been commonplace as E-Commerce growth
normalises to more historic run-rate levels.
In response to the market outlook, VPC and its Portfolio
Companies remain focused on mitigating exogenous credit risks and
managing downside protection in legacy assets. As noted above, VPC
believes that its short-duration, non-correlated asset-intensive
investments provide insulation across volatile environments,
particularly during times of uncertainty, and the Firm is equipped
with an institutional risk infrastructure and independent risk
management process focused on downside protection The Investment
Manager will look to manage the wind-down effectively with the
near-term goal to maintain the Company's dividend target, and to
manage the portfolio in accordance with VPC's institutionalised
policies and procedures and towards maximising returns to
shareholders.
Victory Park Capital Advisors, LLC
Investment Manager
27 April 2023
BUSINESS MODEL
COMPANY STATUS
The Company is registered as a public limited company under the
Companies Act 2006 and is an investment company under Section 833
of the Companies Act 2006. It is a member of the Association of
Investment Companies ("AIC").
The Company was incorporated on 12 January 2015 and commenced
its operations on 17 March 2015.
The Company has been approved as an investment trust under
Sections 1158/1159 of the Corporation Tax Act 2010. The Directors
are of the opinion, under advice, that the Company continues to
conduct its affairs as an Approved Investment Trust under the
Investment Trust (Approved Company) (Tax) Regulations 2011.
Under the Investment Management Agreement ("IMA") dated 26
February 2015 between the Company and the Investment Manager, the
Investment Manager is appointed to act as investment manager and
Alternative Investment Fund Manager ("AIFM") of the Company with
responsibility for portfolio management and risk management of the
Company's investments.
PURPOSE
The Company's defined purpose is to deliver its Investment
Objective. Board culture promotes strong governance and long-term
investment, mindful of the interests of all stakeholders. The Board
believes that, as an investment company with no employees, this is
best achieved by working in partnership with its appointed
Investment Manager.
INVESTMENT OBJECTIVE
The Company provides asset- backed lending solutions to emerging
and established businesses with the goal of building long-term,
sustainable income generation. The Company focuses on providing
capital to vital segments of the economy, which for regulatory and
structural reasons are underserved by the traditional banking
industry. Among others, these segments include small business
lending, working capital products, consumer finance and real
estate. The Company offers shareholders access to a diversified
portfolio of opportunistic credit investments originated by
non-bank lenders with a focus on the rapidly developing
technology-enabled lending sector. Through rigorous diligence and
credit monitoring, the Company generates stable income with
significant downside protection.
As previously disclosed, the Board determined that it would be
in the best interests of the Company and its shareholders to put
forward formal proposals for a managed wind-down of the Company.
Upon a successful vote at the general meeting on the proposals put
forth by the Board, the updated investment objective of the Company
will be to conduct an orderly realisation of the assets of the
Company and be effected in a manner that seeks to achieve a balance
between returning cash to Shareholders promptly and maximising
value.
INVESTMENT POLICY
The Company seeks to achieve its investment objectives by
investing in opportunities in the financial services market through
portfolio companies and other lending related opportunities.
The Company invests directly or indirectly into available
opportunities, including by making investments in, or acquiring
interests held by, third-party funds (including those managed by
the Investment Manager or its affiliates).
Direct investments include consumer loans, SME loans, advances
against corporate trade receivables and/or purchases of corporate
trade receivables originated by portfolio companies ("Debt
Instruments"). Such Debt Instruments may be subordinated in nature,
or may be second lien, mezzanine or unsecured loans.
Indirect investments include investments in portfolio companies
(or in structures set up by portfolio companies) through the
provision of senior secured floating rate credit facilities
("Credit Facilities"), equity or other instruments. Additionally,
the Company's investments in Debt Instruments and Credit Facilities
are made through subsidiaries of the Company or through
partnerships in order to achieve bankruptcy remoteness from the
platform itself, providing an extra layer of credit protection.
The Company may also invest in other financial services related
opportunities through a combination of debt facilities, equity or
other instruments.
The Company may also invest (in aggregate) up to 10% of its
Gross Assets (at the time of investment) in listed or unlisted
securities (including equity and convertible securities or any
warrants) issued by one or more of its portfolio companies or
financial services entities.
The Company invests across several portfolio companies, asset
classes, geographies (primarily US, UK, Europe, Australia, Asia and
Latin America) and credit bands in order to create a diversified
portfolio and thereby mitigates concentration risks.
Borrowing policy
Borrowings may be employed at the level of the Company and at
the level of any investee entity (including any other investment
fund in which the Company invests or any special purpose vehicle
("SPV") that may be established by the Company in connection with
obtaining gearing against any of its assets).
The Company may, in connection with seeking such gearing or
securitising its loans, seek to assign existing assets to one or
more SPVs and/or seek to acquire loans using an SPV.
The Company may establish SPVs in connection with obtaining
gearing against any of its assets or in connection with the
securitisation of its loans (as set out further below). It intends
to use SPVs for these purposes to seek to protect the geared
portfolio from group level bankruptcy or financing risks.
The aggregate gearing of the Company and any investee entity (on
a look-through basis, including borrowing through securitisation
using SPVs) shall not exceed 1.5 times its NAV (1.5x).
As is customary in financing transactions of this nature, the
particular SPV will be the borrower and the Company may from time
to time be required to guarantee or indemnify a third-party lender
for losses incurred as a result of certain "bad boy" acts of the
SPV or the Company, typically including fraud or wilful
misrepresentation or causing the SPV voluntarily to file for
bankruptcy protection. Any such arrangement will be treated as
'non-recourse' with respect to the Company provided that any such
obligation of the Company shall not extend to guaranteeing or
indemnifying ordinary portfolio losses or the value of the
collateral provided by the SPV.
Management Arrangements
The Company has an independent Board of Directors which has
appointed Victory Park Capital Advisors, LLC ("VPC"), the Company's
Investment Manager, as Alternative Investment Fund Manager ("AIFM")
under the terms of an Investment Management Agreement ("IMA") dated
26 February 2015. The IMA is reviewed annually by the Board and may
be terminated by six-months' notice from either party subject to
the provisions for earlier termination as stipulated therein.
The Company's investing activities have been delegated by the
Directors to VPC. VPC has significant expertise in the sector and
enables the Company to identify unique investment opportunities to
add to the Portfolio. It has made investments and commitments
across several financial services Portfolio Companies, spanning
multiple geographies, products and structures, and is continuing to
deploy capital into existing and new Portfolio Companies.
Details of the Investment Management fee and performance fees
payable to VPC during the period are set out in note 10 on pages 88
and 89.
PERFORMANCE MANAGEMENT
The Board uses the following KPIs to help assess progress
against the Company's objectives. Further comments on these KPIs
are contained in the Chairman's Statement and Investment Manager's
Report sections, respectively.
A full description of performance is contained in the Investment
Manager's Report, commencing on page 10.
NAV AND TOTAL RETURN
The Directors regard the Company's NAV return as a key component
to delivering value to shareholders over the long term.
Furthermore, the Board believes that in accordance with the
Company's objective, total return (which includes dividends) is the
best measure for long term shareholder value.
At each meeting, the Board receives reports detailing the
Company's NAV and total return performance, portfolio composition
and related analyses.
DIVID YIELD
The Company intends to distribute at least 85% of its
distributable income earned in each financial year by way of
dividends.
GEARING RATIO
The aggregate gearing of the Company and any investee entity (on
a look-through basis, including borrowing through securitisation
using SPVs) shall not exceed 1.5 times its NAV (1.5x). The Board
and Investment Manager monitor the look-through gearing ratio to
ensure it is in line with the investment policy.
SHARE PRICE PREMIUM/DISCOUNT
As a closed-ended listed investment trust, the Company's share
price can and does deviate from its NAV. This results in either a
premium or a discount to NAV. This is another component of the
long-term shareholder return. The Board continually monitors the
Company's premium or discount to NAV and has the ability to issue
or buy back shares to limit the volatility of the share price
discount or premium. For more information on the Company's
authorities in relation to its share capital, see page 104.
EXPENSES
The Board is conscious of the impact of expenses on returns and
seeks to minimise expenses while ensuring that the Company receives
good service from its suppliers. The industry-wide measure for
investment trusts is the ongoing charges ratio. This seeks to
quantify the on-going costs of running the Company. The ongoing
charges ratio for 2022 was 1.99%, compared to 1.79% for 2021. This
measures the annual normal on-going costs of an investment trust,
excluding performance fees, one-off expenses and dealing costs, as
a percentage of the average shareholders' funds.
PRINCIPAL RISKS
The Company is exposed to risks that are monitored and actively
managed to meet its investment objectives. These include market
risks related to interest rates, currencies and general
availability of financing as well as credit and liquidity risks
given the nature of the instruments in which the Company invests.
In addition, the underlying Portfolio Companies are exposed to
operational and regulatory risks as this part of the financial
services sector remains relatively nascent.
The Directors are ultimately responsible for identifying and
controlling risks. Day-to-day management of the risks arising from
the financial instruments held by the Group has been delegated to
the Investment Manager of the Company.
The Investment Manager regularly reviews the investment
portfolio and industry developments to make sure that any events
impacting the Group are identified and considered. This also
ensures that any risks affecting the investment portfolio are
identified and mitigated to the fullest extent possible.
The Board is responsible for the Company's system of risk
management and internal control and for reviewing its
effectiveness. The Board has adopted a detailed matrix of principal
risks affecting the Company's business as an investment trust and
has established associated policies and processes designed to
manage and, where possible, mitigate those risks. The matrix is
monitored by the Audit and Valuation Committee quarterly.
This system assists the Board in determining the nature and
extent of the risks it is willing to take in achieving its
strategic objectives. Both the principal and emerging risks and the
monitoring system are subject to a robust assessment at least
annually. The last review by the Board took place in February 2023.
Although the Board believes that it has a robust framework of
internal controls in place, it can provide only reasonable, and not
absolute, assurance against material financial misstatement or loss
and is designed to manage, not eliminate, risk.
Below is a summary of the principal and emerging risks and
uncertainties faced by the Company and the Group, which have
remained unchanged throughout the year, and actions taken by the
Board and, where appropriate, its Committees, to manage and
mitigate these risks and uncertainties. Principal risks include
liquidity risk, credit risk, financing risk, portfolio company
risk, regulatory risk and market risk. Business continuity risk,
climate risk and geopolitical risk are all considered to be
emerging risks. The non-financial risks comprise of regulatory
risk, business continuity risk and geopolitical risk and the
financial risks comprise of liquidity risk, credit risk, financing
risk, market risk and portfolio company risk. These are set out
below:
LIQUIDITY RISK
Liquidity risk is defined as the risk that the Group may not be
able to settle or meet its obligations on time or at a reasonable
price.
The Group may invest in the listed or unlisted equity of any
Portfolio Company. Investments in unlisted equity, by their nature,
involve a higher degree of valuation and performance uncertainties
and liquidity risks than investments in listed securities and
therefore may be more difficult to realise.
In the event of adverse economic conditions in which it would be
preferable for the Group to sell certain of its assets, the Group
may not be able to sell a sufficient proportion of its portfolio as
a result of liquidity constraints. In such circumstances, the
overall returns to the Group from its investments may be adversely
affected.
The Group is also exposed to liquidity risk with respect to the
requirement to pay margin cash to collateralise forward foreign
exchange contracts used for currency hedging purposes.
MITIGATION
The Investment Manager manages the Group's liquidity risk by
investing primarily in a diverse portfolio of assets. As at 31
December 2022, 53% of the loans had a stated maturity date of less
than a year.
In general, the weighted average maturity profile of the Group's
assets was lower than or equal to the term of the Group's
corresponding debt facilities which thereby reduced liquidity risk.
Refer to Note 6 of the financial statements for the maturity
profile of the Group's assets and liabilities.
The Board and the Investment Manager review the investment
portfolio to ensure it is in line with the investment policy,
including restrictions, as outlined on pages 130 and 131. The Board
reviews cash flow forecasts to ensure the group can meet its
liabilities as they fall due.
The Group continuously monitors fluctuations in currency rates.
The Group performs stress tests and liquidity projections to
determine how much cash should be held back to meet potential
future obligations to settle margin calls arising from foreign
exchange hedging.
The gearing facility has helped the Group reduce cash drag
associated with the currency hedging portfolio, while also allowing
the Group to meet its liabilities as they fall due.
The Investment Manager monitors the cash balances of the Group
daily to ensure that all ongoing expenses can be paid as they come
due.
CREDIT RISK
Credit risk is the risk that one party to a financial instrument
will cause a financial loss for the other party by failing to
discharge an obligation.
The Group's credit risks arise principally through exposures to
loans acquired by the Group, which are subject to risk of borrower
default. The ability of the Group to earn revenue is completely
dependent upon payments being made by the borrower, such as adverse
movements in financial markets.
MITIGATION
There is inherent credit risk in the Group's investments in
credit assets. However, this is typically mitigated by the
significant first loss protection provided by the Portfolio Company
under the Asset Backed Lending Model and the excess spread
generated by the underlying assets under both models.
The Investment Manager performs a robust analysis during the
underwriting process for all new investments of the Group and
monitors the eligibility of the collateral at least monthly of the
current assets in the Group's portfolio. This process also includes
due diligence performed by a third-party reviewer during the
underwriting process and subsequent reviews at least once per year
for the Group's Portfolio Companies.
The Group will invest across several Portfolio Companies, asset
classes, geographies (primarily US, UK, Europe, Australia, Asia and
Latin America) and credit bands to ensure diversification and to
seek to mitigate concentration risks.
The Investment Manager did not see new payment defaults during
the year and the Group has received all contractual payments
through the date of this report.
The Board and the Investment Manager review the investment
portfolio to ensure it is in line with the investment policy,
including restrictions, as outlined on pages 130 and 131. The
Investment Manager monitors performance and underwriting on an
ongoing basis.
FINANCING RISK
Financing risk is the risk that, whilst the use of borrowings by
the Group should enhance the net asset value of an investment when
the value of an investment's underlying assets is rising, it will,
however, have the opposite effect when the underlying asset value
is falling. In addition, if an investment's income falls for
whatever reason, the use of borrowings will increase the impact of
such a fall on the net revenue of the Group's investment and
accordingly will have an adverse effect on the ability of the
investment to make distributions to the Group.
The Group uses gearing to enhance returns generated by the
underlying credit assets and is exposed to the availability of
financing at acceptable terms as well as interest rate expenses and
other related costs.
MITIGATION
This risk is mitigated by limiting borrowings to ring-fenced
SPVs without recourse to the Group and employing gearing in a
disciplined manner.
The Group has maintained a level of gearing throughout the year
significantly below the limit stipulated in the Prospectus as the
Group is primarily invested in the Asset Backed Lending Model.
The Board and the Investment Manager review the investment
portfolio to ensure it is in line with the investment policy,
including investment restrictions, as outlined on pages 130 and
131.
MARKET RISK
Market risk is the risk of loss arising from movements in
observable market variables such as foreign exchange rates, equity
prices and interest rates. The Group is exposed to market risk
primarily through its Financial Instruments.
The Group is exposed to price risk arising from the investments
held by the Group for which prices in the future are uncertain. The
investments in funds are exposed to market price risk. Refer to
Note 3 in the Financial Statements for further details on the
sensitivity of the Group's Level 3 investments to price risk.
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows or the fair values of
financial instruments.
Currency risk is the risk that the value of net assets will
fluctuate due to changes in foreign exchange rates. Relevant risk
variables are generally movements in the exchange rates of
non-functional currencies in which the Group holds financial assets
and liabilities.
The Group is exposed to risks related to the reference rate
reform and replacement of benchmark interest rates such as GBP
LIBOR and other interbank offered rates. There remains some
uncertainty around the timing and precise nature of these
changes.
MITIGATION
The Group has a diversified investment portfolio which
significantly reduces the exposure to individual asset price risk.
Detailed portfolio valuations and exposure analysis are prepared
monthly and form the basis for the on-going risk management and
investment decisions. In addition, regular scenario analysis is
undertaken to assess likely downside risks and sensitivity to broad
market changes, as well as assessing the underlying correlations
amongst the separate asset classes.
Exposure to interest rate risk is limited as the underlying
credit assets are typically fully amortising with a maximum
maturity of five years. Furthermore, generally the Group's Credit
Facilities include a floating interest rate component to the
Portfolio Companies to account for an increase in interest rate
risk and they also have a set floor in the instance that interest
rates were to drop.
The Group mitigates its exposure to currency risk by hedging
exposure between Pound Sterling and any other currencies in which a
significant portion of the Group's assets may be denominated.
The Board reviews the price, interest rate and currency risk
with the Investment Manager to ensure that exposure to these risks
are appropriately mitigated.
The Investment Manager continues to monitor the potential impact
of a discontinuation of LIBOR rates on the Company's investments,
based on the expectation that reference rates will be evaluated and
replaced timely for investments with a variable rate component. On
November 30, 2020, the LIBOR administrator proposed extending the
publication of the overnight and the one-, three-, six- and 12-
month USD LIBOR settings through June 30, 2023, when many existing
contracts that reference LIBOR will have expired. Accordingly, it
is difficult to predict the full impact of the transition until new
reference rates and fallbacks are commercially accepted.
PORTFOLIO COMPANY RISK
The current market in which the Group participates is
competitive and rapidly changing. There is a risk that the Group
will not be able to deploy its capital, re-invest capital and
interest of the proceeds of any future capital raisings, in a
timely or efficient manner given the increased demand for suitable
investments.
The Group may face increasing competition for access to
investments as the alternative finance industry continues to
evolve. The Group may face competition from other institutional
lenders such as fund vehicles and commercial banks that are
substantially larger and have considerably greater financial,
technical and marketing resources than the Group. Other
institutional sources of capital may enter the market in the UK, US
and other geographies.
MITIGATION
VPC has negotiated a significant number of proprietary capital
deployment agreements with its existing asset backed lending
partners each of which typically ensures the ability to deploy
capital on attractive terms for several years.
In addition, VPC is one of the largest investors in the
specialty lending sector and therefore enjoys timely information
and good access to emerging Portfolio Company opportunities. VPC
has a team of investment and operational professionals which
ensures that deployment opportunities with new and existing
Portfolio Companies can be executed rapidly while minimising
operational risk.
VPC's pipeline of deployment opportunities remains strong with
both existing and new asset backed lending Portfolio Companies.
REGULATORY RISK
As an investment trust, the Company's operations are subject to
wide ranging regulations. The financial services sector continues
to experience significant regulatory change at national and
international levels. Failure to act in accordance with these
regulations could cause fines, censure or other losses including
taxation or reputational loss.
The Association of Investment Companies (AIC) is becoming
increasingly focused on ensuring ESG measures are implemented
within investment companies.
In order to continue to qualify as an investment trust, the
Company must comply with the requirements of Section 1158 of the
Corporation Tax Act 2010.
MITIGATION
The Company provides debt capital to Portfolio Companies, which
typically must comply with various state and national level
regulations. This includes some operating under interim permission
and some now regulated from the FCA in the UK as well as consumer
lending and collections licenses in some US states. This risk is
limited via detailed upfront due diligence of Portfolio Companies'
regulatory environments performed by the Investment Manager on
behalf of the Board.
The Company continues to review its ESG stance to ensure that it
promotes the values and commitment of the Company. All decisions
taken are made with due consideration to the long-term
sustainability and impact on stakeholders.
The Company has procedures to monitor the status of its
compliance with the relevant requirements to maintain its
Investment Trust status, including receiving and reviewing
information and reporting from the Company Secretary and other
service providers as appropriate.
CLIMATE RISK
The world is facing unprecedented challenges in the face of
climate change and growing inequality. The FSB Task Force on
Climate-related Financial Disclosures (TCFD) has developed
climate-related financial risk disclosures for companies to provide
information to investors, lenders, insurers, and other
stakeholders.
MITIGATION
The Investment Manager has performed an initial high-level
materiality assessment of climate risk across its investment
portfolio and is developing a comprehensive action plan for both
the Company and Group. No material impact on the financial
statements has been identified from the risks arising from climate
change through the work performed by the Investment Manager from
this initial assessment.
The Investment Manager is reviewing the core disclosure elements
of the TCFD reporting framework. As an investment trust, the
Company is not required to provide information in compliance with
TCFD.
GEOPOLITICAL RISK
The Group is subject to risks associated with unforeseen
geopolitical events, including war, terrorist attacks, natural
disasters, and ongoing pandemics, which could create economic,
financial, and business disruptions.
MITIGATION
The Investment Manager has a dedicated risk committee comprised
of senior leadership and key principals. This committee works with
each individual portfolio investment team to develop a coordinated
risk response across the entire portfolio. The Investment Manager
also increased the frequency of portfolio company data collection
and reporting.
Discussion on the Group's risk management and internal controls
is on page 120.
CULTURE
The Directors agree that establishing and maintaining a healthy
corporate culture among the Board and in its interaction with the
Investment Manager, shareholders and other stakeholders will
support the delivery on its purpose, values, and strategy. The
Board is encouraged to lead by example and exemplify the Company's
culture of openness, debate and integrity through ongoing dialogue
and engagement with its service providers, principally the
Investment Manager.
The Board strives to ensure that its culture is in line with the
Company's purpose, values, and strategy. The Company has several
policies and procedures in place to assist with maintaining a
culture of good governance including those relating to diversity,
Directors' conflicts of interest and Directors' dealings in the
Company's shares. The Board assesses and monitors compliance with
these policies as well as the general culture of the Board through
Board meetings and during the annual evaluation process which is
undertaken by each Director (for more information see the
performance evaluation section on page 112).
The Board seeks to appoint the best possible service providers
and evaluates their remit, performance, and cost effectiveness on a
regular basis as described on page 111. The Board considers the
culture of the Investment Manager and other service providers,
including their policies, practices, and behaviour, through regular
reporting from these stakeholders and during the annual review of
the performance and continuing appointment of all service providers
to ensure there is an alignment in the long-term objectives. The
Investment Manager and other service providers appointment are
reviewed annually to ensure these objectives are met.
EMPLOYEES, HUMAN RIGHTS, SOCIAL AND COMMUNITY ISSUES
The Board recognises the requirement under the Companies Act
2006 to detail information about human rights, employees, and
community issues, including information about any policies it has
in relation to these matters and the effectiveness of these
policies. These requirements do not apply to the Company as it has
no employees, all the Directors are non-executive, and it has
outsourced all its functions to third party service providers. The
Company has therefore not reported further in respect of these
provisions but does expect its service providers and portfolio
companies to respect these requirements.
BOARD DIVERSITY
As at 31 December 2022, the Board of Directors of the Company
comprised of four male Directors and one female Director. As at the
date of this report the Board composition remains unchanged. The
Board acknowledges the benefits of diversity, including gender
diversity, and remains committed to ensuring that the Company's
Directors bring a wide range of skills, knowledge, experience,
backgrounds and perspectives. Further details of the Company's
diversity policy are set out on page 115.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) ISSUES
The Company has no employees, property or activities other than
investments, so its direct environmental impact is minimal. In
carrying out its activities, and in its relationships, the Company
aims to conduct itself responsibly, ethically and fairly. Directors
are mindful of their own carbon footprints if they are required to
travel on Company business.
The Board is comprised entirely of non-executive Directors and
the day-to-day management of the Company's business is delegated to
the Investment Manager. The Investment Manager aims to be a
responsible investor and believes it is important to invest in
companies that act responsibly in respect of environmental, ethical
and social issues.
The Company has no internal operations and therefore no
greenhouse gas emissions to report, nor does it have responsibility
for any other emissions producing sources under the Companies Act
2006 (Strategic Report and Directors' Reports) Regulations 2013,
including those within its underlying investment portfolio.
However, the AIC is encouraging all member companies to demonstrate
how they are factoring ESG issues into their business practices.
The company continues to monitor the guidance published by the AIC
and works towards the drafting of its ESG policy. The business
remains conscious of its business decisions and the Board,
supported by its service providers and Investment Manager consider
the long-term impact of all decisions and challenge
appropriately.
STREAMLINED ENERGY AND CARBON REPORTING (SECR)
The Company has no employees or property, and it does not
combust any fuel or operate any facility thus is taking the
exemption. It does not, therefore, have any greenhouse gas
emissions to report from its operations, nor does it have
responsibility for any other emissions producing sources under the
Companies Act 2006 (Strategic Report and Directors' Report)
Regulations 2013, including those within its underlying investment
portfolio. Additionally, there are no annual emissions from the
purchase of electricity, heat, steam or cooling by the Company for
its own use.
APPROVAL
This Strategic Report has been approved by the Board of
Directors and signed on its behalf by:
Graeme Proudfoot
Chair
27 April 2023
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the
Company's statutory accounts for the year ended 31 December 2022
but is derived from those accounts. Statutory accounts for the year
ended 31 December 2022 will be delivered to the Registrar of
Companies in due course. The Auditors have reported on those
accounts; their report was (i) unqualified, (ii) did not include a
reference to any matters to which the Auditors drew attention by
way of emphasis without qualifying their report and (ii) did not
contain a statement under Section 498 (2) or (3) of the Companies
Act 2006. The text of the Auditors' report can be found in the
Company's full Annual Report and Financial Statements on the
Company's website at https://vpcspecialtylending.com/ .
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
31 DECEMBER 2022 31 DECEMBER 2021
NOTES GBP GBP
============================================= ===== ========================== ==========================
Assets
Cash and cash equivalents 7 15,538,602 6,300,572
============================================= ===== ========================== ==========================
Cash posted as collateral 7 2,222,734 4,133,588
============================================= ===== ========================== ==========================
Derivative financial assets 3,4 1,081,849 2,069,698
============================================= ===== ========================== ==========================
Interest receivable 5,848,979 4,708,481
============================================= ===== ========================== ==========================
Dividend and distribution receivable 4,735 3,996
============================================= ===== ========================== ==========================
Other assets and prepaid expenses 2,190,718 2,877,815
============================================= ===== ========================== ==========================
Loans at amortised cost 3,9 220,225,329 279,339,002
============================================= ===== ========================== ==========================
Investment assets designated as held at fair
value through profit or loss 3 130,870,709 141,797,222
============================================= ===== ==========================
Total assets 377,983,655 441,230,374
============================================= ===== ========================== --------------------------
Liabilities
============================================= ===== ========================== ==========================
Management fee payable 10 97,785 155,399
============================================= ===== ========================== ==========================
Performance fee payable 10 - 12,913,280
============================================= ===== ========================== ==========================
Derivative financial liabilities 3,4 3,283,142 1,508,675
============================================= ===== ========================== ==========================
Deferred income 41,201 174,603
============================================= ===== ========================== ==========================
Other liabilities and accrued expenses 1,815,268 1,550,415
============================================= ===== ========================== ==========================
Due to broker 4,848,569 -
============================================= ===== ========================== ==========================
Notes payable 8 94,669,284 107,267,260
Total liabilities 104,755,249 123,569,632
============================================= ===== ========================== --------------------------
Total assets less total liabilities 273,228,406 317,660,742
============================================= ===== ========================== --------------------------
Capital and reserves
============================================= ===== ========================== ==========================
Called-up share capital 20,300,000 20,300,000
============================================= ===== ========================== ==========================
Share premium account 161,040,000 161,040,000
============================================= ===== ========================== ==========================
Other distributable reserve 14 112,779,146 112,779,146
============================================= ===== ========================== ==========================
Capital reserve (48,473,649) 1,667,026
============================================= ===== ========================== ==========================
Revenue reserve 26,369,664 20,615,367
============================================= ===== ========================== ==========================
Currency translation reserve 1,213,245 1,213,245
============================================= ===== ========================== ==========================
Total equity attributable to shareholders
of the Parent Company 273,228,406 317,614,784
============================================= ===== ========================== --------------------------
Non-controlling interests 18 - 45,958
============================================= ===== ========================== --------------------------
Total equity 273,228,406 317,660,742
============================================= ===== ========================== ==========================
Net Asset Value per Ordinary Share 12 98.19p 114.14p
============================================= ===== ========================== ==========================
The financial statements on pages 40 to 99 were approved by the
Board of Directors on 27 April 2023 and signed on its behalf
by:
Graeme Proudfoot
Chair
27 April 2023
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED
31 DECEMBER 2022
REVENUE CAPITAL TOTAL
NOTES GBP GBP GBP
==================== ===== =============================== ===================================== ===================================
Revenue
==================== ===== =============================== ===================================== ===================================
Net gain (loss) on
investments 5 - (42,614,991) (42,614,991)
==================== ===== =============================== ===================================== ===================================
Foreign exchange
gain (loss) - (1,552,676) (1,552,676)
==================== ===== =============================== ===================================== ===================================
Interest income 5 33,917,279 - 33,917,279
==================== ===== =============================== ===================================== ===================================
Other income 5 7,418,009 - 7,418,009
-------------------- ----- ------------------------------- ------------------------------------- -----------------------------------
Total return 41,335,288 (44,167,667) (2,832,379)
-------------------- ----- ------------------------------- ------------------------------------- -----------------------------------
Expenses
==================== ===== =============================== ===================================== ===================================
Management fee 10 3 , 840 , 270 - 3 , 840 , 270
==================== ===== =============================== ===================================== ===================================
Performance fee 10 - - -
==================== ===== =============================== ===================================== ===================================
Credit impairment
losses 9 - 5,956,807 5,956,807
==================== ===== =============================== ===================================== ===================================
Other expenses 10 2,432,132 - 2,432,132
-------------------- ----- ------------------------------- ------------------------------------- -----------------------------------
Total operating
expenses 6,272,402 5,956,807 12,229,209
-------------------- ----- ------------------------------- ------------------------------------- -----------------------------------
Finance costs 7 , 046 , 478 - 7 , 046 , 478
-------------------- ----- ------------------------------- ------------------------------------- -----------------------------------
Net return on
ordinary activities
before taxation 28,016,408 (50,124,474) (22,108,066)
==================== ===== =============================== ===================================== ===================================
Taxation on ordinary
activities 11 - - -
-------------------- ----- ------------------------------- ------------------------------------- -----------------------------------
Net return on
ordinary activities
after taxation 28,016,408 (50,124,474) (22,108,066)
-------------------- ----- ------------------------------- ------------------------------------- -----------------------------------
Attributable to:
==================== ===== =============================== ===================================== ===================================
Equity
shareholders 28,016,408 (50,140,675) (22,124,267)
==================== ===== =============================== ===================================== ===================================
Non-controlling
interests 18 - 16,201 16,201
==================== ===== =============================== ===================================== ===================================
Return per Ordinary
Share (basic and
diluted) 13 10.07 (18.02) (7.95)
-------------------- ----- ------------------------------- ------------------------------------- -----------------------------------
Other comprehensive
income
==================== ===== =============================== ===================================== ===================================
Currency translation - -
differences -
-------------------- ----- ------------------------------- ------------------------------------- -----------------------------------
Total comprehensive
income 28,016,408 (50,124,474) (22,108,066)
-------------------- ----- ------------------------------- ------------------------------------- -----------------------------------
Attributable to:
==================== ===== =============================== ===================================== ===================================
Equity
shareholders 28,016,408 (50,140,675) (22,124,267)
==================== ===== =============================== ===================================== ===================================
Non-controlling
interests 18 - 16,201 16,201
==================== ===== =============================== ===================================== ===================================
The total column of this statement represents the Group ' s
statement of comprehensive income , prepared in accordance with
UK-adopted International Accounting Standards and with the
requirements of the Companies Act 2006 as applicable to companies
reporting under those standards. The supplementary revenue and
capital columns are both prepared under guidance published by the
Association of Investment Companies ( " AIC " ). All items in the
above Statement derive from continuing operations. Amounts in Other
comprehensive income may be reclassified to profit or loss in
future periods.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED
31 DECEMBER 2021
REVENUE CAPITAL TOTAL
NOTES GBP GBP GBP
==================== ===== =============================== ===================================== ===================================
Revenue
==================== ===== =============================== ===================================== ===================================
Net gain (loss) on
investments 5 - 67 , 114 , 995 67 , 114 , 995
==================== ===== =============================== ===================================== ===================================
Foreign exchange
gain (loss) - (2 , 049 , 374) (2 , 049 , 374)
==================== ===== =============================== ===================================== ===================================
Interest income 5 33 , 158 , 150 - 33 , 158 , 150
==================== ===== =============================== ===================================== ===================================
Other income 5 4 , 419 , 620 - 4 , 419 , 620
-------------------- ----- ------------------------------- ------------------------------------- -----------------------------------
37 , 577 ,
Total return 770 65 , 065 , 621 102 , 643 , 391
-------------------- ----- ------------------------------- ------------------------------------- -----------------------------------
Expenses
==================== ===== =============================== ===================================== ===================================
Management fee 10 3 , 802 , 097 - 3 , 802 , 097
==================== ===== =============================== ===================================== ===================================
Performance fee 10 3 , 733 , 910 9 , 179 , 370 12 , 913 , 280
==================== ===== =============================== ===================================== ===================================
Credit impairment
losses 9 - 3 , 636 , 142 3 , 636 , 142
==================== ===== =============================== ===================================== ===================================
Other expenses 10 3 , 212 , 166 159 , 909 3 , 372 , 075
-------------------- ----- ------------------------------- ------------------------------------- -----------------------------------
Total operating 10 , 748 ,
expenses 173 12 , 975 , 421 23 , 723 , 594
-------------------- ----- ------------------------------- ------------------------------------- -----------------------------------
Finance costs 5 , 706 , 429 - 5 , 706 , 429
-------------------- ----- ------------------------------- ------------------------------------- -----------------------------------
Net return on
ordinary activities 21 , 123 ,
before taxation 168 52 , 090 , 200 73 , 213 , 368
==================== ===== =============================== ===================================== ===================================
Taxation on ordinary
activities 11 - - -
-------------------- ----- ------------------------------- ------------------------------------- -----------------------------------
Net return on
ordinary activities 21 , 123 ,
after taxation 168 52 , 090 , 200 73 , 213 , 368
-------------------- ----- ------------------------------- ------------------------------------- -----------------------------------
Attributable to:
==================== ===== =============================== ===================================== ===================================
Equity
shareholders 21 , 123 , 168 52 , 060 , 604 73 , 183 , 772
==================== ===== =============================== ===================================== ===================================
Non-controlling
interests 18 - 29 , 596 29 , 596
==================== ===== =============================== ===================================== ===================================
Return per Ordinary
Share (basic and
diluted) 13 7.55 18.62 26.17
-------------------- ----- ------------------------------- ------------------------------------- -----------------------------------
Other comprehensive
income
==================== ===== =============================== ===================================== ===================================
Currency translation
differences - (11 , 496) (11 , 496)
-------------------- ----- ------------------------------- ------------------------------------- -----------------------------------
Total comprehensive 21 , 123 ,
income 168 52 , 078 , 704 73 , 201 , 872
-------------------- ----- ------------------------------- ------------------------------------- -----------------------------------
Attributable to:
==================== ===== =============================== ===================================== ===================================
Equity
shareholders 21 , 123 , 168 52 , 052 , 083 73 , 175 , 251
==================== ===== =============================== ===================================== ===================================
Non-controlling
interests 18 - 26 , 621 26 , 621
==================== ===== =============================== ===================================== ===================================
The total column of this statement represents the Group ' s
statement of comprehensive income , prepared in accordance with
UK-adopted International Accounting Standards and with the
requirements of the Companies Act 2006 as applicable to companies
reporting under those standards. The supplementary revenue and
capital columns are both prepared under guidance published by the
Association of Investment Companies ( " AIC " ). All items in the
above Statement derive from continuing operations. Amounts in Other
comprehensive income may be reclassified to profit or loss in
future periods.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2022
CALLED
UP SHARE OTHER CURRENCY TOTAL NON-
SHAREHOLDERS
SHARE PREMIUM DISTRIBUTABLE CAPITAL REVENUE TRANSLATION ' CONTROLLING TOTAL
CAPITAL ACCOUNT RESERVE RESERVE RESERVE RESERVE EQUITY INTERESTS EQUITY
GBP GBP GBP GBP GBP GBP GBP GBP GBP
================= ========================== ========================== ========================== ========================== ========================== ========================== ========================== ========================== ==========================
Opening balance 20 ,
at 20 , 300 161 , 040 112 , 1 , 667 615 , 1 , 213 317 , 614 317 ,
1 January 2022 , 000 , 000 779 , 146 , 026 367 , 245 , 784 45 , 958 660 , 742
================= ========================== ========================== ========================== ========================== ========================== ========================== ========================== ========================== ==========================
Amounts paid on
buyback
of Ordinary
Shares - - - - - - - - -
================= ========================== ========================== ========================== ========================== ========================== ========================== ========================== ========================== ==========================
Contributions by
non-controlling
interests - - - - - - - - -
================= ========================== ========================== ========================== ========================== ========================== ========================== ========================== ========================== ==========================
Distributions
to
non-controlling
interests - - - - - - - (62,159) (62 , 159)
================= ========================== ========================== ========================== ========================== ========================== ========================== ========================== ========================== ==========================
Return on
ordinary
activities
after taxation - - - (50,140,675) 28,016,408 - (22,124,267) 16,201 (22,108,066)
================= ========================== ========================== ========================== ========================== ========================== ========================== ========================== ========================== ==========================
Dividends
declared and
paid - - - - (22,262,111) - (22,262,111) - (22,262,11)
----------------- -------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -------------------------- --------------------------
Other
comprehensive
income - - - - -
================= ========================== ========================== ========================== ========================== ========================== ========================== ========================== ========================== ==========================
Currency
translation
differences - - - - - - - - -
----------------- -------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -------------------------- --------------------------
Closing balance
at
31 December 20 , 300 161 , 040 112 , 1 , 213 273 ,
2022 , 000 , 000 779 , 146 (48,473,649) 26,369,664 , 245 273 , 228,406 - 228,406
----------------- -------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -------------------------- --------------------------
The supplementary revenue and capital columns are both prepared
under guidance published by the Association of Investment Companies
( " AIC " ).
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2021
CALLED OTHER CURRENCY TOTAL NON-
UP SHARE
SHARE PREMIUM DISTRIBUTABLE CAPITAL REVENUE TRANSLATION SHAREHOLDERS CONTROLLING TOTAL
'
CAPITAL ACCOUNT RESERVE RESERVE RESERVE RESERVE EQUITY INTERESTS EQUITY
GBP GBP GBP GBP GBP GBP GBP GBP GBP
================= ========================== ========================== ========================== ========================== ========================== ========================== ========================== ========================== ==========================
Opening balance 161 , 21 ,
at 20 , 300 040 , 116 , 520 (50 , 847 , 1 , 221 270 , 537 19 , 270 ,
1 January 2021 , 000 000 , 960 393 , 578) 960 , 766 , 108 337 556 , 445
================= ========================== ========================== ========================== ========================== ========================== ========================== ========================== ========================== ==========================
Amounts paid on
buyback
of Ordinary (3 , 741 (3 , 741 (3 , 741
Shares - - , 814) - - - , 814) - , 814)
================= ========================== ========================== ========================== ========================== ========================== ========================== ========================== ========================== ==========================
Contributions by
non-controlling
interests - - - - - - - - -
================= ========================== ========================== ========================== ========================== ========================== ========================== ========================== ========================== ==========================
Distributions to
non-controlling
interests - - - - - - - - -
================= ========================== ========================== ========================== ========================== ========================== ========================== ========================== ========================== ==========================
Return on
ordinary
activities 52 , 060 21 , 123 73 , 183 73 , 213
after taxation - - - , 604 , 168 - , 772 29 , 596 , 368
================= ========================== ========================== ========================== ========================== ========================== ========================== ========================== ========================== ==========================
Dividends (22 ,
declared and 355 , (22 , 355 (22 , 355
paid - - - - 761) - , 761) - , 761)
----------------- -------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -------------------------- --------------------------
Other
comprehensive
income
================= ========================== ========================== ========================== ========================== ========================== ========================== ========================== ========================== ==========================
Currency
translation
differences - - - - - (8 , 521) (8 , 521) (2 , 975) (11 , 496)
----------------- -------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -------------------------- --------------------------
Closing balance
at 161 , 20 ,
31 December 20 , 300 040 , 112 , 779 1 , 667 615 , 1 , 213 317 , 614 45 , 317 ,
2021 , 000 000 , 146 , 026 367 , 245 , 784 958 660 , 742
----------------- -------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -------------------------- --------------------------
The supplementary revenue and capital columns are both prepared
under guidance published by the Association of Investment Companies
( " AIC " ).
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2022
RESTATED
31 DECEMBER 2022 31 DECEMBER 2021
NOTES GBP GBP
========================================================= ===== ========================= =========================
Cash flows from operating activities:
========================================================= ===== ========================= =========================
Total comprehensive income (22 , 108 , 066) 73 , 201 , 872
========================================================= ===== ========================= =========================
Adjustments for:
========================================================= ===== ========================= =========================
-- Interest income (33,917,279) (33 , 158 , 150)
========================================================= ===== ========================= =========================
-- Dividend and distribution income 5 (7,418,009) (4 , 419 , 620)
========================================================= ===== ========================= =========================
-- Finance costs 7,046,478 5 , 706 , 429
========================================================= ===== ========================= =========================
-- Exchange (gains) losses 1,552,676 2 , 049 , 374
--------------------------------------------------------- ----- ------------------------- -------------------------
Total (54,844,200) 43 , 379 , 905
--------------------------------------------------------- ----- ------------------------- -------------------------
Loss (gain) on investment assets designated as held at
fair value through profit or loss 20,298,529 (67 , 354 , 436)
========================================================= ===== ========================= =========================
Gain on derivative financial instruments (35,736,991) (6 , 131 , 547)
========================================================= ===== ========================= =========================
Increase in other assets and prepaid expenses 687 , 097 (1 , 988 , 667)
========================================================= ===== ========================= =========================
(Decrease) increase in performance fee payable (12 , 913 , 280) 63 , 158
========================================================= ===== ========================= =========================
(Decrease) increase in management fee payable (57 , 614) 8 , 873 , 195
========================================================= ===== ========================= =========================
Decrease in deferred income (133 , 402) (78 , 800)
========================================================= ===== ========================= =========================
Increase in due to broker 4 , 848 , 569 -
========================================================= ===== ========================= =========================
(Decrease) increase in accrued expenses and other
liabilities 58,599 250 , 148
========================================================= ===== ========================= =========================
Interest received 32,776,781 32 , 062 , 716
========================================================= ===== ========================= =========================
Purchase of loans (33 , 762 , 744) (129 , 180 , 445)
========================================================= ===== ========================= =========================
Redemption or sale of loans 123,524,905 145 , 742 , 133
========================================================= ===== ========================= =========================
Impairment of loans 5,956,807 3 , 636 , 142
--------------------------------------------------------- ----- ------------------------- -------------------------
Net cash inflow from operating activities 50,703,055 29 , 273 , 502
--------------------------------------------------------- ----- ------------------------- -------------------------
Cash flows from investing activities:
========================================================= ===== ========================= =========================
Investment income received 7,417,270 4 , 419 , 436
========================================================= ===== ========================= =========================
Purchase of investment assets designated as held at fair
value through profit or loss (30 , 034 , 376) (51 , 430 , 977)
========================================================= ===== ========================= =========================
Sale of investment assets designated as held at fair
value through profit or loss 20 , 662 , 359 30 , 929 , 189
========================================================= ===== ========================= =========================
Increase (decrease) of cash posted as collateral 1 , 910 , 854 (2 , 993 , 588)
--------------------------------------------------------- ----- -------------------------
Net cash outflow from investing activities (43,893) (19 , 075 , 940)
--------------------------------------------------------- ----- ------------------------- -------------------------
Cash flows from financing activities:
========================================================= ===== ========================= =========================
Dividends distributed (22 , 262 , 111) (22 , 355 , 761)
========================================================= ===== ========================= =========================
Treasury shares repurchased - (3 , 741 , 814)
========================================================= ===== ========================= =========================
Distributions to non-controlling interests (62,159) -
========================================================= ===== ========================= =========================
Proceeds from note payable 11,874,530 179,944,080
========================================================= ===== ========================= =========================
Repayment of note payable (37,295,732) (158,764,003)
========================================================= ===== ========================= =========================
Finance costs paid (6 , 840 , 222) (5,739,082)
--------------------------------------------------------- ----- -------------------------
Net cash outflow from financing activities (54,585,694) (10 , 656 , 580)
--------------------------------------------------------- ----- ------------------------- -------------------------
Net change in cash and cash equivalents (3,926,531) (459 , 018)
========================================================= ===== ========================= =========================
Exchange gains on cash and cash equivalents 13,164,561 343 , 562
========================================================= ===== ========================= =========================
Cash and cash equivalents at the beginning of year 6 , 300 , 572 6 , 416 , 028
-------------------------
Cash and cash equivalents at the end of year 7 15 , 538 , 602 6 , 300 , 572
--------------------------------------------------------- ----- ------------------------- -------------------------
PARENT COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
31 DECEMBER
31 DECEMBER 2022 2021
NOTES GBP GBP
================================================= ===== ========================= =========================
Assets
Cash and cash equivalents 7 14,640,647 4 , 301 , 574
================================================= ===== ========================= =========================
Cash posted as collateral 7 2 , 222 , 734 4 , 133 , 588
================================================= ===== ========================= =========================
3 ,
Derivative financial assets 4 1 , 081 , 849 2 , 069 , 698
================================================= ===== ========================= =========================
Interest receivable 5 , 848 , 979 4 , 298 , 886
================================================= ===== ========================= =========================
Other current assets and prepaid expenses 3 , 015 , 560 2 , 881 , 811
================================================= ===== ========================= =========================
Investments in subsidiaries 17 233 , 951 , 844 303 , 174 , 979
================================================= ===== ========================= =========================
Investment assets designated as held at fair
value through profit or loss 3 22 , 474 , 910 12 , 531 , 090
------------------------------------------------- ----- -------------------------
333 , 391 ,
Total assets 283 , 236 , 523 626
------------------------------------------------- ----- ------------------------- -------------------------
Liabilities
================================================= ===== ========================= =========================
Management fee payable 10 97 , 785 155 , 399
================================================= ===== ========================= =========================
Due to broker 4 , 848 , 569 -
================================================= ===== ========================= =========================
3 ,
Derivative financial liabilities 4 3 , 283 , 142 1 , 508 , 675
================================================= ===== ========================= =========================
Deferred income 41 , 201 174 , 603
================================================= ===== ========================= =========================
Performance fee payable 10 - 12 , 913 , 280
================================================= ===== ========================= =========================
Other liabilities and accrued expenses 1 , 737 , 420 1 , 024 , 885
------------------------------------------------- ----- ------------------------- -------------------------
Total liabilities 10 , 008 , 117 15 , 776 , 842
------------------------------------------------- ----- ------------------------- -------------------------
317 , 614 ,
Total assets less total liabilities 273 , 228 , 406 784
------------------------------------------------- ----- ------------------------- -------------------------
Equity attributable to Shareholders of the
Company
================================================= ===== ========================= =========================
Called-up share capital 14 20 , 300 , 000 20 , 300 , 000
================================================= ===== ========================= =========================
Share premium account 14 161 , 040 , 000 161 , 040 , 000
================================================= ===== ========================= =========================
Other distributable reserve 14 112 , 779 , 146 112 , 779 , 146
================================================= ===== ========================= =========================
Capital reserve (47,260,404) 2 , 880 , 271
================================================= ===== ========================= =========================
Revenue reserve 26,369,664 20 , 615 , 367
================================================= ===== ========================= =========================
317 , 614 ,
Total equity 273 , 228 , 406 784
------------------------------------------------- ----- ------------------------- -------------------------
Net return on ordinary activities after taxation (22 , 124 , 267) 73 , 175 , 251
------------------------------------------------- ----- ------------------------- -------------------------
The financial statements on pages 48 to 99 were approved by the
Board of Directors on 27 April 2023 and signed on its behalf
by:
Graeme Proudfoot
Chair
27 April 2023
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE
YEARED
31 DECEMBER
2022
Called Up Other Distributable Capital Revenue
Share Capital Share Premium Reserve Reserve Reserve Total
GBP GBP GBP GBP GBP GBP
=========== ======================= ======================= ======================= ======================= ======================= =======================
Opening
balance at
1 January 20 , 300 161 , 040 112 , 779 2 , 880 , 20 , 615 317 , 614
2022 , 000 , 000 , 146 271 , 367 , 784
=========== ======================= ======================= ======================= ======================= ======================= =======================
Amounts
paid on
repurchase
of
Ordinary
Shares - - - - - -
=========== ======================= ======================= ======================= ======================= ======================= =======================
Return on
ordinary
activities
after (22 , 124
taxation - - - (50,140,675) 28,016,408 , 267)
=========== ======================= ======================= ======================= ======================= ======================= =======================
Dividends
declared (22 , 262 (22 , 262
and paid - - - - , 111) , 111)
----------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- -----------------------
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE
YEARED
31 DECEMBER
2021
Called Up Other Distributable Capital Revenue
Share Capital Share Premium Reserve Reserve Reserve Total
GBP GBP GBP GBP GBP GBP
=========== ======================= ======================= ======================= ======================= ======================= =======================
Opening
balance at
1 January 20 , 300 161 , 040 116 , 520 (49 , 171 21 , 847 270 , 537
2021 , 000 , 000 , 960 , 812) , 960 , 108
=========== ======================= ======================= ======================= ======================= ======================= =======================
Amounts
paid on
repurchase
of
Ordinary (3 , 741 (3 , 741
Shares - - , 814) - - , 814)
=========== ======================= ======================= ======================= ======================= ======================= =======================
Return on
ordinary
activities
after 52 , 052 21 , 123 73 , 175
taxation - - - , 083 , 168 , 251
=========== ======================= ======================= ======================= ======================= ======================= =======================
Dividends
declared (22 , 355 (22 , 355
and paid - - - - , 761) , 761)
----------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- -----------------------
Closing
balance at
31
December 20 , 300 161 , 040 112 , 779 2 , 880 20 , 615 317 , 614
2021 , 000 , 000 , 146 , 271 , 367 , 784
----------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- -----------------------
PARENT COMPANY STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2022
31 DECEMBER 31 DECEMBER
2022 2021
NOTES GBP GBP
======================================================== ====== ========================= =========================
Cash flows from operating activities:
======================================================== ====== ========================= =========================
Net return on ordinary activities after taxation (22 , 124 , 267) 73 , 175 , 251
================================================================ ========================= =========================
Adjustments for:
======================================================== ====== ========================= =========================
-- Interest income (34,288,810) (31 , 871 , 341)
================================================================ ========================= =========================
-- Exchange (gains) losses 1,552,676 2 , 049 , 374
---------------------------------------------------------------- ------------------------- -------------------------
Total (54,860,401) 43 , 353 , 284
---------------------------------------------------------------- ------------------------- -------------------------
Unrealised loss (gain) on investment assets designated as held
at fair value through profit or loss (6,815,010) (7 , 141 , 907)
================================================================ ========================= =========================
Unrealised loss (gain) on investments in subsidiaries 47,763,004 (52 , 213 , 993)
================================================================ ========================= =========================
Gain on derivative financial instruments (35,736,991) (6 , 131 , 547)
================================================================ ========================= =========================
Increase in other assets and prepaid expenses (133 , 010) (1 , 992 , 663)
================================================================ ========================= =========================
(Decrease) increase in management fee payable (57 , 614) 63 , 158
================================================================ ========================= =========================
Increase in due to broker 4 , 848 , 569 -
================================================================ ========================= =========================
Decrease in deferred income (133 , 402) (78 , 800)
================================================================ ========================= =========================
(Decrease) increase in performance fee payable (12 , 913 , 280) 8 , 873 , 195
================================================================ ========================= =========================
Increase in accrued expenses and other liabilities 96 , 684 233 , 894
================================================================ ========================= =========================
Net cash outflow from operating activities (57,941,451) (15 , 035 , 379)
---------------------------------------------------------------- ------------------------- -------------------------
Cash flows from investing activities:
======================================================== ====== ========================= =========================
Interest received 33,353,829 30 , 746 , 141
================================================================ ========================= =========================
Purchase of investment assets designated as held at fair value
through profit or loss (3 , 556 , 974) (19 , 086 , 855)
================================================================ ========================= =========================
Sale of investment assets designated as held at fair value
through profit or loss 428 , 164 16 , 220 , 038
================================================================ ========================= =========================
Purchase of investments in subsidiaries (48 , 397 , 941) (29 , 910 , 829)
================================================================ ========================= =========================
Sales of investment in subsidiaries 106 , 463 , 368 45 , 377 , 842
================================================================ ========================= =========================
Cash posted as collateral 1 , 910 , 854 (2 , 993 , 588)
---------------------------------------------------------------- -------------------------
Net cash inflow from investing activities 90,201,300 40 , 352 , 749
---------------------------------------------------------------- ------------------------- -------------------------
Cash flows from financing activities:
======================================================== ====== ========================= =========================
Treasury Shares repurchased - (3 , 741 , 814)
================================================================ ========================= =========================
Dividends paid (22 , 262 , 111) (22 , 355 , 761)
================================================================ ========================= =========================
Net cash outflow from financing activities (22 , 262 , 111) (26 , 097 , 575)
---------------------------------------------------------------- ------------------------- -------------------------
Net change in cash and cash equivalents 9,997,738 (780 , 205)
================================================================ ========================= =========================
Exchange gains on cash and cash equivalents 341,335 343 , 562
================================================================ ========================= =========================
Cash and cash equivalents at the beginning of the year 4 , 301 , 574 4 , 738 , 217
-------------------------
Cash and cash equivalents at the end of the year 7 14 , 640 , 647 4 , 301 , 574
-------------------------------------------------------- ------ ------------------------- -------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2022
1. GENERAL INFORMATION
VPC Specialty Lending Investments PLC (the " Parent Company " )
with its subsidiaries (together " the Group " ) is focused on
asset-backed lending to emerging and established businesses with
the goal of building long-term , sustainable income generation. The
Group focuses on providing capital to vital segments of the economy
that are underserved by the traditional banking industry ,
including small businesses , working capital products , consumer
finance and real estate , among others. The Group executes this
strategy by identifying investment opportunities across various
industries and geographies to offer shareholders access to a
diversified portfolio of opportunistic credit investments
originated by non-bank lenders with a focus on the rapidly
developing technology-enabled lending sector. The Parent Company ,
which is limited by shares , was incorporated and domiciled in
England and Wales on 12 January 2015 with registered number
9385218. The Parent Company commenced its operations on 17 March
2015 and intends to carry on business as an investment trust within
the meaning of Chapter 4 of Part 24 of the Corporation Tax Act
2010.
The Group ' s investment manager is Victory Park Capital
Advisors , LLC (the " Investment Manager " ) , a US Securities and
Exchange Commission registered investment adviser. The Investment
Manager also acts as the Alternative Investment Fund Manager of the
Group under the Alternative Investment Fund Managers Directive ( "
AIFMD " ). The Parent Company is defined as an Alternative
Investment Fund and is subject to the relevant articles of the
AIFMD.
The Group will invest directly or indirectly into available
opportunities , including by making investments in , or acquiring
interests held by , third party funds (including those managed by
the Investment Manager or its affiliates). Direct investments may
include consumer loans , SME loans , advances against corporate
trade receivables and/or purchases of corporate trade receivables (
" Debt Instruments " ) originated by platforms which engage with
and directly lend to borrowers ( " Portfolio Companies " ). Such
Debt Instruments may be subordinated in nature , or may be second
lien , mezzanine or unsecured loans. Indirect investments may
include investments in Portfolio Companies (or in structures set up
by Portfolio Companies) through the provision of credit facilities
( " Credit Facilities " ) , equity or other instruments.
Additionally , the Group ' s investments in Debt Instruments and
Credit Facilities may be made through subsidiaries of the Parent
Company or through partnerships or other structures. The Group may
also invest in other specialty lending related opportunities
through any combination of debt facilities , equity or other
instruments.
As at 31 December 2022 , the Parent Company had equity in the
form of 382 , 615 , 665 Ordinary Shares , 278 , 276 , 392 Ordinary
Shares in issue and 104 , 339 , 273 Ordinary Shares in Treasury (31
December 2021: 382 , 615 , 665 Ordinary Shares , 278 , 276 , 392
Ordinary Shares in issue and 104 , 339 , 273 Ordinary Shares in
Treasury). The Ordinary Shares are listed on the premium segment of
the Official List of the UK Listing Authority and trade on the
London Stock Exchange ' s main market for listed securities.
Citco Fund Administration (Cayman Islands) Limited (the "
Administrator " ) is the administrator of the Group. The
Administrator is responsible for the Group ' s general
administrative functions , such as the calculation and publication
of the Net Asset Value ( " NAV " ) and maintenance of the Group ' s
accounting records.
For any terms not herein defined , refer to Part X of the IPO
Prospectus. The Parent Company ' s IPO Prospectus dated 26 February
2015 is available on the Parent Company ' s website ,
www.vpcspecialtylending.com.
2. SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies followed by the Group are set
out below and have been applied consistently in both the current
and prior year:
Basis of preparation
The consolidated financial statements present the financial
performance of the Group and Company for the year ended 31 December
2022. These statements have been prepared in accordance with
UK-adopted International Accounting Standards and with the
requirements of the Companies Act 2006 as applicable to companies
under those standards. They comprise standards and interpretations
approved by the International Accounting Standards Board ( " IASB "
) and International Financial Reporting Committee , including
interpretations issued by the IFRS Interpretations Committee and
interpretations issued by the International Accounting Standard
Committee ( " IASC " ) that remain in effect. The financial
statements have been prepared on a going concern basis and under
the historical cost convention modified by the revaluation to a
fair value basis for certain financial instruments as specified in
the accounting policies below.
The Directors have reviewed the financial projections of the
Group and Company from the date of this report , which shows that
the Group and Company will be able to generate sufficient cash
flows in order to meet its liabilities as they fall due. In
assessing the Group ' s and Company ' s ability to continue as a
going concern , the Directors have considered the Company ' s
investment objective , risk management policies , capital
management , the nature of its portfolio and expenditure
projections.
Additionally , the Directors have considered the risks arising
of reduced asset values and have considered the impact of the
proposed winddown. The Investment Manager has also performed a
range of stress tests and demonstrated to the Directors that even
in an adverse scenario of depressed markets that the Group could
still generate sufficient funds to meet its liabilities over the
next twelve months. The Directors believe that the Group has
adequate resources , an appropriate financial structure and
suitable management arrangements in place to continue in
operational existence for the foreseeable future being a period of
at least twelve months from the date of this report.
Based on their assessment and considerations above , the
Directors have concluded that the financial statements of the Group
and Company should continue to be prepared on a going concern basis
and the financial statements have been prepared accordingly.
Where presentational guidance set out in the Statement of
Recommended Practice ( " SORP " ) for investment trusts issued by
the Association of Investment Companies ( " AIC " ) in November
2014 and updated in October 2019 with consequential amendments is
consistent with the requirements of IFRS , the Directors have
sought to prepare the consolidated financial statements on a basis
compliant with the recommendations of the SORP.
The Parent Company and Group ' s presentational currency is
Pound Sterling (GBP). Pound Sterling is also the functional
currency because it is the currency of the Parent Company ' s share
capital and the currency which is most relevant to the majority of
the Parent Company ' s shareholders. The Group enters into forward
currency Pound Sterling hedges where operating activity is
transacted in a currency other than the functional currency.
Restatement of Consolidated Statement of Cash Flows
The presentation of cash flows related to notes payable within
the Consolidated Statement of Cash Flows has been restated to
report proceeds and repayments on a gross basis, which were
previously reported on a net basis. Below is the impact of this
change on the Consolidated Statement of Cash Flows:
31 DECEMBER RESTATED
2021 31 DECEMBER 2021
GBP GBP
----------------------------- ------------- ------------------
(Decrease) increase in note 21,180,077 -
payable
============================= ============= ==================
Proceeds from note payable - 179,944,080
============================= ============= ==================
Repayment of note payable - (158,764,003)
----------------------------- ------------- ------------------
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Parent Company and its subsidiaries. Control is
achieved where the Parent Company has the power to govern the
financial and operating policies of an investee entity so as to
obtain benefits from its activities. The Parent Company controls an
entity when the Parent Company is exposed to , or has rights to ,
variable returns from its investment and has the ability to affect
those returns through its power over the entity. All intra-group
transactions , balances , income and expenses are eliminated on
consolidation. The accounting policies of the subsidiaries have
been applied on a consistent basis to ensure consistency with the
policies adopted by the Parent Company. The period ends for the
subsidiaries are consistent with the Parent Company.
Subsidiaries of the Parent Company , where applicable , have
been consolidated on a line-by-line bases as the Parent Company
does not meet the definition of an investment entity under IFRS 10
because it does not measure and evaluate the performance of all its
investments on the fair value basis of accounting.
Investments in subsidiaries
The Parent Company ' s investments in its subsidiaries are
measured at fair value which is determined with reference to the
underlying NAV of the subsidiary . The NAV of the subsidiaries are
used as a best estimate of fair value through profit or loss. The
NAV is the value of all the assets of the subsidiary less its
liabilities to creditors (including provisions for such
liabilities) determined in accordance with applicable accounting
standards , which represents fair value based on the Company ' s
assessment.
Presentation of Consolidated Statement of Comprehensive
Income
In order to better reflect the activities of an investment trust
company and in accordance with the guidance set out by the AIC ,
supplementary information which analyses the Consolidated Statement
of Comprehensive Income between items of revenue and capital nature
has been presented alongside the Consolidated Statement of
Comprehensive Income.
The Directors have taken advantage of the exemption under
Section 408 of the Companies Act 2006 and accordingly have not
presented a separate Parent Company statement of comprehensive
income. The net loss on ordinary activities after taxation of the
Parent Company was GBP(22 , 124 , 267) (31 December 2021: GBP73 ,
175 , 251).
Income
For financial instruments measured at amortised cost , the
effective interest rate method is used to measure the carrying
value of a financial asset or liability and to allocate associated
interest income or expense in the revenue account over the relevant
period. The effective interest rate is the rate that discounts
estimated future cash payments or receipts over the expected life
of the financial instrument or , when appropriate , a shorter
period , to the net carrying amount of the financial asset or
financial liability.
In calculating the effective interest rate , the Group estimates
cash flows considering all contractual terms of the financial
instrument but does not consider expected credit losses. The
calculation includes all fees received and paid , costs borne that
are an integral part of the effective interest rate and all other
premiums or discounts above or below market rates.
Dividend income from investments is taken to the revenue account
on an ex-dividend basis. Bank interest and other income receivable
is accounted for on an effective interest basis. Dividend income
from investments is reflected in Other income on the Statement of
Comprehensive Income. Further disclosure can be found in Note
5.
Distributions from investments in funds are accounted for on an
accrual basis as of the date the Group is entitled to the
distribution. The income is treated as revenue return provided that
the underlying assets of the investments comprise solely income
generating loans , or investments in lending platforms which
themselves generate net interest income. Distributions from
investments in funds is reflected in Other income on the Statement
of Comprehensive Income. Further disclosure can be found in Note
5.
Interest income from Investment assets designated as held at
fair value through profit or loss are reflected in other income on
the Statement of Comprehensive Income. Further disclosure can be
found in Note 5.
In the instance where the retained earnings of the Parent
Company ' s investment in a subsidiary are negative , all income
from that investment is allocated to the capital reserve for both
the Group and the Parent Company.
Finance costs
Finance costs are recognised using the effective interest rate
method. The Group currently charges all finance costs to either
revenue or capital based on retained earnings of the investment
that generates the fees from the perspective of the Parent
Company.
Expenses
Expenses not directly attributable to generating a financial
instrument are recognised as services are received , or on the
performance of a significant act which means the Group has become
contractually obligated to settle those amounts.
The Group currently charges all expenses , including investment
management fees and performance fees , to either revenue or capital
based on the retained earnings of the investment that generates the
fees from the perspective of the Parent Company.
At 31 December 2022 , no management fees (31 December 2021:
GBPnil) have been charged to the capital return of the Group or the
Parent Company. At 31 December 2022 , no performance fees (31
December 2021: GBP9 , 179 , 370) have been charged to the capital
return of the Group and Parent Company relating to the net return
on ordinary activities after taxation allocated to the capital
return. Refer to Note 10 for further details of the management and
performance fees.
All expenses are accounted for on an accruals basis.
Dividends payable to Shareholders
Dividends payable to Shareholders are recognised in the
Consolidated Statement of Changes in Equity when they are paid or
have been approved by Shareholders in the case of a final dividend
and become a liability to the Parent Company.
Taxation
The tax currently payable is based on the taxable profit for the
year. Taxable profit differs from net profit as reported in the
Consolidated Statement of Comprehensive Income because it excludes
items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or
deductible. The Group ' s liability for current tax is calculated
using tax rates that have been enacted or substantively enacted at
the Consolidated Statement of Financial Position date.
In line with the recommendations of SORP for investment trusts
issued by the AIC , the allocation method used to calculate tax
relief on expenses presented against capital returns in the
supplementary information in the Consolidated Statement of
Comprehensive Income is the " marginal basis " .
Under this basis , if taxable income is capable of being offset
entirely by expenses presented in the revenue return column of the
Consolidated Statement of Comprehensive Income , then no tax relief
is transferred to the capital return column.
Investment trusts which have approval as such under section 1158
of the Corporation Tax Act 2010 are not liable for taxation on
capital gains.
Financial assets and financial liabilities
The Group classifies its financial assets and financial
liabilities in one of the following categories below. The
classification depends on the purpose for which the financial
assets and liabilities were acquired. The classification of
financial assets and liabilities are determined at initial
recognition.
IFRS 9 contains a classification and measurement approach for
financial assets that reflects the business model in which assets
are managed and their cash flow characteristics. IFRS 9 contains a
principal-based approach and applies one classification approach
for all types of financial assets. For Debt Instruments , two
criteria are used to determine how financial assets should be
classified and measured:
v The entity ' s business model (i.e. , how an entity manages
its financial assets in order to generate cash flows by collecting
contractual cash flows , selling financial assets or both) ;
and
v The contractual cash flow characteristics of the financial
asset (i.e. , whether the contractual cash flows are solely
payments of principal and interest).
A financial asset is measured at amortised cost if it meets both
of the following conditions and is not designated as at fair value
through profit or loss ( " FVTPL " ):
v It is held within a business model whose objective is to hold
assets to collect contractual cash flows ; and
v Its contractual terms give rise on specified dates to cash
flows that are solely payments of principal and interest on the
principal amount outstanding. The carrying amount of these assets
is adjusted by any expected credit loss allowance recognised and
measured as described further in this note.
A financial asset is measured at fair value through other
comprehensive income ( " FVOCI " ) if it meets both of the
following conditions and is not designated as at FVTPL:
v It is held within a business model whose objective is achieved
by both collecting contractual cash flows and selling financial
assets ; and
v Its contractual terms give rise on specified dates to cash
flows that are solely payments of principal and interest on the
principal amount outstanding. Movements in the carrying amount are
taken through the Other Comprehensive Income ( " OCI " ) , except
for the recognition of impairment gains or losses , interest
revenue and foreign exchange gains and losses on the investments
amortised cost which is recognised in the Consolidated Statement of
Comprehensive Income. When the financial asset is derecognised ,
the cumulative gain or loss previously recognised in OCI is
reclassified from equity to the Consolidated Statement of
Comprehensive Income and recognised in Income. Interest income from
these financial assets in included in Income using the effective
interest rate method ( " ERIM " ).
Equity instruments are measured at FVTPL , unless they are not
held for trading purposes , in which case an irrevocable election
can be made on initial recognition to measure them at FVOCI with no
subsequent reclassification to the Consolidated Statement of
Comprehensive Income. This election is made on an
investment-by-investment basis.
All financial assets not classified as measured at amortised
cost or FVOCI as described above are measured at FVTPL. Financial
assets measured at FVTPL are recognised in the Consolidated
Statement of Financial Position at their fair value. Fair value
gains and losses , together with interest coupons and dividend
income , are recognised in the Consolidated Statement of
Comprehensive Income within net trading income in the period in
which they occur. The fair values of assets and liabilities traded
in active markets are based on current bid and offer prices
respectively. If the market is not active , the Group establishes a
fair value by using valuation techniques. In addition , on initial
recognition , the Company may irrevocably designate a financial
asset that otherwise meets the requirements to be measured at
amortised cost or at FVOCI as FVTPL if doing so eliminates or
significantly reduces an accounting mismatch that would otherwise
arise.
There are no positions measured at FVOCI in the current or prior
year.
Business model assessment
The Group will assess the objective of the business model in
which a financial asset is held at a portfolio level in order to
generate cash flows because this best reflects the way the business
is managed , and information is provided to the Investment Manager.
That is , whether the Group ' s objective is solely to collect the
contractual cash flows from the assets or is to collect both the
contractual cash flows and cash flows arising from the sale of
assets. If neither of these are applicable , then the financial
assets are classified as part of the other business model and
measured at FVTPL.
The information that will be considered by the Group in
determining the business model includes:
v The stated policies and objectives for the portfolio and the
operation of those policies in practice , including whether the
strategy focuses on earning contractual interest revenue ,
maintaining a particular interest rate profile , matching duration
of the financial assets to the duration of the liabilities that are
funding those assets or realising cash flows through the sale of
assets ;
v Past experience on how the cash flows for these assets were
collected ;
v How the performance of the portfolio is evaluated and reported
to the Investment Manager ;
v The risks that affect the performance of the business model
(and the financial assets held within that business model) and how
those risks are managed ; and
v The frequency , volume and timing of sales in prior periods ,
the reasons for such sales and expectations about future sales
activity. However , information about sales activity is not
considered in isolation , but as part of an overall assessment of
how the Investment Manager ' s stated objective for managing the
financial assets is achieved and how cash flows are realised.
Assessment whether contractual cash flows are solely payments of
principal and interest
For the purposes of this assessment , " principal " is defined
as the fair value of the financial asset on initial recognition. "
Interest " is defined as consideration for the time value of money
, for the credit risk associated with the principal amount
outstanding during a particular period of time and for other basic
lending risks and costs (e.g. liquidity risk and administrative
costs) , as well as a reasonable profit margin.
In assessing whether the contractual cash flows are solely
payments of principal and interest , the contractual terms of the
instrument will be considered to see if the contractual cash flows
are consistent with a basic lending arrangement. In making the
assessment , the following features will be considered:
v Contingent events that would change the amount and timing of
cash flows ;
v Prepayment and extension terms ;
v Terms that limit the Company ' s claim to cash flows from
specified assets , e.g. , non-recourse asset arrangements ; and
v Features that modify consideration for the time value of money
, e.g. , periodic reset of interest rates.
The Group reclassifies debt investments when and only when its
business model for managing those assets changes. The
reclassification that has taken place forms the start of the first
reporting period following the change. Such changes are expected to
be very infrequent.
Expected credit loss allowance for financial assets measured at
amortised cost
The Credit impairment losses in the Consolidated Statement of
Comprehensive Income includes the change in expected credit losses
which are recognised for loans and advances to customers , other
financial assets held at amortised cost and certain loan
commitments.
At initial recognition , allowance is made for expected credit
losses resulting from default events that are possible within the
next 12 months (12-month expected credit losses). In the event of a
significant increase in credit risk , allowance (or provision) is
made for expected credit losses resulting from all possible default
events over the expected life of the financial instrument (lifetime
expected credit losses). Financial assets where 12-month expected
credit losses are recognised are considered to be Stage 1 ;
financial assets which are considered to have experienced a
significant increase in credit risk are in Stage 2 ; and financial
assets which have defaulted or are otherwise considered to be
credit impaired are allocated to Stage 3.
The measurement of expected credit losses will primarily be
based on the product of the instrument ' s probability of default (
" PD " ) , loss given default ( " LGD " ) , and exposure at default
( " EAD " ) , taking into account the value of any collateral held
or other mitigants of loss and including the impact of discounting
using the effective interest rate ( " EIR " ).
v The PD represents the likelihood of a borrower defaulting on
its financial obligation , either over the next 12 months ( " 12M
PD " ) , or over the remaining lifetime ( " Lifetime PD " ) of the
obligation.
v EAD is based on the amounts the Group expects to be owed at
the time of default , over the next 12 months ( " 12M EAD " ) or
over the remaining lifetime ( " Lifetime EAD " ). For example , for
a revolving commitment , the Group includes the current drawn
balance plus any further amount that is expected to be drawn up to
the current contractual limit by the time of default , should it
occur.
v LGD represents the Group ' s expectation of the extent of loss
on a defaulted exposure. LGD varies by type of counterparty , type
and seniority of claim and availability of collateral or other
credit support. LGD is expressed as a percentage loss per unit of
exposure at the time of default. LGD is calculated on a 12-month or
lifetime basis , where 12-month LGD is the percentage of loss
expected to be made if the default occurs in the next 12 months and
Lifetime LGD is the percentage of loss expected to be made if the
default occurs over the remaining expected lifetime of the
loan.
The estimated credit loss ( " ECL " ) is determined by
projecting the PD , LGD , and EAD for each future month and for
each individual exposure. Movements between Stage 1 and Stage 2 are
based on whether an instrument ' s credit risk as at the reporting
date has increased significantly relative to the date it was
initially recognised. Where the credit risk subsequently improves
such that it no longer represents a significant increase in credit
risk since origination , the asset is transferred back to Stage
1.
General expectations with regards to expected losses on loans
are assessed based on an analysis of loan collateral and credit
enhancement. Impairments are recognised once a loan is deemed to
have a non-trivial likelihood of facing a material loss. The
expected credit loss allowance reflects the increasing likelihood
of loss as collateral and credit enhancement become diminished or
impaired. The adequacy of credit enhancement is typically based on
the actual contractual terms of the investment, including such
provisions as collateral eligibility, advance rate and/or loan to
value ratio. The value and cash flows of the collateral are
determined based on all available historical performance data on
the specific asset pool being assessed, including historical loss
performance data and forward-looking information, supplemented by
additional sources as needed. Unless identified at an earlier stage
, the credit risk of financial assets is deemed to have increased
significantly when more than 30 days past due. The Group does not
rebut the presumption in IFRS 9 that all financial assets that are
more than 30 days past due have experienced a significant increase
in credit risk. The assessment as to when a financial asset has
experienced a significant increase in the probability of default
requires the application of management judgement.
In addition , the Group considers a financial instrument to have
experienced a significant increase in credit risk when one of the
following have occurred:
v Significant increase in credit spread ;
v Significant adverse changes in business , financial and/or
economic conditions in which the borrower operates ;
v Actual or expected forbearance or restructuring ;
v Actual or expected significant adverse change in operating
results of the borrower ;
v Significant change in collateral value which is expected to
increase the risk of default ; or
v Early signs of cashflow or liquidity problems.
Movements between Stage 2 and Stage 3 are based on whether
financial assets are credit impaired as at the reporting date.
Assets can move in both directions through the stages of the
impairment model.
The criteria for determining whether credit risk has increased
significantly will vary by portfolio and will include a backstop
based on delinquency. IFRS 9 contains a rebuttable presumption that
default occurs no later than when a payment is 90 days past due
which the Group does not rebut. A loan is normally written off ,
either partially or in full , when there is no realistic prospect
of recovery (as a result of the customer ' s insolvency , ceasing
to trade or other reason) and the amount of the loss has been
determined. Subsequent recoveries of amounts previously written off
decrease the amount of impairment losses recorded. The Company
assesses at each reporting date whether there is objective evidence
that a loan or group of loans is impaired. In performing such
analysis , the Company assesses the probability of default based on
the level of collateral and credit enhancement and on the number of
days past due , using recent historical rates of default on loan
portfolios with credit risk characteristics similar to those of the
Company or past history if sufficient data is available to
demonstrate a reliable loss profile.
Inputs into the assessment of whether a financial instrument is
in default and their significance may vary over time to reflect
changes in circumstances.
Under IFRS 9 , when determining whether the credit risk (i.e.
the risk of default) on a financial instrument has increased
significantly since initial recognition , reasonable and
supportable information that is relevant and available without
undue cost or effort , including both quantitative and qualitative
information and analysis based on historical experience , credit
assessment and forward-looking information is used.
The measurement of expected credit losses for each stage and the
assessment of significant increases in credit risk must consider
information about past events and current conditions as well as
reasonable and supportable forward-looking information , including
a " base case " view of the future direction of relevant economic
variables and a representative range of other possible forecasts
scenarios. The process will involve developing two or more
additional economic scenarios and considering the relative
probabilities of each outcome. The base case will represent a most
likely outcome and be aligned with information used for other
purposes , such as strategic planning and budgeting. The number of
scenarios used and their attributes are reassessed at each
reporting date by investment. The scenario weightings are
determined by a combination of statistical analysis and expert
credit judgement , taking account of the range of possible outcomes
each chosen scenario is representative of. These scenarios are
informed by data from the Federal Reserve regarding the probability
of a recession in the US over the subsequent 12-month period.
The estimation and application of forward-looking information
requires significant judgement. PD , LGD and EAD inputs used to
estimate Stage 1 and Stage 2 credit loss allowances , are modelled
based on the macroeconomic variables (or changes in macroeconomic
variables) that are most closely correlated with credit losses in
the relevant portfolio. As with any economic forecasts , the
projections and likelihoods of occurrence are subject to a high
degree of inherent uncertainty and therefore the actual outcomes
may be significantly different to those projected. The Group
considers these forecasts to represent its best estimate of the
possible outcomes and has analysed the non-linearities and
asymmetries within the Group ' s different portfolios to establish
that the chosen scenarios are appropriately representative of the
range of possible scenarios.
Other forward-looking considerations not otherwise incorporated
within the above scenarios , such as the impact of any regulatory ,
legislative or political changes , have also been considered , but
are not deemed to have a material impact and therefore no
adjustment has been made to the ECL for such factors. This is
reviewed and monitored for appropriateness on a quarterly
basis.
Collateral and other credit enhancements
The Group employs a range of policies to mitigate credit risk.
The most common of these is accepting collateral for funds
advanced. The Group has internal policies of the acceptability of
specific classes of collateral or credit risk mitigation.
Modification of financial assets
The Group sometimes modifies the terms or loans provided to
customers due to commercial renegotiations , or for distressed
loans , with a view to maximising recovery.
Such restructuring activities include extended payment term
arrangements , payment holidays and payment forgiveness.
Restructuring policies and practice are based on indicators or
criteria which , in the judgement of management , indicate that
payment will most likely continue. These policies are kept under
continuous review.
The risk of default of such assets after modification is
assessed at the reporting date and compared with the risk under the
original terms at initial recognition , when the modification is
not substantial and so does not result in derecognition of the
original assets. The Group monitors the subsequent performance of
modified assets. The Group may determine that the credit risk has
significantly improved after restructuring , so that the assets are
moved from Stage 3 or Stage 2.
Modification of terms is not an indicator of a change in
risk.
Modification of loans
The Group sometimes renegotiates or otherwise modifies the
contractual cash flows of loans to customers. When this happens ,
the Group assesses whether or not the new terms are substantially
different to the original terms. The Group does this by considering
, among others , the following factors:
v If the borrower is in financial difficulty , whether the
modification merely reduces the contractual cash flows to amounts
the borrower is expected to be able to pay ;
v Whether any substantial new terms are introduced , such as a
profit share/equity-based return that substantially affect the risk
profile of the loan ;
v Significant extension of the loan term when the borrower is
not in financial difficulty ;
v Significant change in the interest rate ;
v Change in the currency the loan is denominated in ; and
v Insertion of collateral , other security or credit
enhancements that significantly affect the credit risk associated
with the loan.
If the terms are substantially different , the Group
derecognises the original financial asset and recognises a new
asset at fair value and recalculates a new effective interest rate
for the asset. The date of renegotiation is consequently considered
to be the date of initial recognition for impairment calculation
purposes , including for the purpose of determining if a
significant increase in credit risk has occurred. However , the
Group also assesses whether the new financial asset recognised is
deemed to be credit-impaired at initial recognition , especially in
circumstances where the renegotiation was driven by the debtor
being unable to make the originally agreed payments. Differences in
the carrying amounts are also recognised in the Consolidated
Statement of Comprehensive Income as a gain or loss on
derecognition.
If the terms are not substantially different , the renegotiation
or modification does not result in derecognition , and the Group
recalculates the gross carrying amount based on the revised cash
flows of the financial asset and recognises a modification gain or
loss in the Consolidated Statement of Comprehensive Income. The new
gross carrying amount is recalculated by discounting the modified
cash flows at the original effective interest rate (or
credit-adjusted effective interest rate for purchased or originated
credit-impaired financial assets).
During the year , no investments were modified per the Group ' s
policy. During the prior year, three investments were modified per
the Group's policy. The Group performed the analysis mentioned
above on the investments modified in 2021 and determined that the
modification did not result in a substantial change to the terms of
the loans and derecognition was not required. The modification of
the loans in the prior year did not result in any gains or losses
recognised as a result of the modification of the loans as the
carrying value of the loans was the same before and after the
modification.
Derecognition other than a modification
Financial assets , or a portion thereof , are derecognised when
the contractual rights to receive the cash flows from the assets
have expired , or when they have been transferred and either (i)
the Group transfers substantially all the risks and rewards of
ownership , or (ii) the Group neither transfers nor retains
substantially all the risks and rewards of ownership and the Group
has not retained control.
The Group enters into transactions where it retains the
contractual rights to receive cash flows from assets but assumes a
contractual obligation to pay those cash flows to other entities
and transfers substantially all of the risks and rewards. These
transactions are accounted for as ' pass through ' transfers that
result in derecognition if the Group:
v Has no obligation to make payments unless it collects
equivalent amounts from the assets ;
v Is prohibited from selling or pledging the assets ; and
v Has an obligation to remit any cash it collects from the
assets without material delay.
Collateral furnished by the Group under standard repurchase
agreements and securities lending and borrowing transactions are
not derecognised because the Group retains substantially all the
risks and rewards on the basis of the predetermined repurchase
price , and the criteria for derecognition are therefore not
met.
Financial assets and financial liabilities designated as held at
fair value through profit or loss
This category consists of forward foreign exchange contracts ,
common equity , preferred stock , warrants and investments in
funds.
Assets and liabilities in this category are carried at fair
value. The fair values of derivative instruments are estimated
using discounted cash flow models using yield curves that are based
on observable market data or are based on valuations obtained from
counterparties.
Investments in funds are carried at fair value through profit or
loss and designated as such at inception. This is valued for the
units at the balance sheet date based on the NAV where it is
assessed that NAV equates to fair value.
Common equity , preferred stock and warrants are valued using a
variety of techniques. These techniques include market comparables
, discounted cash flows , yield analysis , and transaction prices.
Refer to Note 3.
Gains and losses arising from the changes in the fair values are
recognised in the Consolidated Statement of Comprehensive
Income.
Loans at amortised cost
Loans at amortised cost are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. Loans are recognised when the funds are advanced to
borrowers and are carried at amortised cost using the effective
interest rate method less provisions for impairment.
Purchases and sales of financial assets
Purchases and sales of financial assets are accounted for at
trade date. Financial assets are derecognised when the rights to
receive cash flows from the investments have expired or have been
transferred and the Group has transferred substantially all risks
and rewards of ownership.
Fair value estimation
The determination of fair value of investments requires the use
of accounting estimates and assumptions that could cause material
adjustment to the carrying value of those investments.
Financial liabilities
Borrowings , deposits , debt securities in issue and
subordinated liabilities , if any , are recognised initially at
fair value , being the issue proceeds net of premiums , discounts
and transaction costs incurred.
All borrowings are subsequently measured at amortised cost using
the effective interest rate method. Amortised cost is adjusted for
the amortisation of any premiums , discounts and transaction costs.
The amortisation is recognised in interest expense and similar
charges using the effective interest rate method.
Financial liabilities are derecognised when the obligation is
discharged , cancelled or has expired.
Derivatives
Derivatives are entered into to reduce exposures to fluctuations
in interest rates , exchange rates , market indices and credit
risks and are not used for speculative purposes. The Parent Company
entered into forward foreign currency exchange contracts as a hedge
against exchange rate fluctuations for investments in Portfolio
Companies denominated in foreign currencies. A forward foreign
currency exchange contract is an agreement between two parties to
purchase or sell a specified quantity of a currency at or before a
specified date in the future. Forward contracts are typically
traded in the OTC markets and all details of the contract are
negotiated between the counterparties to the agreement. Accordingly
, the forward contracts are valued at the forward rate by reference
to the contracts traded in the OTC markets and are classified as
Level 2 in the fair value hierarchy.
Derivatives are carried at fair value with movements in fair
values recorded in the Consolidated Statement of Comprehensive
Income. Derivative financial instruments are valued using
discounted cash flow models using yield curves that are based on
observable market data or are based on valuations obtained from
counterparties.
Gains and losses arising from derivative instruments are
credited or charged to the Consolidated Statement of Comprehensive
Income. Gains and losses of a revenue nature are reflected in the
revenue column and gains and losses of a capital nature are
reflected in the capital column. Gains and losses on forward
foreign exchange contracts are reflected in Foreign exchange
gain/(loss) in the Consolidated Statement of Comprehensive
Income.
All derivatives are classified as assets where the fair value is
positive and liabilities where the fair value is negative. Where
there is the legal ability and intention to settle net , then
offsetting is applied and the derivative is classified as a net
asset or liability , as appropriate.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount
reported in the Consolidated Statement of Financial Position if ,
and only if , there is currently enforceable legal right to set off
the recognised amounts and there is an intention to settle on a net
basis , or to realise an asset and settle the liability
simultaneously.
Investments in funds
Investments in funds are measured at fair value through profit
or loss. The NAV of the fund is used as a best estimate of fair
value through profit or loss. The NAV is the value of all the
assets of the fund less its liabilities to creditors (including
provisions for such liabilities) determined in accordance with
applicable accounting standards , which represents fair value based
on the Company ' s assessment. Refer to Note 3 and Note 19 for
further information.
Equity securities
Equity securities are measured at fair value. These securities
are considered either Level 1 , 2 , or 3 investments. Further
details of the valuation of equity securities are included in Note
3. Equity securities consist of common and preferred stock ,
warrants and convertible note investments.
Other receivables
Other receivables do not carry interest and are short-term in
nature and are accordingly recognised at fair value as reduced by
appropriate allowances for estimated irrecoverable amounts.
Cash and cash equivalents
Cash comprises of cash on hand and demand deposits. Cash
equivalents are short-term , highly liquid investments with a
maturity of 90 days or less that are readily convertible to known
amounts of cash.
Deferred income
The Group and Parent Company defer draw fees received from
investments and the deferred fees amortise into income on a
straight-line basis over the life of the loan , which approximates
the effective interest rate method.
Other liabilities
Other liabilities and accrued expenses are not interest-bearing
and are stated at their nominal values. Due to their short-term
nature this is determined to be equivalent to their fair value.
Share Capital
The Ordinary Shares are classified as equity. The costs of
issuing or acquiring equity are recognised in equity (net of any
related income tax benefit) , as a reduction of equity on the
condition that these are incremental costs directly attributable to
the equity transaction that otherwise would have been avoided.
The costs of an equity transaction that is abandoned are
recognised as an expense. Those costs might include registration
and other regulatory fees , amounts paid to legal , accounting and
other professional advisers , printing costs and stamp duties.
The Group ' s equity NAV per share is calculated by dividing the
equity - net assets attributable to the holder of Ordinary Shares
by the total number of outstanding Ordinary Shares.
Treasury Shares have no entitlements to vote and are held by the
Company.
Foreign exchange
Transactions in foreign currencies are translated into Pound
Sterling at the rate of exchange ruling on the date of each
transaction. Monetary assets , liabilities and equity investments
in foreign currencies at the Consolidated Statement of Financial
Position date are translated into Pound Sterling at the rates of
exchange ruling on that date. Profits or losses on exchange ,
together with differences arising on the translation of foreign
currency assets or liabilities , are taken to the capital return
column of the Consolidated Statement of Comprehensive Income.
Foreign exchange gains and losses arising on investment assets
including loans are included within Net gain/(loss) on investments
within the capital return column of the Consolidated Statement of
Comprehensive Income.
The assets and liabilities of the Group ' s foreign operations
are translated using the exchange rates prevailing at the reporting
date. Income and expense items are translated using the average
exchange rates during the period. Exchange differences arising from
the translation of foreign operations are taken directly as
currency translation differences through the Consolidated Statement
of Comprehensive Income.
Capital reserves
Capital reserve - arising on investments sold includes:
v gains/losses on disposal of investments and the related
foreign exchange differences ;
v exchange differences on currency balances ;
v cost of own shares bought back ; and
v other capital charges and credits charged to this account in
accordance with the accounting policies above.
Capital reserve - arising on investments held includes:
v increases and decreases in the valuation of investments held
at the year-end ;
v increases and decreases in the IFRS 9 reserve of investments
held at the year-end ; and
v investments in subsidiaries by the Parent Company where
retained earnings is negative.
In the instance where the retained earnings of the Parent
Company ' s investment in a subsidiary are negative , all income
and expenses from that investment are allocated to the capital
reserve for both the Group and the Parent Company.
All the above are accounted for in the Consolidated Statement of
Comprehensive Income except the cost of own shares bought back , if
applicable , which would be accounted for in the Consolidated
Statement of Changes in Equity.
Revenue reserves
The revenue reserve represents the accumulated revenue profits
retained by the Group. The Group makes interest distributions from
the revenue reserve to Shareholders.
Segmental reporting
The chief operating decision maker is the Board of Directors.
The Directors are of the opinion that the Group is engaged in a
single segment of business , being the investment of the Group ' s
capital in financial assets comprising consumer loans , SME loans ,
corporate trade receivables and/or advances thereon. The Board
focuses on the overall return from these assets irrespective of the
structure through which the investment is made.
Critical accounting estimates
The preparation of financial statements in conformity with
international accounting standards requires the Group to make
judgements , estimates and assumptions that affect the application
of accounting policies and the reported amounts of assets and
liabilities at the date of the financial statements and the
reported amounts of income and expenses during the reporting
period. Although these estimates are based on the Directors ' best
knowledge of the amount , actual results may differ ultimately from
those estimates.
The areas requiring a higher degree of judgement or complexity
and areas where assumptions and estimates are significant to the
financial statements , are in relation to expected credit losses
and investments at fair value through profit or loss. These are
detailed below.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future periods
affected.
Measurement of the expected credit loss allowance
The calculation of the Group ' s ECL allowances and provisions
against loan commitments and guarantees under IFRS 9 is highly
complex and involves the use of significant judgement and
estimation. The investment manager proactively monitors and reviews
the Company's investments monthly related to expected credit losses
and IFRS 9. Specific models are developed for each underlying
investment and the results are discussed on an ongoing basis as new
information is received. A review is first performed to identify
what stage the Company's investments are in and the appropriate
analysis is then performed. This includes the formulation and
incorporation of multiple forward-looking economic conditions into
ECL to meet the measurement objective of IFRS 9. The most
significant estimates that are discussed below are considered to be
the effect of potential future economic scenarios, collateral cash
flows, and probability of default. These estimates vary on an
investment-by-investment basis and may not be applicable to all
investments held in the portfolio.
Base case and stress case cash flow methodology under IFRS 9
Each loan in the Group ' s investment portfolio is analysed to
assess the likelihood of the Group incurring any loss either (i) in
the normal course of events , or (ii) in a stress scenario. Given
that these positions are typically secured by specific collateral
and often further secured by guarantees from the operating business
, the analysis looks at the impacts on both the specific collateral
, as well as any obligations of the operating business to
understand how the Group ' s investment would fair in each
scenario. The collateral performance assumptions for each
transaction are established using all available historical
performance data on the specific asset pool being assessed,
including historical loss performance data and forward-looking
information, supplemented by additional sources as needed.
Base case
To establish the base case model , a representative portfolio is
established based on the specific nature of the underlying
collateral. The expected cash flows are assessed based on the
relevant collateral parameters which will vary based on the
specific asset class being assessed. In certain instances the
collateral cash flows may entail the presumed sale of collateral
assets to third parties based on expected market values. Cash flow
and market assumptions are based on a combination of (1) historical
collateral data , (2) management forecasts , (3) proxy data from
comparable assets or businesses , and (4) judgement from the
investment professionals based on general research and
knowledge.
The model is then burdened with the following costs: (1)
servicing costs which broadly reflect the expected costs of either
(i) engaging a backup servicer to wind down the portfolio , or (ii)
of operating the business through a liquidation ; (2) upfront
liquidation costs to reflect potential expenses associated with
moving into liquidation ; and (3) ongoing liquidation costs to
reflect incremental costs born to oversee the liquidation.
The last input component is the terms of the Group ' s
investment , which includes the applicable advance rate and
interest rate which are based on the prevailing terms and
circumstances of the facility.
The representative portfolio is deemed to reflect the most
reliable and relevant information available about the portfolio
attributes and expected performance. As part of the ongoing
investment monitoring and risk management process , the Investment
Manager is monitoring performance on the underlying collateral on a
monthly basis to identify whether performance indicators are
trending positively or negatively , and how much cushion exists
compared to contractual covenant trigger levels. Any such changes
would be reviewed to determine whether an adjustment is required to
the model assumptions.
Stress case
Once the Base Case scenario is established , one or more "
Stress Case " scenarios are created for each transaction. The
Stress Case is established by stressing the inputs that are most
directly tied to outcomes to an extent consistent with a severe
recession or comparably severe deterioration in the investment
position. The primary driver of collateral value for many asset
classes is the loss rates on the underlying receivables as these
have the most direct impact on liquidation outcomes. For other
asset classes it may include revenue yields , market values , or
other economic variables. Certain variables with less significant
impacts on the cash flow outcomes may be held constant to enhance
model explanatory power. Stress variables may be adjusted to
reflect the fact that stress will emerge (and dissipate) over a
period of time rather than having an immediate and constant
impact.
2008 Recession Loss Scalars
by Asset and Population
Subprime & Deep Near Prime Prime
Subprime Vintage Score 601-660 Vintage Score above
Vintage Score below 660
601
--------------------- ----------------------- ---------------------
Student Loan 0% 10% 8%
--------------------- ----------------------- ---------------------
Retail 17% 10% 3%
--------------------- ----------------------- ---------------------
Personal Loan 16% 41% 108%
--------------------- ----------------------- ---------------------
Auto 24% 54% 88%
--------------------- ----------------------- ---------------------
Credit Card 43% 71% 132%
--------------------- ----------------------- ---------------------
Source: Assessing Performance of Consumer Lending Assets through
Macroeconomic Shocks , Second Order Solutions (June 2019)
The most heavily represented populations in the Group ' s
borrower portfolios are personal loans (or amortising instalment
loans). As seen in the above table , default rates on these loans
increased by 1.16x-2.08x. Each portfolio was assessed based on the
applicable stress factor range based on the product and borrower
population.
IFRS 9 calls for an assessment of the probability of default
over the upcoming 12 months , and thus the Investment Manager
provides a view of the probability of such a severe scenario
occurring in the next 12 months for each of the investments which
are at risk of incurring a loss (as some of the variables will vary
between investments). Typically , the Investment Manager reviews
macroeconomic data to assess the probability of a recession or
stress scenario over a forward looking 12-month horizon. Such
information may be supplemented with additional investment level or
macroeconomic information to determine the appropriate
probabilities of stress (most commonly any such adjustments would
be to apply additional likelihood of stress). In certain instances,
the assessed impairment reserves are constant across all scenarios,
this most commonly occurs when the assessed impairment reserves are
zero. In these instances, there shall be no need to assess
probability weightings as it would not impact the overall analysis.
Once the model has been run at the stressed scenario , if the cash
flows continue to support the payment of an investment ' s
principal and interest , the portfolio is deemed to have adequate
coverage. If there is a shortfall in principal payments , a further
assessment is done to note whether there are any excluded variables
that need to be considered in determining the need for reserves on
the position , including taking into account other additional
credit enhancements provided in each deal (i.e. , corporate
guarantees , etc.). Such assessment would consider the likelihood
of a scenario that could pose a loss and the expected magnitude of
such loss in order to determine the appropriate reserve level.
For asset backed investments , two of the primary drivers of the
impairment analysis are the underlying collateral cash flows and
the probability of default which is defined as the likelihood of an
economic recession in the upcoming 12-month period. Regarding the
underlying collateral cash flows, these may vary based on various
underlying drivers depending on asset class (such as loss rates for
financial assets and asset revenue and margin for ecommerce
assets). For financial assets, loss rates are stressed to 110%-210%
of base case as part of the impairment analysis and the impacts of
those stresses are reflected in the impairment amounts on a
probability weighted basis. For ecommerce assets, revenue and
margins are stressed, on average, by 18% and 10%, respectively,
over the forecast period.
Establishing Impairment Reserves
Once the model has been run at the stressed scenario , if the
cash flows continue to support the payment of all principal and
interest after the burdens of servicing and liquidation costs , the
portfolio is deemed to have adequate coverage based solely on
direct collateral. If there is a shortfall in principal payments ,
a further assessment is done to note whether there are any excluded
variables that need to be considered in determining the need for
reserves on the position , including other additional credit
enhancements provided in each deal (i.e. , corporate guarantees ,
boot collateral , etc.). Such assessment would consider the
likelihood of a scenario that could pose a loss or impairment and
the expected magnitude of such loss in order to determine the
appropriate reserve level.
IFRS 9 calls for an assessment of the probability of default
over the upcoming 12 months , and thus the Investment Manager will
also provide a view of the probability of such a severe scenario
occurring in the next 12 months for each of the investments which
are at risk of incurring a loss (as some of the variables will vary
between investments). The Investment Manager reviews macroeconomic
data and central bank indicators to assess the probability of a
recession or stress scenario over a forward looking 12-month
horizon. Such information may be supplemented with additional
investment level or macroeconomic information to determine the
appropriate probabilities of stress (most commonly any such
adjustments would be to apply additional likelihood of stress). In
certain instances , the assessed impairment reserves are constant
across all scenarios , this most commonly occurs when the assessed
impairment reserves are zero. In these instances there shall be no
need to assess probability weightings as it would not impact the
overall analysis.
The Group has established impairment reserves by applying a
weighting of 46% to the base case scenario and 54% to the stress
case scenario as at 31 December 2022. If the stress case scenario
weighting was increased by 10% to 65% the impact on the increase to
expected credit losses as at 31 December 2022 is not material. In
2021, the weighting was 100% to the stress scenario.
The cumulative loss rates ranged from 9% to 50%. If the
cumulative loss rates in the stress scenario were increased by 10%,
the impact on the increase to expected credit losses as at 31
December 2022 is not material.
The probability of default percentages ranged from 3% to 23%. If
the probability of default percentages were increased by 10%, the
impact on the increase to the expected credit losses as at 31
December 2022 is not material.
Valuation of unquoted investments
The valuation of unquoted investments and investments for which
there is an inactive market is a key area of judgement and may
cause material adjustment to the carrying value of those assets and
liabilities. The unquoted equity assets are valued on periodic
basis using techniques including a market approach , costs approach
and/or income approach. The valuation process is collaborative ,
involving the finance and investment functions within the
Investment Manager with the final valuations being reviewed by the
Board ' s Audit and Valuation Committee. The specific techniques
used typically include earnings multiples , discounted cash flow
analysis , the value of recent transactions , and , where
appropriate , industry rules of thumb. The valuations often reflect
a synthesis of a number of different approaches in determining the
final fair value estimate. The individual approach for each
investment will vary depending on relevant factors that a market
participant would take into account in pricing the asset. Changes
in fair value of all investments held at fair value are recognised
in the Consolidated Statement of Comprehensive Income as a capital
item. On disposal , realised gains and losses are also recognised
in the Consolidated Statement of Comprehensive Income as a capital
item. Transaction costs are included within gains or losses on
investments held at fair value , although any related interest
income , dividend income and finance costs are disclosed separately
in the Consolidated Financial Statements. The ultimate sale price
of investments may not be the same as fair value. Refer to Note
3.
Critical accounting judgments
Judgement is required to determine whether the Parent Company
exercises control over its investee entities and whether they
should be consolidated. Control is achieved where the Parent
Company has the power to govern the financial and operating
policies of an investee entity so as to obtain benefits from its
activities. The Parent Company controls an investee entity when the
Parent Company is exposed to , or has rights to , variable returns
from its investment and has the ability to affect those returns
through its power over the entity. At each reporting date , an
assessment is undertaken of investee entities to determine control.
In the intervening period , assessments are undertaken where
circumstances change that may give rise to a change in the control
assessment. These include when an investment is made into a new
entity , or an amendment to existing entity documentation or
processes. When assessing whether the Parent Company has the power
to affect its variable returns , and therefore control investee
entities , an assessment is undertaken of the Parent Company ' s
ability to influence the relevant activities of the investee
entity. These activities include considering the ability to appoint
or remove key management or the manager , which party has decision
making powers over the entity and whether the manager of an entity
is acting as principal or agent. The assessment undertaken for
entities considers the Parent Company ' s level of investment into
the entity and its intended long-term holding in the entity and
there may be instances where the Parent Company owns less than 51%
of an investee entity but that entity is consolidated. Further
details of the Parent Company ' s subsidiaries are included in Note
17.
The Group ' s investments in associates all consist of limited
partner interest in funds. There are no significant restrictions
between investors with joint control or significant influence over
the associates listed above on the ability of the associates to
transfer funds to any party in the form of cash dividends or to
repay loans or advances made by the Group. Further details of the
Parent Company ' s associates are included in Note 19.
Accounting standards issued but not yet effective or not
material to the Group
At the date of authorisation of these financial statements , the
following standards and interpretations , which have not been
applied in these financial statements , were in issue.
IFRS 17 ' Insurance Contracts ' establishes the principles for
the recognition , measurement , presentation and disclosure of
insurance contracts. This information gives a basis for users of
financial statements to assess the effect that insurance contracts
have on the entity ' s financial position , financial performance
and cash flows. IFRS 17 was issued in May 2017 and applies to
annual reporting periods beginning on or after 1 January 2023. The
Directors do not anticipate that the adoption of this standard and
interpretations will have a material impact on the financial
statements , given the nature of the Group ' s business being that
it has no insurance contracts.
The narrow-scope amendments to IAS 1 Presentation of Financial
Statements clarify that liabilities are classified as either
current or non-current , depending on the rights that exist at the
end of the reporting period. Classification is unaffected by the
expectations of the entity or events after the reporting date (e.g.
, the receipt of a waver or a breach of covenant). The amendments
also clarify what IAS 1 means when it refers to the ' settlement '
of a liability. The amendments could affect the classification of
liabilities , particularly for entities that previously considered
management ' s intentions to determine classification and for some
liabilities that can be converted into equity. They must be applied
retrospectively in accordance with the normal requirements in IAS 8
Accounting Policies , Changes in Accounting Estimates and Errors.
In May 2020 , the IASB issued an Exposure Draft proposing to defer
the effective date of the amendments to 1 January 2023.
Accounting standards effective in the year
Other future developments include the IASB undertaking a
comprehensive review of existing IFRSs. The Group will consider the
financial impact of these new standards as they are finalised.
3. FAIR VALUE MEASUREMENT
Financial instruments measured and reported at fair value are
classified and disclosed in one of the following fair value
hierarchy levels based on the significance of the inputs used in
measuring its fair value:
Level 1 - Quoted prices (unadjusted) in active markets for
identical assets and liabilities ;
Level 2 - Inputs other than quoted prices included in Level 1
that are observable for the asset or liability , either directly
(as prices) or indirectly (derived from prices) ; and
Level 3 - Pricing inputs for the asset or liability that are not
based on observable market data (unobservable inputs).
An investment is always categorised as Level 1 , 2 or 3 in its
entirety. In certain cases , the fair value measurement for an
investment may use a number of different inputs that fall into
different levels of the fair value hierarchy. In such cases , an
investment ' s level within the fair value hierarchy is based on
the lowest level of input that is significant to the fair value
measurement. The assessment of the significance of a particular
input to the fair value measurement requires judgment and is
specific to the investment.
Valuation of investments in funds
The Group ' s investments in funds are subject to the terms and
conditions of the respective fund ' s offering documentation. The
investments in funds are primarily valued based on the latest
available financial information. The Investment Manager reviews the
details of the reported information obtained from the funds and
considers: (i) the valuation of the fund ' s underlying investments
; (ii) the value date of the NAV provided ; (iii) cash flows
(calls/distributions) since the latest value date ; and (iv) the
basis of accounting and , in instances where the basis of
accounting is other than fair value , fair valuation information
provided by the funds. If necessary , adjustments to the NAV are
made to the funds to obtain the best estimate of fair value. The
funds in which the Group invests are close-ended and unquoted. No
adjustments have been determined to be necessary to the NAV as
provided as at 31 December 2022 as this reflects fair value under
the relevant valuation methodology. The NAV is provided to
investors only and is not made publicly available.
Valuation of equity securities
Fair value is determined based on the Group ' s valuation
methodology , which is either determined using market comparables ,
discounted cash flow models or recent transactions.
Under the Enterprise Valuation Waterfall Analysis , the Group
estimates the fair value of a portfolio company using traditional
valuation methodologies including market , income , and cost
approaches , as well as other applicable industry-specific
approaches and then waterfall the enterprise value over the
portfolio company ' s securities in order of their preference
relative to one another. Some or all the traditional valuation
methodologies are weighted based on the individual circumstances of
the portfolio company to determine an estimate of the enterprise
value. The traditional valuation methodologies consist of valuation
estimates based on: valuations of comparable public companies ,
recent sales of private and public comparable companies ,
discounting the forecasted cash flows of the portfolio company ,
estimating the liquidation or collateral value of the portfolio
company ' s assets , third-party valuations of the portfolio
company or its assets , considering offers from third-parties to
buy the portfolio company , estimating the value to potential
strategic buyers and considering the value of recent investments in
the equity securities of the portfolio company. To determine the
enterprise value of a portfolio company , its historical and
projected financial results , as well as other factors that may
impact value , such as exposure to litigation , loss of significant
customers or other contingencies are considered. This financial and
other information is generally obtained from the Group ' s
portfolio companies , and in most cases represents unaudited ,
projected , or pro-forma financial information.
In using a valuation methodology based on the discounting of
forecasted cash flows of the portfolio company , significant
judgment is required in the development of an appropriate discount
rate to be applied to the forecasted cash flows. When applicable ,
a weighted average cost of capital approach is used to derive a
discount rate that takes into account i) the risk-free rate ii) the
cost of debt for creditworthiness and iii) the cost of equity for
performance risk. The three inputs to the discount rate are based
on third-party market studies , portfolio company interest rates ,
and an overall understanding of the inherent risk in the cash
flows. The remaining assumptions incorporated in the valuation
methodologies used to estimate the enterprise value consist
primarily of unobservable Level 3 inputs , including management
assumptions based on judgment. For example , from time to time , a
portfolio company has exposure to potential or actual litigation.
In evaluating the impact on the valuation for such items , the
amount that a market participant would consider in estimating fair
value is considered. These estimates are highly subjective , based
on the Group ' s assessment of the potential outcome(s) and the
related impact on the fair value of such potential outcome(s). A
change in these assumptions could have a material impact on the
determination of fair value.
In using a valuation methodology based on comparable public
companies or sales of private or public comparable companies ,
significant judgment is required in the application of discounts or
premiums to the prices of comparable companies for factors such as
size , marketability and relative performance. Related to the use
of private company transactions , when a portfolio company closes
on new equity , the new round ' s implied valuation is used in
valuing the equity investment. The use of an equity round includes
gaining an understanding of the resulting rights between equity
classes , and when applicable , a discount related to rights and
preference differences is applied to the implied valuation. In
addition , when a portfolio company has significant reason to
believe an equity round is closing in the near future , a
weighted-probability approach with the applicable discounts may be
used. Under the yield analysis approach , expected future cash
flows are discounted back using a discount rate. The discount rate
used incorporates market-based yields for similar credits to the
public market and the underlying risk of the individual credit.
Due to the inherent uncertainty of determining the fair value of
Level 3 assets that do not have a readily available market value ,
the fair value of the assets may differ significantly from the
values that would have been used had a ready market existed for
such assets and may differ materially from the values that may
ultimately be received or settled. Further , such assets are
generally subject to legal and other restrictions or otherwise are
less liquid than publicly traded instruments. If the Group were
required to liquidate a portfolio investment in a forced or
liquidation sale , the Group may realise significantly less than
the value at which such investment had previously been
recorded.
The selection of appropriate valuation techniques may be
affected by the availability of relevant inputs as well as the
relative reliability of the inputs. In some cases , one valuation
technique may provide the best indication of fair value while in
other circumstances , multiple valuation techniques may be
appropriate. The results of the application of the various
techniques may not be equally representative of fair value , due to
factors such as assumptions made in the valuation.
In some situations , the Group may determine it appropriate to
evaluate and weigh the results to develop a range of possible
values , with the fair value based on the Group ' s assessment of
the most representative point within the range.
Investments may be classified as Level 2 when market information
becomes available , yet the investment is not traded in an active
market and/or the investment is subject to transfer restrictions ,
or the valuation is adjusted to reflect illiquidity and/or
non-transferability.
The Group , at times , may hold Level 1 investments and will use
the available market quotes to value the investments. As noted
above , these investments may include an illiquid period in which
the investment does not have the ability to trade and will be
classified as Level 2.
Valuation of derivative instruments
Forward contracts are typically traded in the over-the-counter
("OTC") markets and all details of the contract are negotiated
between the counterparties to the agreement. Accordingly, the
forward contracts are valued at the forward rate by reference to
the contracts traded in the OTC markets and are classified as Level
2 in the fair value hierarchy. The change in the value of the
forward contracts during the year is recognized as foreign exchange
gain/(loss) on the Consolidated Statement of Comprehensive Income.
When the contract is closed, the Group recognizes the difference
between the value of the contract at the time it was entered and
the value at the time it was closed as foreign exchange
gain/(loss).
Fair value disclosures
The following table analyses the fair value hierarchy of the
Group ' s assets and liabilities measured at fair value at 31
December 2022:
INVESTMENT
ASSETS
DESIGNATED TOTAL LEVEL 1 LEVEL 2 LEVEL 3
AS HELD AT
FAIR VALUE GBP GBP GBP GBP
------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------
Investments 22 , 474 , 22 , 474 ,
in funds 910 - - 910
============ ==================================== ==================================== ==================================== ====================================
17 , 661 ,
Common stock 510 4,080,425 491,852 13,089,233
============ ==================================== ==================================== ==================================== ====================================
Preferred 52 , 310 , 52 , 310 ,
stock 062 - - 062
============ ==================================== ==================================== ==================================== ====================================
13 , 902 , 13 , 902 ,
Warrant 427 - - 427
============ ==================================== ==================================== ==================================== ====================================
Convertible 24 , 521 , 24 , 521 ,
debt 800 - - 800
------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------
130 , 870 ,
Total 709 4,080,425 491,852 126,298,432
------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------
TOTAL LEVEL 1 LEVEL 2 LEVEL 3
-----------
DERIVATIVE
FINANCIAL
ASSETS GBP GBP GBP GBP
----------- ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------
Forward
foreign
exchange
contracts 1 , 081 , 849 - 1 , 081 , 849 -
Total 1 , 081 , 849 - 1 , 081 , 849 -
----------- ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------
TOTAL LEVEL 1 LEVEL 2 LEVEL 3
------------
DERIVATIVE
FINANCIAL
LIABILITIES GBP GBP GBP GBP
------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------
Forward
foreign
exchange
contracts 3 , 283 , 142 - 3 , 283 , 142 -
Total 3 , 283 , 142 - 3 , 283 , 142 -
------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------
The following table analyses the fair value hierarchy of the
Group ' s assets and liabilities measured at fair value at 31
December 2021:
INVESTMENT
ASSETS
DESIGNATED TOTAL LEVEL 1 LEVEL 2 LEVEL 3
AS HELD AT
FAIR VALUE GBP GBP GBP GBP
------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------
Investments 12 , 531 , 12 , 531 ,
in funds 090 - - 090
============ ==================================== ==================================== ==================================== ====================================
49 , 501 , 11 , 992 , 21 , 201 , 16 , 308 ,
Common stock 940 005 450 485
============ ==================================== ==================================== ==================================== ====================================
Preferred 38 , 090 , 38 , 090 ,
stock 065 - - 065
============ ==================================== ==================================== ==================================== ====================================
20 , 984 , 19 , 864 ,
Warrant 976 - 1 , 120 , 366 610
============ ==================================== ==================================== ==================================== ====================================
Convertible 20 , 689 , 20 , 689 ,
debt 151 - - 151
------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------
141 , 797 , 11 , 992 , 22 , 321 , 107 , 483 ,
Total 222 005 816 401
------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------
TOTAL LEVEL 1 LEVEL 2 LEVEL 3
-----------
DERIVATIVE
FINANCIAL
ASSETS GBP GBP GBP GBP
----------- ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------
Forward
foreign
exchange
contracts 2 , 069 , 698 - 2 , 069 , 698 -
Total 2 , 069 , 698 - 2 , 069 , 698 -
----------- ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------
TOTAL LEVEL 1 LEVEL 2 LEVEL 3
------------
DERIVATIVE
FINANCIAL
LIABILITIES GBP GBP GBP GBP
------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------
Forward
foreign
exchange
contracts 1 , 508 , 675 - 1 , 508 , 675 -
Total 1 , 508 , 675 - 1 , 508 , 675 -
------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------
The following table analyses the fair value hierarchy of the
Parent Company ' s assets and liabilities measured at fair value at
31 December 2022:
INVESTMENT
ASSETS
DESIGNATED TOTAL LEVEL 1 LEVEL 2 LEVEL 3
AS HELD AT
FAIR VALUE GBP GBP GBP GBP
------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------
Investments 22 , 474 , 22 , 474 ,
in funds 910 - - 910
============ ==================================== ==================================== ==================================== ====================================
22 , 474 , 22 , 474 ,
Total 910 - - 910
------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------
TOTAL LEVEL 1 LEVEL 2 LEVEL 3
----------------------------
DERIVATIVE FINANCIAL ASSETS GBP GBP GBP GBP
---------------------------- ------------------ ------------------ ------------------ ------------------
Forward foreign exchange
contracts 1,081,849 - 1,081,849 -
Total 1,081,849 - 1,081,849 -
---------------------------- ------------------ ------------------ ------------------ ------------------
TOTAL LEVEL 1 LEVEL 2 LEVEL 3
------------
DERIVATIVE
FINANCIAL
LIABILITIES GBP GBP GBP GBP
------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------
Forward
foreign
exchange
contracts 3 , 283 , 142 - 3 , 283 , 142 -
Total 3 , 283 , 142 - 3 , 283 , 142 -
------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------
The following table analyses the fair value hierarchy of the
Parent Company ' s assets and liabilities measured at fair value at
31 December 2021:
INVESTMENT
ASSETS
DESIGNATED TOTAL LEVEL 1 LEVEL 2 LEVEL 3
AS HELD AT
FAIR VALUE GBP GBP GBP GBP
------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------
Investments 12 , 531 , 12 , 531 ,
in funds 090 - - 090
============ ==================================== ==================================== ==================================== ====================================
12 , 531 , 12 , 531 ,
Total 090 - - 090
------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------
TOTAL LEVEL 1 LEVEL 2 LEVEL 3
-----------
DERIVATIVE
FINANCIAL
ASSETS GBP GBP GBP GBP
----------- ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------
Forward
foreign
exchange
contracts 2 , 069 , 698 - 2 , 069 , 698 -
Total 2 , 069 , 698 - 2 , 069 , 698 -
----------- ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------
TOTAL LEVEL 1 LEVEL 2 LEVEL 3
------------
DERIVATIVE
FINANCIAL
LIABILITIES GBP GBP GBP GBP
------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------
Forward
foreign
exchange
contracts 1 , 508 , 675 - 1 , 508 , 675 -
Total 1 , 508 , 675 - 1 , 508 , 675 -
------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------
There were transfers into Level 3 fair value measurements of
$4,485,316 and $nil for the Group during the year ended 31 December
2022 and 31 December 2021, respectively. There were no transfers
into and out of Level 3 fair value measurements for the Parent
Company during the years ended 31 December 2022 and 31 December
2021.
The following table presents the movement in Level 3 positions
for the year ended 31 December 2022 for the Group:
INVESTMENTS PREFERRED CONVERTIBLE
TOTAL IN FUNDS COMMON STOCK STOCK WARRANT DEBT
GBP GBP GBP GBP GBP GBP
============ ============ ==================================== ==================================== ==================================== ==================================== ====================================
Beginning
balance, 1
January
2022 107,483,401 12,531,090 16,308,485 38,090,065 19,864,610 20,689,151
============= ============ ==================================== ==================================== ==================================== ==================================== ====================================
Purchases 30,030,596 3,556,974 6,607,765 6,511,747 2,602,645 10,751,465
============= ============ ==================================== ==================================== ==================================== ==================================== ====================================
Sales (18,624,490) (428,164) (10,801,119) (687,454) (1,124,097) (5,583,656)
============= ============ ==================================== ==================================== ==================================== ==================================== ====================================
Transfer In
(Out) 4,485,316 - 4,485,316 - - -
============= ============ ==================================== ==================================== ==================================== ==================================== ====================================
Net change
in
unrealised
gains
(losses) 2,923,609 6,815,010 (3,511,214) 8,395,704 (7,440,731) (1,335,160)
============= ============ ==================================== ==================================== ==================================== ==================================== ====================================
Ending
balance, 31
December
2022 126,298,432 22,474,910 13,089,233 52,310,062 13,902,427 24,521,800
============= ============ ==================================== ==================================== ==================================== ==================================== ====================================
The net change in unrealised gains (losses) is recognised within
gains (losses) on investments in the Consolidated Statement of
Comprehensive Income.
The following table presents the movement in Level 3 positions
for the year ended 31 December 2021 for the Group:
INVESTMENTS PREFERRED CONVERTIBLE
TOTAL IN FUNDS COMMON STOCK STOCK WARRANT DEBT
GBP GBP GBP GBP GBP GBP
============ ============ ==================================== ==================================== ==================================== ==================================== ====================================
Beginning
balance, 1
January
2021 48,463,617 2,522,367 11,072,305 19,771,889 4,996,048 10,101,008
============= ============ ==================================== ==================================== ==================================== ==================================== ====================================
Purchases 45,439,031 19,086,855 7,661,428 2,250,450 5,338,445 11,101,853
============= ============ ==================================== ==================================== ==================================== ==================================== ====================================
Sales (25,600,304) (16,220,038) (4,899,071) (1,275,157) (2,656,064) (549,974)
============= ============ ==================================== ==================================== ==================================== ==================================== ====================================
Net change
in
unrealised
gains
(losses) 39,181,057 7,141,906 2,473,823 17,342,883 12,186,181 36,264
============= ============ ==================================== ==================================== ==================================== ==================================== ====================================
Ending
balance, 31
December
2021 107,483,401 12,531,090 16,308,485 38,090,065 19,864,610 20,689,151
============= ============ ==================================== ==================================== ==================================== ==================================== ====================================
The following table presents the movement in Level 3 positions
for the period ended 31 December 2022 for the Parent Company:
INVESTMENTS
IN FUNDS
GBP
========================================================= ============================
Beginning balance, 1 January 2022 12,531,090
========================================================= ============================
Purchases 3,556,974
========================================================= ============================
Sales (428,164)
========================================================= ============================
Net change in unrealised foreign exchange gains (losses) -
========================================================= ============================
Net change in unrealised gains (losses) 6,815,010
Ending balance, 31 December 2022 22,474,910
========================================================= ============================
The following table presents the movement in Level 3 positions
for the period ended 31 December 2021 for the Parent Company:
INVESTMENTS
IN FUNDS
GBP
========================================================= ============================
Beginning balance, 1 January 2021 2,522,367
========================================================= ============================
Purchases 19,086,855
========================================================= ============================
Sales (16,220,038)
========================================================= ============================
Net change in unrealised foreign exchange gains (losses) (5,567,642)
========================================================= ============================
Net change in unrealised gains (losses) 12,709,548
Ending balance, 31 December 2021 12,531,090
========================================================= ============================
The net change in unrealised gains (losses) is recognised within
gains (losses) on investments in the Consolidated Statement of
Comprehensive Income.
Quantitative information regarding the unobservable inputs for
Level 3 positions as at 31 December 2022 is given below:
FAIR VALUE AT
31 DECEMBER
2022 VALUATION UNOBSERVABLE
DESCRIPTION GBP TECHNIQUE INPUT RANGE
-------------- -------------- ----------------------------------- ------------------------------ -----------------
Discounted Cash Flows &
Common stock 5 , 274 , 594 Multiples Discount Rate 20.0%
Price to Book 1.1x
Price to Earnings 5.7x
Private Company Discount 10.0%
261 , 649 Public Stock Price N/A N/A
1,693,212 Transaction Price Cost Basis of Investment N/A
Transaction Price/Recent
4 , 815 , 023 Round Price Deal Execution Risk Discount 20.0%
Recent Round Price per Share $34.86
Illiquidity Discount 30.0%
1 , 044 , 755 Net Asset Value SPV N/A N/A
Convertible
debt 1 , 716 , 747 Probability Weighting Recent Round Price per Share EUR6 , 036
Rights & Preferences Discount 20.0%
9 , 933 , 062 PV of Expected Proceeds/Discounted Discount Rate 23.0%
Annual Free Cash Flow Growth
Cash Flows Rate 3.0%
Expected Proceeds Discount
Rate Range 16.0%
Expected Proceeds Value $24.9M
9,800,393 Transaction Price Cost Basis of Investment N/A
Transaction Price/Recent
1,156,323 Round Price Recent Round Price per Share $3.41 - $5.56
Rights & Preferences Discount 20.0%
1,915,276 Yield Analysis Market Yield 13.8 % - 17.1%
Preferred Transaction Price/Recent
stock 52,310,062 Round Price Rights & Preferences Discount 20.0%
Recent Round Price per Share $0.30 - EUR92.17
Price per Share EUR8.79
Market Risk Discount 5.0% - 20.0%
Illiquidity Discount 20.0%
Investments 22,474,910 Net Asset Value N/A N/A
in funds
Warrants 610,074 Black Scholes Price Per Share $0.57 - $5.56
Rights & Preferences Discount 0.0% - 20.0%
Risk Free Rate 4.41%
Term 1.5 - 3.0 years
Volatility 22.3% - 40.0%
Market Risk Discount 20.0%
Black Scholes/Recent Transaction
43,562 Price Illiquidity Discount 0.27% - 7.64%
Risk Free Rate 3.99%
Term 4.0 - 4.6 years
Volatility 25.0% - 40.0%
Transaction Price/Recent
13,248,791 Round Price Deal Execution Risk Discount 20.0%
Recent Round Price per Share $3.30 - $34.86
Price per Share $1.43 - EUR6,036
Rights & Preferences Discount 20.0% - 40.0%
Risk Free Rate 4.41%
Term 1.3 - 2.0 years
Volatility 40.0%
Market Risk Discount 5.0% - 20.0%
Total 126,298,432
-------------- -------------- ----------------------------------- ------------------------------ -----------------
The investments in funds consist of investments in VPC Synthesis
, L.P. and VPC Offshore Unleveraged Private Debt Fund Feeder , L.P.
These are valued based on the NAV as calculated at the balance
sheet date. No adjustments have been deemed necessary to the NAV as
it reflects the fair value of the underlying investments , as such
no specific unobservable inputs have been identified. The NAVs are
sensitive to movements in interest rates due to the funds '
underlying investment in loans.
If the illiquidity discount of the convertible debt valued based
on discounted cash flows increased / decreased by 10% it would have
resulted in an increase / decrease to the total value of those
securities of GBP1,899,353 which would affect the Net gain / (loss)
on investments within the capital return column of the Consolidated
Statement of Comprehensive Income.
If the illiquidity discount of the preferred stock valued based
on discounted cash flows increased / decreased by 10% it would have
resulted in an increase / decrease to the total value of those
securities of GBP6,276,925 which would affect the Net gain / (loss)
on investments within the capital return column of the Consolidated
Statement of Comprehensive Income.
If the volatility rate used for the warrants valued based on a
Black Scholes increased / decreased by 10% it would have resulted
in an increase / decrease to the total value of those equity
securities of GBP1,042,220which would affect the Net gain / (loss)
on investments within the capital return column of the Consolidated
Statement of Comprehensive Income.
If the price of all the investment assets held at period end ,
including individually those mentioned above , had increased /
decreased by 10% it would have resulted in an increase / decrease
in the total value the investments in funds and equity securities
of GBP12,526,169 (31 December 2021: GBP10 , 600 , 644) which would
affect the Net gain / (loss) on investments within the capital
return column of the Consolidated Statement of Comprehensive
Income.
Assets and liabilities not carried at fair value but for which
fair value is disclosed
The following table presents the fair value of the Group ' s
assets and liabilities not measured at fair value through profit
and loss at 31 December 2022 but for which fair value is disclosed.
In using a valuation methodology based on the discounting of
forecasted cash flows of the Portfolio Company, significant
judgment is required in the development of an appropriate discount
rate to be applied to the forecasted cash flows. In determining the
fair value of loans and advances to customers, the expected future
cash flows are discounted back using a discount rate. The discount
rate used incorporates market-based yields for similar credits in
the public market and the underlying risk of the individual
credit.
CARRYING FAIR MARKET
VALUE VALUE
GBP GBP
======= ============================ ============================
Assets
======= ============================ ============================
Loans 220,225,329 224,705,680
======= ============================ ============================
Total 220,225,329 224,705,680
======= ============================ ============================
For all other assets and liabilities not carried at fair value,
the carrying value is a reasonable approximation of fair value.
The following table presents the fair value of the Group ' s
assets and liabilities not measured at fair value through profit
and loss at 31 December 2021 but for which fair value is disclosed.
The carrying value has been used where it is a reasonable
approximation of fair value:
CARRYING FAIR MARKET
VALUE VALUE
GBP GBP
======= ============================ ============================
Assets
======= ============================ ============================
Loans 279,339,002 279,339,002
======= ============================ ============================
Total 279,339,002 279,339,002
======= ============================ ============================
For all other assets and liabilities not carried at fair value ,
the carrying value is a reasonable approximation of fair value.
4. DERIVATIVES
Typically , derivative contracts serve as components of the
Group ' s investment strategy and are utilised primarily to
structure and hedge investments to enhance performance and reduce
risk to the Group. In 2022 and 2021 , the Group did not designate
any derivatives as hedges for hedge accounting purposes as
described under IFRS 9. Derivative instruments are also used for
trading purposes where the Investment Manager believes this would
be more effective than investing directly in the underlying
financial instruments. The only derivative contracts that the Group
currently holds or issues are forward foreign exchange
contracts.
The Group measures its derivative instruments on a fair value
basis. See Note 2 for the valuation policy for financial
instruments.
Forward contracts
Forward contracts entered into represent a firm commitment to
buy or sell an underlying asset , or currency at a specified value
and point in time based upon an agreed or contracted quantity. The
realised/unrealised gain or loss is equal to the difference between
the value of the contract at the onset and the value of the
contract at settlement date/year end date and is included in the
Consolidated Statement of Comprehensive Income. Notional contract
amounts of derivatives indicate the nominal value of transactions
outstanding as of the balance sheet date and do not represent the
amounts at risk.
As at 31 December 2022, the following forward foreign exchange
contracts were included in the Group's Consolidated Statement of
Financial Position at fair value through profit or loss and the
Parent Company's Statement of Financial Position at fair value
through profit or loss and all have a maturity of less than three
months from 31 December 2022:
Fair Value Fair Value
Liabilities
As at 31 December 2022 Notional (GBP) Assets (GBP) (GBP)
------------------------ --------------------- --------------------- ----------------------
Foreign Exchange Rate
Contracts 693,888,170 1,081,849 (3,283,142)
As at 31 December 2021, the following forward foreign exchange
contracts were included in the Group's Consolidated Statement of
Financial Position at fair value through profit or loss and the
Parent Company's Statement of Financial Position at fair value
through profit or loss and all have a maturity of less than three
months from 31 December 2021:
Fair Value Fair Value
Liabilities
As at 31 December 2021 Notional (GBP) Assets (GBP) (GBP)
--------------------------------- --------------------- ----------------------- ------------------------
Foreign Exchange Rate Contracts 334,162,068 2,069,698 (1,508,675)
The following tables provide information on the financial impact
of netting for instruments subject to an enforceable master netting
arrangement or similar agreement at 31 December 2022 for both the
Parent Company and the Group:
GROSS AMOUNTS GROSS AMOUNTS NET AMOUNTS RELATED AMOUNTS
OF RECOGNISED OF FINANCIAL OF RECOGNISED NOT
FINANCIAL LIABILITIES ASSETS PRESENTED ELIGIBLE TO BE SET-OFF
ASSETS TO BE SET-OFF IN THE STATEMENT IN
IN THE STATEMENT OF FINANCIAL THE STATEMENT OF
OF FINANCIAL POSITION FINANCIAL POSITION
POSITION
FINANCIAL COLLATERAL NET AMOUNT
INSTRUMENTS RECEIVED
-------------- ------------- -------------
As at 31 GBP GBP GBP GBP GBP GBP
December 2022
--------------- ----------------- ----------------- -------------- ------------- -------------
Foreign Exchange
Rate
Contracts 12,068,610 (10,986,761) 1,081,849 - - 1,081,849
--------------- ----------------- ----------------- -------------- ------------- -------------
Total 12,068,610 (10,986,761) 1,081,849 1,081,849
--------------- ----------------- ----------------- -------------- ------------- -------------
GROSS AMOUNTS GROSS AMOUNTS NET AMOUNTS RELATED AMOUNTS
OF RECOGNISED OF FINANCIAL OF RECOGNISED NOT
FINANCIAL ASSETS TO LIABILITIES ELIGIBLE TO BE SET-OFF
LIABILITIES BE SET-OFF PRESENTED IN
IN THE STATEMENT IN THE STATEMENT THE STATEMENT OF
OF FINANCIAL OF FINANCIAL FINANCIAL POSITION
POSITION POSITION
FINANCIAL COLLATERAL NET AMOUNT
INSTRUMENTS RECEIVED
-------------- ------------- -------------
As at 31 GBP GBP GBP GBP GBP GBP
December 2022
--------------- ----------------- ----------------- -------------- ------------- -------------
Foreign Exchange
Rate
Contracts 14,269,903 (10,986,761) 3,283,142 - - 3,283,142
--------------- ----------------- ----------------- -------------- ------------- -------------
Total 14,269,903 (10,986,761) 3,283,142 3,283,142
--------------- ----------------- ----------------- -------------- ------------- -------------
The following tables provide information on the financial impact
of netting for instruments subject to an enforceable master netting
arrangement or similar agreement at 31 December 2021 for both the
Parent Company and the Group:
GROSS AMOUNTS GROSS AMOUNTS NET AMOUNTS RELATED AMOUNTS
OF RECOGNISED OF FINANCIAL OF RECOGNISED NOT
FINANCIAL LIABILITIES ASSETS PRESENTED ELIGIBLE TO BE SET-OFF
ASSETS TO BE SET-OFF IN THE STATEMENT IN
IN THE STATEMENT OF FINANCIAL THE STATEMENT OF
OF FINANCIAL POSITION FINANCIAL POSITION
POSITION
FINANCIAL COLLATERAL NET AMOUNT
INSTRUMENTS RECEIVED
-------------- ------------- -------------
As at 31 GBP GBP GBP GBP GBP GBP
December 2021
--------------- ----------------- ----------------- -------------- ------------- -------------
Foreign Exchange
Rate
Contracts 3,193,548 (1,123,850) 2,069,698 - - 2,069,698
--------------- ----------------- ----------------- -------------- ------------- -------------
Total 3,193,548 (1,123,850) 2,069,698 2,069,698
--------------- ----------------- ----------------- -------------- ------------- -------------
GROSS AMOUNTS GROSS AMOUNTS NET AMOUNTS RELATED AMOUNTS
OF RECOGNISED OF FINANCIAL OF RECOGNISED NOT
FINANCIAL ASSETS TO LIABILITIES ELIGIBLE TO BE SET-OFF
ASSETS BE SET-OFF PRESENTED IN
IN THE STATEMENT IN THE STATEMENT THE STATEMENT OF
OF FINANCIAL OF FINANCIAL FINANCIAL POSITION
POSITION POSITION
FINANCIAL COLLATERAL NET AMOUNT
INSTRUMENTS RECEIVED
-------------- ------------- -------------
As at 31 GBP GBP GBP GBP GBP GBP
December 2021
--------------- ----------------- ----------------- -------------- ------------- -------------
Foreign Exchange
Rate
Contracts 2,632,525 (1,123,850) 1,508,675 - - 1,508,675
--------------- ----------------- ----------------- -------------- ------------- -------------
Total 2,632,525 (1,123,850) 1,508,675 1,508,675
--------------- ----------------- ----------------- -------------- ------------- -------------
5. INCOME AND GAINS ON INVESTMENTS AND LOANS
Interest income in the amount of GBP33,917,279 (31 December
2021: GBP33 , 158 , 150) has been allocated to revenue and GBPnil
(31 December 2021: GBPnil) has been allocated to capital in line
with the Group ' s policy as set out in Note 2.
31 DECEMBER 31 DECEMBER
2022 2021
GBP GBP
========================================== ==================================== ====================================
Other Income
========================================== ==================================== ====================================
Distributable income from investments in
funds 6,294,501 1 , 265 , 158
========================================== ==================================== ====================================
Interest income from investment assets
designated as held
at fair value through profit or loss 288,503 2 , 088 , 723
========================================== ==================================== ====================================
Other income 835,005 1 , 065 , 739
========================================== ==================================== ====================================
Total 7,418,009 4 , 419 , 620
========================================== ==================================== ====================================
31 DECEMBER 31 DECEMBER
2022 2021
GBP GBP
========================================== ==================================== ====================================
Net gains (losses) on investments
========================================== ==================================== ====================================
Realised loss on sale of investments (1,924,340) (239,441)
========================================== ==================================== ====================================
Unrealised gains on investment in funds (377,775) 7,141,906
========================================== ==================================== ====================================
Unrealised (loss) gains on equity
securities (40,312,876) 60,212,530
========================================== ==================================== ====================================
Total (42,614,991) 67,114,995
========================================== ==================================== ====================================
The Group received GBP20,662,359 from investments held at fair
market value sold during the year. The cost of these investments
sold were GBP22,586,699. These investments have been revalued over
time and until they were sold any unrealised gains/losses were
included in the fair value of the investments.
6. FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS
Introduction
Risk is inherent in the Group ' s activities , but it is managed
through a process of ongoing identification , measurement and
monitoring , subject to risk limits and other controls. The Group
is exposed to market risk (which includes currency risk , interest
rate risk and other price risk) , credit risk and liquidity risk
arising from the financial instruments held by the Group.
Risk management structure
The Directors are ultimately responsible for identifying and
controlling risks. Day to day management of the risks arising from
the financial instruments held by the Group has been delegated to
Victory Park Capital Advisors , LLC as Investment Manager to the
Parent Company and the Group.
The Investment Manager regularly reviews the investment
portfolio and industry developments to ensure that any events which
impact the Group are identified and considered. This also ensures
that any risks affecting the investment portfolio are identified
and mitigated to the fullest extent possible.
The Group has no employees , and the Directors have all been
appointed on a Non-Executive basis. Whilst the Group has taken all
reasonable steps to establish and maintain adequate procedures ,
systems and controls to enable it to comply with its obligations ,
the Group is reliant upon the performance of third-party service
providers for its executive function. In particular , the
Investment Manager , the Custodian , the Administrator , the
Corporate Secretary and the Registrar will be performing services
which are integral to the operation of the Group. Failure by any
service provider to carry out its obligations to the Group in
accordance with the terms of its appointment could have a
materially detrimental impact on the operation of the Group.
In seeking to implement the investment objectives of the Parent
Company while limiting risk , the Parent Company and the Group are
subject to the investment limits restrictions set out in the Credit
Risk section of this note.
Market risk (incorporating price , interest rate and currency
risks)
Market risk is the risk of loss arising from movements in
observable market variables such as foreign exchange rates , equity
prices and interest rates. The Group is exposed to market risk
primarily through its Financial Instruments.
Market price risk
The Group is exposed to price risk arising from the investments
held by the Group for which prices in the future are uncertain. The
investment in funds and equity investments are exposed to market
price risk. Refer to Note 3 for further details on the sensitivity
of the Group ' s Level 3 investments to price risk.
Interest rate risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows or the fair values of
financial instruments.
The Group is exposed to risks associated with the effects of
fluctuations in the prevailing levels of market interest rates on
its financial position and cash flows. Due to the nature of the
investments at 31 December 2022 , the Group has limited exposure to
variations in interest rates as the key components of interest
rates are fixed and determinable or variable based on the size of
the loan.
While the Group is exposed to risks associated with the effects
of fluctuations in the prevailing levels of market interest rates
on its financial position and cash flows , the downside exposure of
the Group is limited at 31 December 2022 due to the fixed rate
nature of the investments or interest rate floors that are in place
on most of the Group ' s variable interest rate loans. The interest
rate floors that are in place on most of the Group ' s variable
interest rate loans reduces the potential impact that a decrease in
rates would have on the Group ' s investments.
As at 31 December 2022 , if interest rates had increased by 1% ,
with all other variables held constant , the change in 12 months of
future cash flows on the current investment portfolio , including
both interest income and expense , would have been GBP814,989 (31
December 2021: 480 , 654). As at 31 December 2022 , if interest
rates had decreased by 1% , with all other variables held constant
, the change in 12 months of future cash flows on the current
investment portfolio , including both interest income and expense ,
would be GBP(814,989) (31 December 2021: GBPnil) due to the floors
in place on the Group ' s investments.
The Group does not intend to hedge interest rate risk on a
regular basis. However , where it enters floating rate liabilities
against fixed-rate loans , it may at its sole discretion seek to
hedge out the interest rate exposure , taking into consideration
amongst other things the cost of hedging and the general interest
rate environment .
Effect of IBOR reform
Following the financial crisis , the reform and replacement of
benchmark interest rates such as LIBOR and other inter-bank offered
rates ( ' IBORs ' ) has become a priority for global regulators.
There remains some uncertainty around the timing and precise nature
of these changes.
The effect of a discontinuation of the above has had little
impact to the Group as the underlying financial instruments have
little to no exposure to any reference rates that are yet to
transition apart for USD LIBOR at the portfolio company level. It
is difficult to predict the full impact of the transition away from
USD LIBOR until new reference rates and fallbacks are commercially
accepted. Any USD LIBOR rates to which the Group is exposed will
cease or become non-representative immediately after 30 June
2023.
The following table contains details of all of the financial
instruments that the Group holds at 31 December 2022 which
reference LIBOR and have not yet transitioned to an alternative
interest rate benchmark.
As at 31 December 2022 ASSETS LIABILITIES
Assets and liabilities exposed to USD
LIBOR GBP GBP
====================================== ==================================== ====================================
168 , 736 ,
Loans at amortised cost 615 -
====================================== ==================================== ====================================
94 , 669 ,
Notes Payable - 284
====================================== ==================================== ====================================
168 , 736 , 94 , 669 ,
Total exposure 615 284
====================================== ==================================== ====================================
As at 31 December 2021 ASSETS LIABILITIES
Assets and liabilities exposed to USD
LIBOR GBP GBP
====================================== ==================================== ====================================
Loans at amortised cost 261,955,830 -
====================================== ==================================== ====================================
Notes Payable - 107,267,260
====================================== ==================================== ====================================
Total exposure 261,955,830 107,267,260
====================================== ==================================== ====================================
Currency risk
Currency risk is the risk that the value of net assets will
fluctuate due to changes in foreign exchange rates. Relevant risk
variables are generally movements in the exchange rates of
non-functional currencies in which the Group holds financial assets
and liabilities.
The assets of the Group as at 31 December 2022 were invested in
assets which were denominated in US Dollar , Euro , Australian
Dollar , Pound Sterling and other currencies. Accordingly , the
value of such assets may be affected favourably or unfavourably by
fluctuations in currency rates. The Group hedges currency exposure
between Pound Sterling and any other currency in which the Group '
s assets may be denominated , in particular US Dollars , Australian
Dollars , and Euros.
The Group continuously monitors for fluctuations in currency
rates. The Group performs stress tests and liquidity projections to
determine how much cash should be held back to meet potential
future obligations to settle margin calls arising from foreign
exchange hedging.
Micro and small cap company investing risk
The Group will generally invest with companies that are small ,
not widely known and not widely held. Small companies tend to be
more vulnerable to adverse developments than larger companies and
may have little or no track records. Small companies may have
limited product lines , markets , or financial resources , and may
depend on less seasoned management. Their securities may trade
infrequently and in limited volumes. It may take a relatively long
period of time to accumulate an investment in a particular issue in
order to minimise the effect of purchases on market price.
Similarly , it could be difficult to dispose of such investments on
a timely basis without adversely affecting market prices. As a
result , the prices of these securities may fluctuate more than the
prices of larger , more widely traded companies. Also , there may
be less publicly available information about small companies or
less market interest in their securities compared to larger
companies , and it may take longer for the prices of these
securities to reflect the full value of their issuers ' earnings
potential or assets.
Gearing and borrowing risk
Whilst the use of borrowings by the Group should enhance the net
asset value of an investment when the value of an investment ' s
underlying assets is rising , it will , however , have the opposite
effect where the underlying asset value is falling. In addition ,
in the event that an investment ' s income falls for whatever
reason , the use of borrowings will increase the impact of such a
fall on the net revenue of the Group ' s investment and accordingly
will have an adverse effect on the ability of the investment to
make distributions to the Group. This risk is mitigated by limiting
borrowings to ring-fenced Special-Purpose Vehicles ( " SPVs " )
without recourse to the Group and employing gearing in a
disciplined manner.
Concentration of foreign currency exposure
The Investment Manager monitors the fluctuations in foreign
currency exchange rates and may use forward foreign exchange
contracts to hedge the currency exposure of the Parent Company and
Group ' s non-Pound Sterling denominated investments. The
Investment Manager re-examines the currency exposure on a regular
basis in each currency and manages the Parent Company ' s currency
exposure in accordance with market expectations.
The below table presents the net exposure to foreign currency at
31 December 2022. The table includes forward foreign exchange
contracts at their notional exposure value and excludes all GBP
assets and liabilities recorded on the Group ' s Consolidated
Statement of Financial Position. If the GBP exchange rate
simultaneously increased/decreased by 10% against the below
currencies , the impact on profit would be an increase/decrease of
GBP1 , 189 , 960. 10% is considered to be a reasonably possible
movement in foreign exchange rates. The table above includes the
exposure of the non-consolidated interest investment in the
Group.
ASSETS LIABILITIES FORWARD CONTRACTS NET EXPOSURE
31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER
2022 2022 2022 2022
GBP GBP GBP GBP
=========== ==================================== ==================================== ==================================== ====================================
15 , 395 , (5 , 939 ,
Euro 9 , 456 , 293 - 790 497)
=========== ==================================== ==================================== ==================================== ====================================
341 , 615 , (94 , 669 , 239 , 923 ,
US Dollar 281 284) 214 7 , 022 , 783
=========== ==================================== ==================================== ==================================== ====================================
Swiss 10 , 649 , 10 , 649 ,
Francs 047 - - 047
=========== ==================================== ==================================== ==================================== ====================================
Australian
Dollars 167 , 266 - - 167 , 266
=========== ==================================== ==================================== ==================================== ====================================
The below table presents the net exposure to foreign currency at
31 December 2021. The table includes forward foreign exchange
contracts at their notional exposure value and excludes all GBP
assets and liabilities recorded on the Group ' s Consolidated
Statement of Financial Position.
ASSETS LIABILITIES FORWARD CONTRACTS NET EXPOSURE
31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER
2021 2021 2021 2021
GBP GBP GBP GBP
=========== ==================================== ==================================== ==================================== ====================================
10 , 656 , (2 , 645 ,
Euro 8 , 010 , 560 - 310 750)
=========== ==================================== ==================================== ==================================== ====================================
402 , 708 , (107 , 267 320 , 884 , (25 , 443 ,
US Dollar 565 , 260) 955 650)
=========== ==================================== ==================================== ==================================== ====================================
Swiss 10 , 238 , 10 , 238 ,
Francs 876 - - 876
=========== ==================================== ==================================== ==================================== ====================================
Australian
Dollars 2 , 591 , 233 - 2 , 620 , 803 (29 , 570)
=========== ==================================== ==================================== ==================================== ====================================
The table below presents the net exposure to foreign currency at
31 December 2022. The table includes forward foreign exchange
contracts at their notional exposure value and excludes all GBP
assets and liabilities recorded on the Parent Company ' s Statement
of Financial Position.
ASSETS LIABILITIES FORWARD CONTRACTS NET EXPOSURE
31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER
2022 2022 2022 2022
GBP GBP GBP GBP
=========== ==================================== ==================================== ==================================== ====================================
15 , 395 , (5 , 939 ,
Euro 9 , 456 , 293 - 790 497)
=========== ==================================== ==================================== ==================================== ====================================
246 , 945 , 239 , 923 ,
US Dollar 997 - 214 7 , 022 , 783
=========== ==================================== ==================================== ==================================== ====================================
Swiss 10 , 649 , 10 , 649 ,
Francs 047 - - 047
=========== ==================================== ==================================== ==================================== ====================================
Australian
Dollars 167 , 266 - - 167 , 266
=========== ==================================== ==================================== ==================================== ====================================
If the GBP exchange rate simultaneously increased/decreased by
10% against the above currencies , the impact on profit would be an
increase/decrease of GBP1 , 189 , 960. 10% is considered to be a
reasonably possible movement in foreign exchange rates.
The table below presents the net exposure to foreign currency at
31 December 2021. The table includes forward foreign exchange
contracts at their notional exposure value and excludes all GBP
assets and liabilities recorded on the Parent Company ' s Statement
of Financial Position.
ASSETS LIABILITIES FORWARD CONTRACTS NET EXPOSURE
31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER
2021 2021 2021 2021
GBP GBP GBP GBP
=========== ==================================== ==================================== ==================================== ====================================
10 , 656 , (2 , 645 ,
Euro 8 , 010 , 560 - 310 750)
=========== ==================================== ==================================== ==================================== ====================================
295 , 395 , 320 , 884 , (25 , 489 ,
US Dollar 347 - 955 608)
=========== ==================================== ==================================== ==================================== ====================================
Swiss 10 , 238 , 10 , 238 ,
Francs 876 - - 876
=========== ==================================== ==================================== ==================================== ====================================
Australian
Dollars 2 , 591 , 233 - 2 , 620 , 803 (29 , 570)
=========== ==================================== ==================================== ==================================== ====================================
Liquidity risk
Liquidity risk is defined as the risk that the Group may not be
able to settle or meet its obligations on time or at a reasonable
price. Ordinary Shares are not redeemable at the holder ' s
option.
The maturities of the non-current financial liabilities are
disclosed in Note 8. The following tables show the contractual
maturity of the financial assets and financial liabilities of the
Group as at 31 December 2022:
WITHIN ONE TO OVER FIVE
ONE YEAR FIVE YEARS YEARS TOTAL
GBP GBP GBP GBP
============ ==================================== ==================================== ==================================== ====================================
Assets
============ ==================================== ==================================== ==================================== ====================================
142 , 426 , 220 , 225 ,
Loans 534 77,798,795 - 329
============ ==================================== ==================================== ==================================== ====================================
Cash and
cash
equivalents 15,538,602 - - 15,538,602
============ ==================================== ==================================== ==================================== ====================================
Cash posted
as
collateral 2 , 222 , 734 - - 2 , 222 , 734
============ ==================================== ==================================== ==================================== ====================================
Interest
receivable 5 , 848 , 979 - - 5 , 848 , 979
============ ==================================== ==================================== ==================================== ====================================
Dividend
receivable 4 , 735 - - 4 , 735
============ ==================================== ==================================== ==================================== ====================================
Other assets
and prepaid
expenses 2 , 190 , 718 - - 2 , 190 , 718
============ ==================================== ==================================== ==================================== ====================================
246 , 031 ,
Total 168,232,302 77,798,795 - 097
============ ==================================== ==================================== ==================================== ====================================
WITHIN ONE TO OVER FIVE
ONE YEAR FIVE YEARS YEARS TOTAL
GBP GBP GBP GBP
============ ==================================== ==================================== ==================================== ====================================
Liabilities
============ ==================================== ==================================== ==================================== ====================================
Notes 94 , 669 , 94 , 669 ,
payable - 284 - 284
============ ==================================== ==================================== ==================================== ====================================
Management
fee payable 97 , 785 - - 97 , 785
============ ==================================== ==================================== ==================================== ====================================
Performance
fee payable - - - -
============ ==================================== ==================================== ==================================== ====================================
Deferred
income 41 , 201 - - 41 , 201
============ ==================================== ==================================== ==================================== ====================================
Due to
broker 4 , 848 , 569 - - 4 , 848 , 569
============ ==================================== ==================================== ==================================== ====================================
Other
liabilities
and accrued
expenses 1 , 753 , 109 - - 1 , 753 , 109
============ ==================================== ==================================== ==================================== ====================================
94 , 669 , 101 , 409 ,
Total 6 , 740 , 664 284 - 948
============ ==================================== ==================================== ==================================== ====================================
The following tables show the contractual maturity of the
financial assets and financial liabilities of the Group as at 31
December 2021:
WITHIN ONE TO OVER FIVE
ONE YEAR FIVE YEARS YEARS TOTAL
GBP GBP GBP GBP
============ ==================================== ==================================== ==================================== ====================================
Assets
============ ==================================== ==================================== ==================================== ====================================
29 , 270 , 250 , 068 , 279 , 339 ,
Loans 006 996 - 002
============ ==================================== ==================================== ==================================== ====================================
Cash and
cash
equivalents 6 , 300 , 572 - - 6 , 300 , 572
============ ==================================== ==================================== ==================================== ====================================
Cash posted
as
collateral 4 , 133 , 588 - - 4 , 133 , 588
============ ==================================== ==================================== ==================================== ====================================
Interest
receivable 4 , 708 , 481 - - 4 , 708 , 481
============ ==================================== ==================================== ==================================== ====================================
Dividend
receivable 3 , 996 - - 3 , 996
============ ==================================== ==================================== ==================================== ====================================
Other assets
and prepaid
expenses 2 , 877 , 815 - - 2 , 877 , 815
============ ==================================== ==================================== ==================================== ====================================
47 , 294 , 250 , 068 , 297 , 363 ,
Total 458 996 - 454
============ ==================================== ==================================== ==================================== ====================================
WITHIN ONE TO OVER FIVE
ONE YEAR FIVE YEARS YEARS TOTAL
GBP GBP GBP GBP
============ ==================================== ==================================== ==================================== ====================================
Liabilities
============ ==================================== ==================================== ==================================== ====================================
Notes
payable - 19,834,365 87,432,895 107,267,260
============ ==================================== ==================================== ==================================== ====================================
Management
fee payable 155,399 - - 155,399
============ ==================================== ==================================== ==================================== ====================================
Performance
fee payable 12,913,280 - - 12,913,280
============ ==================================== ==================================== ==================================== ====================================
Deferred
income 174,603 - - 174,603
============ ==================================== ==================================== ==================================== ====================================
Other
liabilities
and accrued
expenses 1,550,415 - - 1,550,415
============ ==================================== ==================================== ==================================== ====================================
Total 14,793,697 19,834,365 87,432,895 122,060,957
============ ==================================== ==================================== ==================================== ====================================
The Investment Manager manages the Group ' s liquidity risk by
investing primarily in a diverse portfolio of assets. At 31
December 2022 , the Group had investments in 48 Portfolio Companies
(31 December 2021: 48 Portfolio Companies). At 31 December 2022 ,
65% of the loans had a stated maturity date of less than a year (31
December 2021: 10%).
The Group and Parent Company continuously monitor for
fluctuation in currency rates. The Parent Company performs stress
tests and liquidity projections to determine how much cash should
be held back to meet potential future obligations to settle margin
calls arising from foreign exchange hedging.
As at 31 December 2022 , GBP15.6 million (31 December 2021:
GBP19.8 million) of the Group ' s liabilities relating to principal
and interest payments are tied directly to the performance of
investment assets that mature on or near the same date as the
investment liability. The amounts above represent the values as at
31 December 2022 and do not project cash flows until maturity of
the investment liabilities.
Credit risk
Credit risk is the risk that one party to a financial instrument
will cause a financial loss for the other party by failing to
discharge an obligation. The Group ' s credit risks arise
principally through exposures to loans acquired by the Group ,
which are subject to risk of borrower default. The ability of the
Group to earn revenue is completely dependent upon payments being
made by the borrower , such as adverse movements in investment
markets.
The Group will invest across various Portfolio Companies , asset
classes , geographies (primarily United States , United Kingdom ,
Europe and Latin America) and credit bands in order to ensure
diversification and to seek to mitigate concentration risks.
Under the Asset Backed Lending Model , the Group provides a
floating rate credit facility to the portfolio company via an SPV ,
which retains Debt Instruments that are originated by the portfolio
company. The debt financing is typically arranged in the form of a
senior secured facility and the portfolio company injects junior
capital in the SPV , which provides significant first loss
protection to the Group and excess spread. The Group ' s asset
backed investments are loans to SPVs that are capitalised and
actively managed by the portfolio companies in their capacity as
both the owner and managing partner of the SPVs and the SPVs are
not considered structured entities under IFRS 12. Refer to page 11
for further details on the structuring of the lending investments
of the Group.
There are no loans past due which are not impaired. Refer to
Note 9.
Credit quality
The credit quality of loans is assessed through the evaluation
of various factors , including (but not limited to) credit scores ,
payment data , collateral and other information. Set out below is
the analysis of the Group ' s loan investments by grade , geography
, and sector:
TOTAL
31 DECEMBER
FINTECH eCOMMERCE LEGAL FINANCE 2022
INTERNAL GRADE GBP GBP GBP GBP
=============== ====================== =================== ====================== ====================
Stage 1
=============== ====================== =================== ====================== ====================
A - 1 35,552,643 12,444,752 - 47,997,395
=============== ====================== =================== ====================== ====================
A - 2 101,982,526 23,312,077 - 125,294,603
=============== ====================== =================== ====================== ====================
B 19,550,356 4,058,917 9,148,556 32,757,829
=============== ====================== =================== ====================== ====================
C - - - -
Total 157,085,525 39,815,746 9,148,556 206,049,827
=============== ====================== =================== ====================== ====================
Stage 2
=============== ====================== =================== ====================== ====================
A - 1 - - - -
=============== ====================== =================== ====================== ====================
A - 2 - 18,607,769 - 18,607,769
=============== ====================== =================== ====================== ====================
B - - - -
=============== ====================== =================== ====================== ====================
C - - - -
Total - 18,607,769 - 18,607,769
=============== ====================== =================== ====================== ====================
Stage 3
=============== ====================== =================== ====================== ====================
A - 1 - - - -
=============== ====================== =================== ====================== ====================
A - 2 - - - -
=============== ====================== =================== ====================== ====================
B - - - -
=============== ====================== =================== ====================== ====================
C 11 , 952 , 754 - - 11 , 952 , 754
Total 11 , 952 , 754 - - 11 , 952 , 754
=============== ====================== =================== ====================== ====================
TOTAL
UNITED LATIN 31 DECEMBER
INTERNAL STATES AMERICA EUROPE ASIA 2022
GRADE GBP GBP GBP GBP GBP
========= =========== ==================== ============================= ============================ ==========================
Stage 1
========= =========== ==================== ============================= ============================ ==========================
A - 1 47,997,395 - - - 47,997,395
========= =========== ==================== ============================= ============================ ==========================
A - 2 72,452,114 30,513,572 15,049,798 7,279,119 125,294,603
========= =========== ==================== ============================= ============================ ==========================
B 17,413,809 - 4,058,917 11,285,103 32,757,829
========= =========== ==================== ============================= ============================ ==========================
C - - - - -
Total 137,863,318 30,513,572 19,108,715 18,564,222 206,049,827
========= =========== ==================== ============================= ============================ ==========================
Stage 2
========= =========== ==================== ============================= ============================ ==========================
A - 1 - - - - -
========= =========== ==================== ============================= ============================ ==========================
A - 2 18,607,769 - - - 18,607,769
========= =========== ==================== ============================= ============================ ==========================
B - - - - -
========= =========== ==================== ============================= ============================ ==========================
C - - - - -
Total 18,607,769 - - - 18,607,769
========= =========== ==================== ============================= ============================ ==========================
Stage 3
======== ========== ==========
A - 1 --- - -
======== ========== ==========
A - 2 --- - -
======== ========== ==========
B --- - -
======== ========== ==========
C --11,952,754 - 11,952,754
Total --11,952,754 - 11,952,754
======== ========== ==========
TOTAL
FINTECH eCOMMERCE LEGAL FINANCE 31 DECEMBER
INTERNAL GRADE GBP GBP GBP 2021
=============== =============== ============== ============== ==========================================
Stage 1
=============== =============== ============== ============== ==========================================
A - 1 42 , 399 , 368 15 , 229 , 645 - 57 , 629 , 013
=============== =============== ============== ============== ==========================================
A - 2 144 , 483 , 270 49 , 803 , 839 4 , 216 , 832 198 , 503 , 941
=============== =============== ============== ============== ==========================================
B 9 , 917 , 622 3 , 470 , 478 8 , 182 , 974 21 , 571 , 074
=============== =============== ============== ============== ==========================================
C - - - -
196 , 800 , 277 , 704 ,
Total 260 68 , 503 , 962 12 , 399 , 806 028
=============== =============== ============== ============== ==========================================
Stage 2
=============== =============== ============== ============== ==========================================
A - 1 - - - -
=============== =============== ============== ============== ==========================================
A - 2 - - - -
=============== =============== ============== ============== ==========================================
B - - - -
=============== =============== ============== ============== ==========================================
C - - - -
Total - - - -
=============== =============== ============== ============== ==========================================
Stage 3
=============== =============== ============== ============== ==========================================
A - 1 - - - -
=============== =============== ============== ============== ==========================================
A - 2 - - - -
=============== =============== ============== ============== ==========================================
B - - - -
=============== =============== ============== ============== ==========================================
C 14 , 098 , 947 - - 14 , 098 , 947
Total 14 , 098 , 947 - - 14 , 098 , 947
=============== =============== ============== ============== ==========================================
TOTAL
UNITED LATIN AMERICA EUROPE ASIA 31 DECEMBER
INTERNAL GRADE STATES GBP GBP GBP 2021
=============== =========== ============= ============= ========== ==================================
Stage 1
=============== =========== ============= ============= ========== ==================================
57 , 629 , 57 , 629 ,
A - 1 013 - - - 013
=============== =========== ============= ============= ========== ==================================
123 , 954 , 48 , 352 , 13 , 417 , 12 , 778 , 198 , 503 ,
A - 2 264 882 801 994 941
=============== =========== ============= ============= ========== ==================================
18 , 100 , 21 , 571 ,
B 596 - 3 , 470 , 478 - 074
=============== =========== ============= ============= ========== ==================================
C - - - - -
199 , 683 , 48 , 352 , 16 , 888 , 12 , 778 , 277 , 704 ,
Total 873 882 279 994 028
=============== =========== ============= ============= ========== ==================================
Stage 2
=============== =========== ============= ============= ========== ==================================
A - 1 - - - - -
=============== =========== ============= ============= ========== ==================================
A - 2 - - - - -
=============== =========== ============= ============= ========== ==================================
B - - - - -
=============== =========== ============= ============= ========== ==================================
C - - - - -
Total - - - - -
=============== =========== ============= ============= ========== ==================================
Stage 3
=============== =========== ============= ============= ========== ==================================
A - 1 - - - - -
=============== =========== ============= ============= ========== ==================================
A - 2 - - - - -
=============== =========== ============= ============= ========== ==================================
B - - - - -
=============== =========== ============= ============= ========== ==================================
14 , 098 , 14 , 098 ,
C - - 947 - 947
14 , 098 , 14 , 098 ,
Total - - 947 - 947
=============== =========== ============= ============= ========== ==================================
INTERNAL GRADE DEFINITION
=============== =========== ============= ============= ========== ====================================
Asset backed loans structured with credit enhancement and
A - 1 strong operating liquidity positions
=============== ===========================================================================================
High credit quality borrowers or asset backed loans structured
A - 2 with credit enhancement
=============== ===========================================================================================
High credit quality borrowers with some indicators of credit
risk or asset backed loans with
B limited structural credit enhancement
=============== ===========================================================================================
C Borrowers with elevated levels of credit risk
=============== ===========================================================================================
The following investment limits and restrictions shall apply to
the Group , to ensure that the diversification of the Group ' s
portfolio is maintained , and that concentration risk is
limited:
Portfolio Company restrictions
The Group does not intend to invest more than 20% of its Gross
Assets in Debt Instruments (net of any gearing ring-fenced within
any special purpose vehicle which would be without recourse to the
Group) , originated by , and/or Credit Facilities and equity
instruments in , any single Portfolio Company , calculated at the
time of investment. All such aggregate exposure to any single
Portfolio Company (including investments via a special purpose
vehicle) will always be subject to an absolute maximum , calculated
at the time of investment , of 25% of the Group ' s Gross
Assets.
Asset class restrictions
The Group does not intend to acquire Debt Instruments for a term
longer than five years. The Group will not invest more than 20% of
its Gross Assets , at the time of investment , via any single
investment fund investing in Debt Instruments and Credit
Facilities. In any event , the Group will not invest , in aggregate
, more than 60% of its Gross Assets , at the time of investment ,
in investment funds that invest in Debt Instruments and Credit
Facilities.
The Group will not invest more than 10% of its Gross Assets , at
the time of investment , in other listed closed-ended investment
funds , whether managed by the Investment Manager or not , except
that this restriction shall not apply to investments in listed
closed-ended investment funds which themselves have stated
investment policies to invest no more than 15% of their gross
assets in other listed closed-ended investment funds.
The following restrictions apply , in each case at the time of
investment by the Group , to both Debt Instruments acquired by the
Group via wholly owned special purpose vehicles or partially-owned
special purpose vehicles on a proportionate basis under the
Marketplace Model , as well as on a look-through basis under the
Asset Backed Lending Model and to any Debt Instruments held by
another investment fund in which the Group invests:
v No single consumer loan acquired by the Group shall exceed
0.25% of its Gross Assets.
v No single SME loan acquired by the Group shall exceed 5.0% of
its Gross Assets. For the avoidance of doubt , Credit Facilities
entered into directly with Platforms are not considered SME
loans.
v No single trade receivable asset acquired by the Group shall
exceed 5.0% of its Gross Assets.
Other restrictions
The Group ' s un-invested or surplus capital or assets may be
invested in Cash Instruments for cash management purposes and with
a view to enhancing returns to Shareholders or mitigating credit
exposure.
Maximum credit exposure
The carrying value of the Group ' s loan investments represents
the maximum credit exposure of the Group.
7. CASH AND CASH EQUIVALENTS
PARENT PARENT
GROUP GROUP COMPANY COMPANY
31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER
2022 2021 2022 2021
GBP GBP GBP GBP
====== ==================================== ==================================== ==================================== ====================================
Cash
held
at
bank 15,538,602 6 , 300 , 572 14,640,647 4 , 301 , 574
====== ==================================== ==================================== ==================================== ====================================
Total 15,538,602 6 , 300 , 572 14,640,647 4 , 301 , 574
====== ==================================== ==================================== ==================================== ====================================
The Parent Company has posted cash collateral of GBP1 , 140 ,
000 as at 31 December 2022 (31 December 2021: GBP3 , 010 , 000)
with Goldman Sachs and cash of GBP1 , 082 , 734 (31 December 2021:
GBP1 , 123 , 927) with Morgan Stanley in relation to the
outstanding derivatives. A portion of the Cash and cash equivalents
balance is held as collateral for an underlying loan and the
balance is also reflected as a liability under Due to broker on the
Consolidated and Parent Company Statement of Financial
Position.
Below are the credit ratings of the banks where the Parent
Company and Group hold cash as at 31 December 2022 from Moody '
s:
BANK RATING
=============== ===========================
Northern Trust A2
=============== ===========================
Goldman Sachs A2
=============== ===========================
Morgan Stanley A1
=============== ===========================
Keybank A1
=============== ===========================
Wells Fargo A1
=============== ===========================
Bank of America A2
--------------- ---------------------------
8. NOTES PAYABLE
The Group entered into contractual obligations with a third
party to structurally subordinate a portion of the principal
directly attributable to existing investments. The cash flows
received by the Group from the underlying investments are used to
pay the lender principal , interest , and draw fees based upon the
stated terms of the Credit Facility. Unless due to a fraudulent act
, as defined by the Credit Facilities , none of the Group ' s other
investment assets can be used to satisfy the obligations of the
Credit Facilities in the event that those obligations cannot be met
by the subsidiaries. Each subsidiary with a Credit Facility is a
bankruptcy remote entity.
Notes payable is inclusive of unrealised foreign exchange losses
of GBP12.8 and GBP4.6 million as of December 31, 2022 and 2021,
respectively. Due to cash settlements the occurred during the
period in a foreign currency and translated into GBP, these
previously unrealised losses have been realised in cash in the
period during which the purchase/sale had occurred.
The table below provides details of the outstanding debt of the
Group at 31 December 2022:
OUTSTANDING
INTEREST RATE PRINCIPAL
31 DECEMBER 2022 GBP MATURITY
======================== ============== =========== ===================
3.95% + 1M 79 , 010 ,
Credit Facility 03-2021 LIBOR 738 1 March 2027
======================== ============== =========== ===================
79 , 010 ,
Total 738
======================================== =========== ===================
The table below provides details of the outstanding debt of the
Group at 31 December 2021:
OUTSTANDING
INTEREST RATE PRINCIPAL
31 DECEMBER 2021 GBP MATURITY
======================== ============== =========== ===================
3.95% + 1M 87 , 432 ,
Credit Facility 03-2021 LIBOR 895 1 March 2027
======================== ============== =========== ===================
87 , 432 ,
Total 895
======================================== =========== ===================
The Group entered into contractual obligations with a third
party to structurally subordinate a portion of principal directly
attributable to an existing loan facility. The Group is obligated
to pay a commitment fee and interest to the third party on the
obligation as interest is paid on the underlying loan facility. In
the event of a default on the loan facility , the third party has
first-out participation rights on the accrued and unpaid interest
as well as the principal balance of the note.
The table below provides details of the outstanding first-out
participation liabilities of the Group at 31 December 2022:
OUTSTANDING
PRINCIPAL
31 DECEMBER 2022 GBP MATURITY
-------------------------------- ----------- -------------
15 , 658 , 1 January
First-Out Participation 04-2019 546 2024
================================ =========== =============
15 , 658 ,
Total 546
================================= =========== =============
The table below provides details of the outstanding first-out
participation liabilities of the Group at 31 December 2021:
OUTSTANDING
PRINCIPAL
31 DECEMBER 2021 GBP MATURITY
-------------------------------- ------------- -------------
18 , 181 , 1 January
First-Out Participation 03-2017 601 2024
================================ ============= =============
1 January
First-Out Participation 04-2019 1 , 652 , 764 2024
================================ ============= =============
19 , 834 ,
Total 365
================================= ============= =============
The table below provides the movement of the notes payable and
securities sold under agreements to repurchase for the year ended
31 December 2022 for the Group.
NOTES
PAYABLE
GBP
================================================ ====================================
107 , 267 ,
Beginning balance , 1 January 2022 260
================================================ ====================================
11 , 874 ,
Purchases 530
================================================ ====================================
(37 , 295 ,
Sales 732)
================================================ ====================================
12 , 823 ,
Net change in unrealised foreign exchange gains 226
================================================ ====================================
94 , 669 ,
Ending balance , 31 December 2022 284
================================================ ====================================
The table below provides the movement of the notes payable and
securities sold under agreements to repurchase for the year ended
31 December 2021 for the Group.
NOTES
PAYABLE
GBP
========================================================= ====================================
86 , 087 ,
Beginning balance , 1 January 2021 183
========================================================= ====================================
179 , 944 ,
Purchases 080
========================================================= ====================================
(163 , 403
Sales , 782)
========================================================= ====================================
Net change in unrealised foreign exchange gains (losses) 4 , 639 , 779
========================================================= ====================================
107 , 267 ,
Ending balance , 31 December 2021 260
========================================================= ====================================
9. IMPAIRMENT OF FINANCIAL ASSETS AT AMORTISED COST
The table below provides details of the investments at amortised
cost held by the Group as at 31 December 2022 under IFRS 9:
COST BEFORE CARRYING
ECL ECL VALUE
GBP GBP GBP
========== ==================================== ======================================= ====================================
Loans at
amortised 220 , 225 ,
cost 236,610,350 16,385,021 329
========== ==================================== ======================================= ====================================
220 , 225 ,
Total 236,610,350 16,385,021 329
========== ==================================== ======================================= ====================================
During the year ended 31 December 2022, GBP2,035,759 of loans
were written off, all of which were previously fully reserved.
The table below provides details of the investments at amortised
cost held by the Group as at 31 December 2021 under IFRS 9:
COST BEFORE ECL CARRYING
ECL VALUE
GBP GBP GBP
========== ==================================== ==================================== ====================================
Loans at
amortised 291 , 802 , 12 , 463 , 279 , 339 ,
cost 975 973 002
========== ==================================== ==================================== ====================================
291 , 802 , 12 , 463 , 279 , 339 ,
Total 975 973 002
========== ==================================== ==================================== ====================================
During the year ended 31 December 2021, no loans were written
off.
The Parent Company does not hold any loans.
Credit impairment losses
The credit impairment losses of the Group for the year ended 31
December 2022 comprises of the following under IFRS 9:
CREDIT IMPAIRMENT LOSSES
31 DECEMBER 2022
GBP
=============================================== ===================================================
Change in expected credit losses 5,956,807
================================================ ===================================================
Currency translation on expected credit losses -
=============================================== ===================================================
Credit impairment losses 5,956,807
================================================ ===================================================
The impairment charge of the Group for the year ended 31
December 2021 comprises of the following under IFRS 9:
CREDIT IMPAIRMENT LOSSES
31 DECEMBER 2021
GBP
=============================================== ===================================================
Loans recovered (358,867)
================================================ ===================================================
Change in expected credit losses 3,974,814
================================================ ===================================================
Currency translation on expected credit losses 20 , 195
================================================ ===================================================
Credit impairment losses 3 , 636 , 142
================================================ ===================================================
Impairment of loans written off
Impairment charges of loans written off (recovered) of
GBP2,035,759 (31 December 2021: GBP(358 , 867)) have been recorded
in the Group ' s Consolidated Statement of Financial Position and
are included in credit impairment losses on the Consolidated
Statement of Comprehensive Income. All loans written off in 2022
were previously fully reserved.
Provision for expected credit losses
As at 31 December 2022 , the Group has created a reserve
provision on the outstanding principal of the Group ' s loans of
GBP16,385,021 (31 December 2021: GBP12 , 463 , 973) , which have
been recorded in the Group ' s Consolidated Statement of Financial
Position and are included in Credit impairment losses on the
Consolidated Statement of Comprehensive Income.
The allowance for expected credit losses comprised the following
during 2022:
31 DECEMBER
2022
GBP
=============================================== ====================================
12 , 463 ,
Beginning balance 1 January 2022 973
=============================================== ====================================
Change in expected credit losses or equivalent 5,956,807
=============================================== ====================================
Loan written off (2,035,759)
=============================================== ====================================
Ending balance 31 December 2022 16,385,021
=============================================== ====================================
The allowance for expected credit losses comprised the following
during 2021:
31 DECEMBER
2021
GBP
=============================================== ====================================
Beginning balance 1 January 2021 8 , 489 , 159
=============================================== ====================================
Change in expected credit losses or equivalent 3,974,814
=============================================== ====================================
12 , 463 ,
Ending balance 31 December 2021 973
=============================================== ====================================
Below is a breakout of the provision for expected credit losses
by stage of the ECL model as at 31 December 2022:
31 DECEMBER
FINTECH eCOMMERCE LEGAL FINANCE 2022
INTERNAL GRADE GBP GBP GBP GBP
======================= ================ ============= ============= ==================
Stage 1 2,917,873 802,799 149,505 3,870,177
======================== ================ ============= ============= ==================
Stage 2 - 562,090 - 562,090
======================== ================ ============= ============= ==================
11 , 952 , 11 , 952 ,
Stage 3 754 - - 754
Expected credit losses 14,870,627 1,364,889 149,505 16,385,021
======================== ================ ============= ============= ==================
UNITED LATIN 31 DECEMBER
STATES AMERICA EUROPE ASIA 2022
INTERNAL GRADE GBP GBP GBP GBP GBP
================ ========= ======== ========== ==== ==================
Stage 1 3,870,177 - - - 3,870,177
================ ========= ======== ========== ==== ==================
Stage 2 562,090 - - - 562,090
================ ========= ======== ========== ==== ==================
11 , 952 , 11 , 952 ,
Stage 3 - - 754 - 754
Expected credit 11 , 952 ,
losses 4,432,267 - 754 - 16,385,021
================ ========= ======== ========== ==== ==================
Below is a breakout of the provision for expected credit losses
by stage of the ECL model as at 31 December 2021:
31 DECEMBER
FINTECH eCOMMERCE LEGAL FINANCE 2021
INTERNAL GRADE GBP GBP GBP GBP
================ ========== =========== ============= ==================
Stage 1 - - - -
================ ========== =========== ============= ==================
Stage 2 - - - -
================ ========== =========== ============= ==================
12 , 463 , 12 , 463 ,
Stage 3 973 - - 973
Expected credit 12 , 463 , 12 , 463 ,
losses 973 - - 973
================= ========== =========== ============= ==================
UNITED LATIN 31 DECEMBER
STATES AMERICA EUROPE ASIA 2021
INTERNAL GRADE GBP GBP GBP GBP GBP
================ ======= ======== ========== ==== ==================
Stage 1 - - - - -
================ ======= ======== ========== ==== ==================
Stage 2 - - - - -
================ ======= ======== ========== ==== ==================
12 , 463 , 12 , 463 ,
Stage 3 - - 973 - 973
Expected credit 12 , 463 , 12 , 463 ,
losses - - 973 - 973
================ ======= ======== ========== ==== ==================
The breakout of the gross value of loans by stage of the ECL
model as at 31 December 2022 and 31 December 2021 can be found in
footnote 6. During the year , one investment was moved from Stage 1
to Stage 2 and during the prior year, one investment was moved from
Stage 2 to Stage 3. All write-offs (recoveries) during the current
and prior year were on assets that were considered Stage 3.
10. FEES AND EXPENSES
Investment management fees
Under the terms of the Management Agreement , the Investment
Manager is entitled to a management fee and a performance fee
together with reimbursement of reasonable expenses incurred by it
in the performance of its duties.
The management fee is payable in Pound Sterling monthly in
arrears and is at the rate of 1/12 of 1.0% per month of NAV (the "
Management Fee " ). For the period from Admission until the date on
which 90% of the net proceeds of the Issue have been invested or
committed for investment (other than in Cash Instruments) , the
value attributable to any Cash Instruments of the Group held for
investment purposes will be excluded from the calculation of NAV
for the purposes of determining the Management Fee. The management
fee expense of the group for the year is GBP3 , 840 , 270 (31
December 2021: GBP3 , 802 , 097) , of which GBP97 , 785 (31
December 2021: GBP155 , 399) was payable as at 31 December
2022.
The Investment Manager shall not charge a management fee twice.
Accordingly , if at any time the Group invests in or through any
other investment fund or special purpose vehicle and a management
fee or advisory fee is charged to such investment fund or special
purpose vehicle by the Investment Manager or any of its affiliates
, the Investment Manager agrees to either (at the option of the
Investment Manager): (i) waive such management fee or advisory fee
due to the Investment Manager or any of its affiliates in respect
of such investment fund or special purpose vehicle , other than the
fees charged by the Investment Manager under the Management
Agreement ; or (ii) charge the relevant fee to the relevant
investment fund or special purpose vehicle , subject to the cap set
out in the paragraph below , and ensure that the value of such
investment shall be excluded from the calculation of the NAV for
the purposes of determining the Management Fee payable pursuant to
the above.
Notwithstanding the above , where such investment fund or
special purpose vehicle employs gearing from third parties and the
Investment Manager or any of its affiliates is entitled to charge
it a fee based on gross assets in respect of such investment , the
Investment Manager may not charge a fee greater than 1.0% per annum
of gross assets in respect of any investment made by the Parent
Company or any member of the Group.
Performance fees
The performance fee is calculated by reference to the movements
in the Adjusted Net Asset Value since the end of the Calculation
Period in respect of which a performance fee was last earned or
Admission if no performance fee has yet been earned. The payment of
any performance fees to the Investment Manager will be conditional
on the Parent Company achieving at least a 5.0% per annum total
return for shareholders relative to a 30 April 2017 High Water
Mark.
The performance fee will be calculated in respect of each 12
month period starting on 1 January and ending on 31 December in
each calendar year (a " Calculation Period " ) and provided further
that if at the end of what would otherwise be a Calculation Period
no performance fee has been earned in respect of that period , the
Calculation Period shall carry on for the next 12 month period and
shall be deemed to be the same Calculation Period and this process
shall continue until a performance fee is next earned at the end of
the relevant period. The performance fee expense for the year is
GBPnil (31 December 2021: GBP12 , 913 , 280) , of which none (31
December 2021: GBP12 , 913 , 280) was payable as at 31 December
2022.
The performance fee will be equal to the lower of (i) in each
case as at the end of the Calculation Period , an amount equal to
(a) Adjusted Net Asset Value minus the Adjusted Hurdle Value ,
minus (b) the aggregate of all Performance Fees paid to the Manager
in respect of all previous Calculation Periods ; and (ii) the
amount by which (a) 15% of the total increase in the Adjusted Net
Asset Value since the Net Asset Value as at 30 April 2017 (being
the aggregate of the increase in the Adjusted Net Asset Value in
the relevant Calculation Period and in each previous Calculation
Period) exceeds (b) the aggregate of all Performance Fees paid to
the Manager in respect of all previous Calculation Periods. In the
foregoing calculation , the Adjusted Net Asset Value will be
adjusted for any increases or decreases in the Net Asset Value
attributable to the issue or repurchase of any Ordinary Shares in
order to calculate the total increase in the Net Asset Value
attributable to the performance of the Parent Company.
" Adjusted Net Asset Value " means the Net Asset Value plus (a)
the aggregate amount of any dividends paid or distributions made in
respect of any Ordinary Shares and (b) the aggregate amount of any
dividends or distributions accrued but unpaid in respect of any
Ordinary Shares , plus the amount of any Performance Fees both paid
and accrued but unpaid , in each case after the Effective Date and
without duplication. " Adjusted Hurdle Value " means the Net Asset
Value as at 30 April 2017 adjusted for any increases or decreases
in the Net Asset Value attributable to the issue or repurchase of
any Ordinary Shares increasing at an uncompounded rate equal to the
Hurdle. The " Hurdle " means a 5% per annum total return for
shareholders.
The Investment Manager shall not charge a performance fee twice.
Accordingly , if at any time the Group invests in or through any
other investment fund , special purpose vehicle or managed account
arrangement and a performance fee or carried interest is charged to
such investment fund , special purpose vehicle or managed account
arrangement by the Investment Manager or any of its affiliates ,
the Investment Manager agrees to (and shall procure that all of its
relevant affiliates shall) either (at the option of the Investment
Manager): (i) waive such performance fee or carried interest
suffered by the Group by virtue of the Investment Manager ' s (or
such relevant affiliate ' s/affiliates ' ) management of (or
advisory role in respect of) such investment fund , special purpose
vehicle or managed account , other than the fees charged by the
Investment Manager under the Management Agreement ; or (ii)
calculate the performance fee as above , except that in making such
calculation the NAV (as of the date of the High Water Mark) and the
Adjusted NAV (as of the NAV calculation date) shall not include the
value of any assets invested in any other investment fund , special
purpose vehicle or managed account arrangement that is charged a
performance fee or carried interest by the Investment Manager or
any of its affiliates (and such performance fee or carried interest
is not waived with respect to the Group).
Administration
The Group has entered into an administration agreement with
Citco Fund Administration (Cayman Islands) Limited. The Group pays
to the Administrator an annual administration fee based on the
Parent Company ' s net assets subject to a monthly minimum
charge.
The Administrator shall also be entitled to be repaid all its
reasonable out-of-pocket expenses incurred on behalf of the Group.
All Administrator fees are included in other expenses on the
Consolidated Statement of Comprehensive Income.
Secretary
Under the terms of the Company Secretarial Agreement , Link
Group is entitled to an annual fee of GBP75 , 000 (exclusive of VAT
and disbursements). All Secretary fees are included in other
expenses on the Consolidated Statement of Comprehensive Income.
Registrar
Under the terms of the Registrar Agreement , the Registrar is
entitled to an annual maintenance fee of GBP1.25 per Shareholder
account per annum , subject to a minimum fee of GBP2 , 500 per
annum (exclusive of VAT). All Registrar fees are included in other
expenses on the Consolidated Statement of Comprehensive Income.
Custodian
Under the terms of the Custodian Agreement , Merrill Lynch ,
Pierce , Fenner & Smith Incorporated is entitled to be paid a
fee of between US$180 and US$500 per annum per holding of
securities in an entity. In addition , the Custodian is entitled to
be paid fees up to US$300 per account per annum and other
incidental fees. All Custodian fees are included in other expenses
on the Consolidated Statement of Comprehensive Income.
Auditors ' remuneration
For the year ended 31 December 2022 , the remuneration for work
carried out by PricewaterhouseCoopers LLP , the statutory auditors
, was as follows:
31 DECEMBER 31 DECEMBER
2022 2021
GBP GBP
========================================== ==================================== ====================================
Fees charged by PricewaterhouseCoopers
LLP:
========================================== ==================================== ====================================
v the audit of the Parent Company and
Consolidated
Financial Statements ; and 375,000 317 , 000
========================================== ==================================== ====================================
v the audit of the Company ' s
subsidiaries. - 22 , 300
------------------------------------------ ------------------------------------ ------------------------------------
Amounts are included in other expenses on the Consolidated
Statement of Comprehensive Income and are exclusive of VAT. There
were no non-audit services provided by PricewaterhouseCoopers LLP
during the year.
11. TAXATION ON ORDINARY ACTIVITIES
Investment trust status
It is the intention of the Directors to conduct the affairs of
the Group so as to satisfy the conditions for approval as an
investment trust under section 1158 of the Corporation Taxes Act
2010. As an investment trust the Parent Company is exempt from
corporation tax on capital gains made on investments. Although
interest income received would ordinarily be subject to corporation
tax , the Parent Company will receive relief from corporation tax
relief to the extent that interest distributions are made to
shareholders. It is the intention of the Parent Company to make
sufficient interest distributions so that no corporation tax
liability will arise in the Parent Company.
Any change in the Group ' s tax status or in taxation
legislation generally could affect the value of the investments
held by the Group , affect the Group ' s ability to provide returns
to Shareholders , lead to the loss of investment trust status or
alter the post-tax returns to Shareholders.
The following table presents the tax chargeable on the Group for
the period ended 31 December 2022:
REVENUE CAPITAL TOTAL
GBP GBP GBP
=================================== ======================= ========================== ============================
Net return on ordinary activities
before
taxation 28,016,408 (50,124,474) (22 , 108,066)
=================================== ======================= ========================== ============================
Tax at the standard UK corporation
tax
rate of 19.00% 5,323,118 - 5,323,118
=================================== ======================= ========================== ============================
Effects of:
=================================== ======================= ========================== ============================
Non-taxable income (5,323,118) - (5,323,118)
=================================== ======================= ========================== ============================
Capital items exempt from
corporation
tax - - -
=================================== ======================= ========================== ============================
Total tax charge - - -
=================================== ======================= ========================== ============================
The following table presents the tax chargeable on the Group for
the period ended 31 December 2021:
REVENUE CAPITAL TOTAL
GBP GBP GBP
=================================== ======================= ========================== ============================
Net return on ordinary activities
before 21 , 123 , 52 , 090 , 73 , 213 ,
taxation 168 200 368
=================================== ======================= ========================== ============================
Tax at the standard UK corporation
tax 13 , 910 ,
rate of 19.00% 4 , 013 , 402 9 , 897 , 138 540
=================================== ======================= ========================== ============================
Effects of:
=================================== ======================= ========================== ============================
(4 , 013 , (4 , 013 ,
Non-taxable income 402) - 402)
=================================== ======================= ========================== ============================
Capital items exempt from
corporation (9 , 897 , (9 , 897 ,
tax - 138) 138)
=================================== ======================= ========================== ============================
Total tax charge - - -
=================================== ======================= ========================== ============================
Overseas taxation
The Parent Company and Group may be subject to taxation under
the tax rules of the jurisdictions in which they invest , including
by way of withholding of tax from interest and other income
receipts. Although the Parent Company and Group will endeavour to
minimise any such taxes this may affect the level of returns to
Shareholders of the Parent Company.
12. NET ASSET VALUE PER ORDINARY SHARE
AS AT 31 DECEMBER AS AT 31 DECEMBER
2022 2021
GBP GBP
========================================== ==================================== ====================================
Net assets attributable to Shareholders of
the Parent 317 , 614 ,
Company 273 , 228,406 784
========================================== ==================================== ====================================
Ordinary Shares in issue (excluding 278 , 276 , 278 , 276 ,
Treasury Shares) 392 392
========================================== ==================================== ====================================
Net asset value per Ordinary Share 98.19p 114.14p
========================================== ==================================== ====================================
13. RETURN PER ORDINARY SHARE
Basic earnings per share is calculated using the weighted
average number of shares in issue during the year , excluding the
average number of Ordinary Shares purchased by the Parent Company
and held as Treasury Shares.
AS AT 31 DECEMBER AS AT 31 DECEMBER
2022 2021
GBP GBP
========================================== ==================================== ====================================
(22 , 124 , 73 , 183 ,
(Loss) profit for the year 267) 772
========================================== ==================================== ====================================
Average number of Ordinary Shares in issue
during the 278 , 276 , 279 , 617 ,
year (excluding Treasury Shares) 392 119
========================================== ==================================== ====================================
Earnings per Share (basic and diluted) (7.95)p 26.17p
========================================== ==================================== ====================================
The Parent Company has not issued any shares or other
instruments that are considered to have dilutive potential.
14. SHAREHOLDERS ' CAPITAL
Set out below is the issued share capital of the Company as at
31 December 2022. All shares issued are fully paid with none not
fully paid:
NUMBER OF
NOMINAL VALUE SHARES
GBP
===================================================== ==================================== ====================
278 , 276 ,
Ordinary Shares in issue (excluding Treasury Shares) 0.01 392
===================================================== ==================================== ====================
Set out below is the issued share capital of the Company as at
31 December 2021. All shares issued are fully paid with none not
fully paid:
NUMBER OF
NOMINAL VALUE SHARES
GBP
===================================================== ==================================== ====================
278 , 276 ,
Ordinary Shares in issue (excluding Treasury Shares) 0.01 392
===================================================== ==================================== ====================
Rights attaching to the Ordinary Shares
The holders of the Ordinary Shares are entitled to receive , and
to participate in , any dividends declared in relation to the
Ordinary Shares. The holders of the Ordinary Shares shall be
entitled to all the Parent Company ' s remaining net assets after
taking into account any net assets attributable to other share
classes in issue. The Shares shall carry the right to receive
notice of , attend and vote at general meetings of the Parent
Company. The consent of the holders of Shares will be required for
the variation of any rights attached to the Ordinary Shares. The
net return per Ordinary Share is calculated by dividing the net
return on ordinary activities after taxation by the number of
shares in issue.
Voting rights
Subject to any rights or restrictions attached to any shares ,
on a show of hands every shareholder present in person has one vote
and every proxy present who has been duly appointed by a
shareholder entitled to vote has one vote , and on a poll , every
shareholder (whether present in person or by proxy) has one vote
for every share of which he is the holder. A shareholder entitled
to more than one vote need not , if he votes , use all his votes or
cast all the votes he uses the same way. In the case of joint
holders , the vote of the senior who tenders a vote shall be
accepted to the exclusion of the vote of the other joint holders ,
and seniority shall be determined by the order in which the names
of the holders stand in the Register.
No shareholder shall have any right to vote at any general
meeting or at any separate meeting of the holders of any class of
shares , either in person or by proxy , in respect of any share
held by him unless all amounts presently payable by him in respect
of that share have been paid.
Variation of Rights & Distribution on Winding Up
Subject to the provisions of the Act as amended and every other
statute for the time being in force concerning companies and
affecting the Parent Company (the " Statutes " ) , if at any time
the share capital of the Parent Company is divided into different
classes of shares , the rights attached to any class may be varied
either with the consent in writing of the holders of three-quarters
in nominal value of the issued shares of that class or with the
sanction of an extraordinary resolution passed at a separate
meeting of the holders of the shares of that class (but not
otherwise) and may be so varied either whilst the Parent Company is
a going concern or during or in contemplation of a winding-up.
At every such separate general meeting the necessary quorum
shall be at least two persons holding or representing by proxy at
least one-third in nominal value of the issued shares of the class
in question (but at any adjourned meeting any holder of shares of
the class present in person or by proxy shall be a quorum) , any
holder of shares of the class present in person or by proxy may
demand a poll and every such holder shall on a poll have one vote
for every share of the class held by him. Where the rights of some
only of the shares of any class are to be varied , the foregoing
provisions apply as if each group of shares of the class
differently treated formed a separate class whose rights are to be
varied.
The Parent Company has no fixed life but , pursuant to the
Articles , an ordinary resolution for the continuation of the
Parent Company will be proposed at the annual general meeting of
the Parent Company to be held in 2025 and , if passed , every five
years thereafter. Upon any such resolution , not being passed ,
proposals will be put forward within three months after the date of
the resolution to the effect that the Parent Company be wound up ,
liquidated , reconstructed or unitised.
If the Parent Company is wound up , the liquidator may divide
among the shareholders in specie the whole or any part of the
assets of the Parent Company and for that purpose may value any
assets and determine how the division shall be carried out as
between the shareholders or different classes of shareholders.
The table below shows the movement in shares through 31 December
2022:
SHARES IN SHARES IN
ISSUE AT THE ISSUE AT THE
BEGINNING OF OF THE
FOR THE YEAR FROM 1 JANUARY 2022 THE PERIOD SHARES REPURCHASED PERIOD
TO 31 DECEMBER 2022
================================= ============= ================== =============
278 , 276 , 278 , 276 ,
Ordinary Shares 392 - 392
================================= ============= ================== =============
The table below shows the movement in shares through 31 December
2021:
SHARES IN SHARES IN
ISSUE AT THE ISSUE AT THE
BEGINNING OF OF THE
THE PERIOD SHARES REPURCHASED PERIOD
FOR THE YEAR FROM 1 JANUARY 2021
TO 31 DECEMBER 2021
================================= ============= ================== =============
282 , 647 , (4 , 370 , 278 , 276 ,
Ordinary Shares 364 972) 392
================================= ============= ================== =============
Share buyback programme
All Ordinary Shares bought back through the share buyback
programme are held in treasury as at 31 December 2022. There were
no share buybacks in 2022.
Details of the share buyback program during the year ended 31
December 2021 as follows:
ORDINARY AVERAGE LOWEST HIGHEST TOTAL
SHARES PRICE PER PRICE PER PRICE PER TREASURY
DATE OF PURCHASE PURCHASED SHARE SHARE SHARE SHARES
================= ============= ========= ========= ========= ===========
99 , 968 ,
January 2021 - 0.00p 0.00p 0.00p 301
================= ============= ========= ========= ========= ===========
100 , 551 ,
February 2021 583 , 465 88.25p 86.65p 88.99p 766
================= ============= ========= ========= ========= ===========
102 , 139 ,
March 2021 1 , 587 , 507 84.01p 82.61p 89.77p 273
================= ============= ========= ========= ========= ===========
102 , 689 ,
April 2021 550 , 000 85.56p 85.39p 85.80p 273
================= ============= ========= ========= ========= ===========
103 , 289 ,
May 2021 600 , 000 85.63p 85.00p 86.20p 273
================= ============= ========= ========= ========= ===========
104 , 339 ,
June 2021 1 , 050 , 000 84.07p 83.48p 84.07p 273
================= ============= ========= ========= ========= ===========
104 , 339 ,
July 2021 - 0.00p 0.00p 0.00p 273
================= ============= ========= ========= ========= ===========
104 , 339 ,
August 2021 - 0.00p 0.00p 0.00p 273
================= ============= ========= ========= ========= ===========
104 , 339 ,
September 2021 - 0.00p 0.00p 0.00p 273
================= ============= ========= ========= ========= ===========
104 , 339 ,
October 2021 - 0.00p 0.00p 0.00p 273
================= ============= ========= ========= ========= ===========
104 , 339 ,
November 2021 - 0.00p 0.00p 0.00p 273
================= ============= ========= ========= ========= ===========
104 , 339 ,
December 2021 - 0.00p 0.00p 0.00p 273
================= ============= ========= ========= ========= ===========
Other distributable reserve
During 2022 , the Company declared and paid dividends of GBPnil
(2021: GBPnil) from the other distributable reserve. Further , the
cost of the buyback of Ordinary Shares as detailed above was funded
by the other distributable reserve of GBPnil (2021: GBP3 , 741 ,
814). The closing balance in the other distributable reserve
remains at GBP112 , 779 , 146 (31 December 2021: GBP112 , 779 ,
146).
15. DIVIDS PER SHARE
The following table summarises the amounts recognised as
distributions to equity shareholders in the period:
31 DECEMBER 31 DECEMBER
2022 2021
GBP GBP
========================================== ==================================== ====================================
2020 interim dividend of 2.00 pence per
Ordinary Share
paid on 1 April 2021 - 5 , 638 , 178
========================================== ==================================== ====================================
2021 interim dividend of 2.00 pence per
Ordinary Share
paid on 24 June 2021 - 5 , 586 , 527
========================================== ==================================== ====================================
2021 interim dividend of 2.00 pence per
Ordinary Share
paid on 23 September 2021 - 5 , 565 , 528
========================================== ==================================== ====================================
2021 interim dividend of 2.00 pence per
Ordinary Share
paid on 23 December 2021 - 5 , 565 , 528
========================================== ==================================== ====================================
2021 interim dividend of 2.00 pence per
Ordinary Share
paid on 31 March 2022 5,565,527 -
========================================== ==================================== ====================================
2022 interim dividend of 2.00 pence per
Ordinary Share
paid on 21 July 2022 5,565,528 -
========================================== ==================================== ====================================
2022 interim dividend of 2.00 pence per
Ordinary Share
paid on 6 October 2022 5,565,528 -
========================================== ==================================== ====================================
2022 interim dividend of 2.00 pence per
Ordinary Share
paid on 29 December 2022 5,565,528 -
========================================== ==================================== ====================================
22 , 355 ,
Total 22,262,111 761
========================================== ==================================== ====================================
An interim dividend of 2.00 pence per Ordinary Share , equalling
GBP5 , 565 , 528 , was declared by the Board on 22 February 2023 in
respect of the period to 31 December 2022 , was paid to
shareholders on 30 March 2022. The interim dividend has not been
included as a liability in these financial statements in accordance
with International Accounting Standard 10: Events After the Balance
Sheet Date.
16. RELATED PARTY TRANSACTIONS
Each of the Directors is entitled to receive a fee from the
Parent Company at such rate as may be determined in accordance with
the Articles. Save for the Chair of the Board , the fees are GBP33
, 000 for each Director per annum. The Chair ' s fee is GBP55 , 000
per annum. The chair of the Audit and Valuation Committee may also
receive additional fees for acting as the chairman of such a
committee. The current fee for serving as the chair of the Audit
and Valuation Committee is GBP5 , 500 per annum.
All the Directors are also entitled to be paid all reasonable
expenses properly incurred by them in attending general meetings ,
board or committee meetings or otherwise in connection with the
performance of their duties. The Board may determine that
additional remuneration may be paid , from time to time , to any
one or more Directors in the event such Director or Directors are
requested by the Board to perform extra or special services on
behalf of the Parent Company.
At 31 December 2022 , GBP269 , 183 (31 December 2021: GBP193 ,
200) was paid to the Directors and GBP13 , 042 (31 December 2021:
GBPnil) was owed for services performed.
As at 31 December 2022 and 31 December 2021 , the Directors '
interests in the Parent Company ' s Shares were as follows:
31 DECEMBER 31 DECEMBER
2022 2021
====================== ================ ================== ==================
Oliver Grundy Ordinary Shares 30 , 000 30 , 000
====================== ================ ================== ==================
Mark Katzenellenbogen Ordinary Shares 215 , 000 215 , 000
====================== ================ ================== ==================
Elizabeth Passey Ordinary Shares 10 , 000 10 , 000
====================== ================ ================== ==================
Clive Peggram Ordinary Shares 333 , 240 333 , 240
====================== ================ ================== ==================
Graeme Proudfoot Ordinary Shares 130 , 000 130 , 000
====================== ================ ================== ==================
Investment management fees for the year ended 31 December 2022
are payable by the Parent Company to the Investment Manager and
these are presented on the Consolidated Statement of Comprehensive
Income. Details of investment management fees and performance fees
payable during the year are disclosed in Note 10.
During 2022 , as part of an amendment to its management
agreement , the Investment Manager continued to purchase Ordinary
Shares of the Parent Company with 20% of its monthly management
fee. The Ordinary Shares were purchased at the prevailing market
price. As at 31 December 2022 , the Investment Manager has
purchased 706 , 659 (31 December 2021: 4 , 496 , 991) Ordinary
Shares.
As at 31 December 2022 , Partners and Principals of the
Investment Manager held 510 , 000 (31 December 2021: 510 , 000)
Shares in the Parent Company.
The Group has invested in VPC Offshore Unleveraged Private Debt
Fund Feeder , L.P. The Investment Manager of the Parent Company
also acts as manager to VPC Offshore Unleveraged Private Debt Fund
Feeder , L.P. The principal activity of VPC Offshore Unleveraged
Private Debt Fund Feeder , L.P. is to invest in alternative finance
investments and related instruments with a view to achieving the
Parent Company ' s investment objective. As at 31 December 2022 the
Group owned 26% (31 December 2021: 26%) of VPC Offshore Unleveraged
Private Debt Fund Feeder , L.P. and the value of the Group ' s
investment in VPC Offshore Unleveraged Private Debt Fund Feeder ,
L.P. was GBP1 , 231 , 984 (31 December 2021: GBP1 , 640 , 256).
The Group has invested in VPC Synthesis , L.P. The Investment
Manager of the Parent Company also acts as manager to VPC Synthesis
, L.P. The principal activity of VPC Synthesis , L.P. is to invest
in alternative finance investments and related instruments with a
view to achieving the Parent Company ' s investment objective. As
at 31 December 2022 the Group owned 4% (31 December 2021: 4%) of
VPC Synthesis , L.P. and the value of the Group ' s investment in
VPC Synthesis , L.P. was GBP21 , 242 , 926 (31 December 2021: GBP10
, 890 , 834).
The Investment Manager may pay directly various expenses that
are attributable to the Group. These expenses are allocated to and
reimbursed by the Group to the Investment Manager as outlined in
the Management Agreement. Any excess expense previously allocated
to and paid by the Group to the Investment Manager will be
reimbursed to the Group by the Investment Manager. At 31 December
2022 , none (31 December 2021: GBP23 , 697) was due to the
Investment Manager and is included in the Accrued expenses and
other liabilities balance on the Consolidated Statement of
Financial Position.
17. SUBSIDIARIES
PERCENTAGE PERCENTAGE
OWNERSHIP AS OWNERSHIP AS
PRINCIPAL COUNTRY OF AT 31 DECEMBER AT 31 DECEMBER
NAME ACTIVITY INCORPORATION NATURE OF INVESTMENT 2022 2021
========================== ================ =============== ===================== =============== ===============
VPC Specialty Lending Investment USA Limited partner Sole limited Sole limited
Investments vehicle interest partner partner
Intermediate , L.P.
========================== ================ =============== ===================== =============== ===============
VPC Specialty Lending Investment USA Limited partner Sole limited Sole limited
Investments vehicle interest partner partner
Intermediate Holdings ,
L.P.
========================== ================ =============== ===================== =============== ===============
VPC Specialty Lending General partner USA Membership interest Sole member Sole member
Investments
Intermediate GP , LLC
========================== ================ =============== ===================== =============== ===============
Fore London , L.P. Investment UK Limited partner Sole limited Sole limited
vehicle interest partner partner
========================== ================ =============== ===================== =============== ===============
Fore London GP , LLC General partner USA Membership interest Sole member Sole member
========================== ================ =============== ===================== =============== ===============
Investment Limited partner
Duxbury Court I , L.P. vehicle USA interest 95% 95%
========================== ================ =============== ===================== =============== ===============
Duxbury Court I GP , LLC General partner USA Membership interest 95% 95%
========================== ================ =============== ===================== =============== ===============
Investment Limited partner
Drexel I , L.P. vehicle USA interest 52% 52%
========================== ================ =============== ===================== =============== ===============
Drexel I GP , LLC General partner USA Membership interest 52% 52%
========================== ================ =============== ===================== =============== ===============
The subsidiaries listed above as investment vehicles are
consolidated by the Group and there is no activity to consolidate
within the subsidiaries listed as general partners.
NAME REGISTERED ADDRESS
============================================== ========================================
VPC Specialty Lending Investments Intermediate 150 North Riverside Plaza , Suite 5200 ,
, L.P. Chicago , IL 60606
============================================== ========================================
VPC Specialty Lending Investments Intermediate 150 North Riverside Plaza , Suite 5200 ,
Holdings , L.P. Chicago , IL 60606
============================================== ========================================
VPC Specialty Lending Investments Intermediate 150 North Riverside Plaza , Suite 5200 ,
GP , LLC Chicago , IL 60606
============================================== ========================================
6th Floor , 65 Gresham Street , London ,
Fore London , L.P. EC2V 7NQ United Kingdom
============================================== ========================================
150 North Riverside Plaza , Suite 5200 ,
Fore London GP , LLC Chicago , IL 60606
============================================== ========================================
150 North Riverside Plaza , Suite 5200 ,
Duxbury Court I , L.P. Chicago , IL 60606
============================================== ========================================
150 North Riverside Plaza , Suite 5200 ,
Duxbury Court I GP , LLC Chicago , IL 60606
============================================== ========================================
150 North Riverside Plaza , Suite 5200 ,
Drexel I , L.P. Chicago , IL 60606
============================================== ========================================
150 North Riverside Plaza , Suite 5200 ,
Drexel I GP , LLC Chicago , IL 60606
============================================== ========================================
The table below illustrates the movement of the investment in
subsidiaries of the Parent Company in 20 22:
INVESTMENTS
IN SUBSIDIARIES
GBP
==================================================== ====================================
303 , 174 ,
Beginning balance , 1 January 2022 979
==================================================== ====================================
48 , 397 ,
Purchases 941
==================================================== ====================================
(106 , 463
Sales , 368)
==================================================== ====================================
(11 , 157 ,
Change in fair value of investments in subsidiaries 708)
==================================================== ====================================
233 , 951 ,
Ending balance , 31 December 2022 844
==================================================== ====================================
The table below illustrates the movement of the investment in
subsidiaries of the Parent Company in 2021:
INVESTMENTS
IN SUBSIDIARIES
GBP
==================================================== ====================================
257 , 491 ,
Beginning balance , 1 January 2021 532
==================================================== ====================================
29 , 910 ,
Purchases 829
==================================================== ====================================
(45 , 377 ,
Sales 842)
==================================================== ====================================
61 , 150 ,
Change in fair value of investments in subsidiaries 460
==================================================== ====================================
303 , 174 ,
Ending balance , 31 December 2021 979
==================================================== ====================================
18. NON-CONTROLLING INTERESTS
The non-controlling interests arises from investments in limited
partnerships considered to be controlled subsidiaries into which
there are other investors. The value of the non-controlling
interests represents the portion of the NAV of the controlled
subsidiaries attributable to the other investors. As at 31 December
2022 , the portion of the NAV attributable to non-controlling
interests investments totaled GBPnil (31 December 2021: GBP45 ,
958). In the Consolidated Statement of Comprehensive Income , the
amount attributable to non-controlling interests represents the
increase in the fair value of the investment in the period.
The following entities have been consolidated which have
non-controlling interests as at 31 December 2022:
PROFIT OR LOSS
OF SUBSIDIARY ACCUMULATED
PROPORTION ALLOCATED TO NON-
OF OWNERSHIP NON- CONTROLLING
INTERESTS CONTROLLING INTERESTS
HELD BY INTERESTS IN
NON- DURING THE SUBSIDIARY
CONTROLLING PERIODED AS
PRINCIPAL INTERESTS AS AT 31 DECEMBER AT 31 DECEMBER
PLACE OF 31 DECEMBER 2022 2022
NAME OF
SUBSIDIARY BUSINESS 2022 GBP GBP
=========== ======================== ============================== ==================================== ====================================
Drexel I ,
L.P. USA 47% 21 , 809 -
=========== ======================== ============================== ==================================== ====================================
Duxbury
Court I ,
L.P. USA 5% (5,608) -
=========== ======================== ============================== ==================================== ====================================
Totals 16,201 -
===================================== ============================== ==================================== ====================================
31 DECEMBER
SUMMARISED FINANCIAL 2022
NAME OF SUBSIDIARY INFORMATION FOR SUBSIDIARY GBP
======================= =========================================== ====================================
Drexel I , L.P. Distributions to non-controlling interests 42 , 315
=========================================== ====================================
Profit/(loss) of subsidiary for period
ended 31 December 2022 41 , 681
=================================================================== ====================================
Assets as at 31 December 2022 104 , 584
=================================================================== ====================================
Liabilities as at 31 December 2022 104 , 584
=================================================================== ====================================
Duxbury Court I , L.P. Distributions to non-controlling interests 19 , 844
=========================================== ====================================
Profit/(loss) of subsidiary for period
ended 31 December 2022 80 , 558
=================================================================== ====================================
Assets as at 31 December 2022 630 , 907
=================================================================== ====================================
Liabilities as at 31 December 2022 630 , 907
=================================================================== ====================================
The following entities have been consolidated which have
non-controlling interests as at 31 December 2021:
PROFIT OR LOSS
OF SUBSIDIARY
PROPORTION ALLOCATED TO
OF OWNERSHIP NON- ACCUMULATED
INTERESTS CONTROLLING NON-
HELD BY INTERESTS CONTROLLING
NON- DURING THE INTERESTS IN
CONTROLLING PERIODED SUBSIDIARY AS
PRINCIPAL INTERESTS AS AT 31 DECEMBER AT 31 DECEMBER
PLACE OF BUSINESS 31 DECEMBER 2021 2021
NAME OF
SUBSIDIARY 2021 GBP GBP
=========== ======================== ============================== ==================================== ====================================
Drexel I ,
L.P. USA 47% 14 , 468 20 , 506
=========== ======================== ============================== ==================================== ====================================
Duxbury
Court I ,
L.P. USA 5% 15 , 128 25 , 452
=========== ======================== ============================== ==================================== ====================================
Totals 29 , 596 45 , 958
===================================== ============================== ==================================== ====================================
31 DECEMBER
SUMMARISED FINANCIAL 2021
NAME OF SUBSIDIARY INFORMATION FOR SUBSIDIARY GBP
======================= =========================================== ====================================
Drexel I , L.P. Distributions to non-controlling interests -
=========================================== ====================================
Profit/(loss) of subsidiary for period
ended 31 December 2021 31 , 707
=================================================================== ====================================
Assets as at 31 December 2021 81 , 028
=================================================================== ====================================
Liabilities as at 31 December 2021 36 , 960
=================================================================== ====================================
Duxbury Court I , L.P. Distributions to non-controlling interests -
=========================================== ====================================
Profit/(loss) of subsidiary for period
ended 31 December 2021 32 , 424
=================================================================== ====================================
Assets as at 31 December 2021 527 , 330
=================================================================== ====================================
Liabilities as at 31 December 2021 36 , 960
=================================================================== ====================================
19. INVESTMENTS IN FUNDS
The Group has been determined to exercise significant influence
in relation to certain of its in funds and other entities , as such
these investments are considered to be associates for accounting
purposes and represent interests in unconsolidated structured
entities. The following additional information is therefore
provided as required by IFRS 12 , Disclosure of Interests in Other
Entities:
MAXIMUM
EXPOSURE
FAIR VALUE TO
OF LOSS AS
INTEREST AT
AS AT 31
PRINCIPAL PROPORTION OF 31 DECEMBER DECEMBER
PLACE OF PRINCIPAL OWNERSHIP BASIS OF 2022 2022
NAME OF ASSOCIATE BUSINESS ACTIVITY INTERESTS HELD VALUATION GBP GBP
==================== ========== =========== =============== =================== ============ ===================
Designated as
VPC Offshore held at fair value
Unleveraged through profit
Private Debt Fund Cayman Investment or loss - using 1 , 231 ,
Feeder , L.P. Islands fund 26% NAV 984 1 , 231 , 984
==================== ========== =========== =============== =================== ============ ===================
Designated as
held at fair value
through profit
VPC Synthesis , Investment or loss - using 21 , 242 , 21 , 242 ,
L.P. USA fund 4% NAV 926 926
==================== ========== =========== =============== =================== ============ ===================
31 DECEMBER
SUMMARISED FINANCIAL 2022
NAME OF ASSOCIATE INFORMATION FOR ASSOCIATE GBP
========================= ============================================ ==================
Profit/(loss) of associate for period ended
VPC Offshore Unleveraged 31 December 2022 (436 , 363)
========================= ============================================ ==================
Private Debt Fund Feeder
, L.P. Assets as at 31 December 2022 3 , 115 , 627
========================= ============================================ ==================
Liabilities at 31 December 2022 110 , 043
====================================================================== ==================
Profit/(loss) of associate for period ended
VPC Synthesis , L.P. 31 December 2022 23,848,843
========================= ============================================ ==================
430 , 198 ,
Assets as at 31 December 2022 842
====================================================================== ==================
Liabilities at 31 December 2022 340,919,367
====================================================================== ==================
FAIR VALUE MAXIMUM
OF EXPOSURE
PROPORTION INTEREST TO
OF AS AT LOSS AS AT
PRINCIPAL OWNERSHIP 31 DECEMBER 31 DECEMBER
PLACE OF PRINCIPAL INTERESTS BASIS OF 2021 2021
NAME OF ASSOCIATE BUSINESS ACTIVITY HELD VALUATION GBP GBP
====================== ========== =========== ========== ==================== ============ =====================
Designated as held
VPC Offshore at
Unleveraged fair value through
Private Debt Fund Cayman Investment profit 1 , 640 , 1 , 640 ,
Feeder , L.P. Islands fund 26% or loss - using NAV 256 256
====================== ========== =========== ========== ==================== ============ =====================
Designated as held
at
fair value through
VPC Synthesis , Investment profit 10 , 890 , 10 , 890 ,
L.P. USA fund 4% or loss - using NAV 834 834
====================== ========== =========== ========== ==================== ============ =====================
31 DECEMBER
SUMMARISED FINANCIAL 2021
NAME OF ASSOCIATE INFORMATION FOR ASSOCIATE GBP
========================= ============================================ ==================
Profit/(loss) of associate for period ended
VPC Offshore Unleveraged 31 December 2021 1 , 151 , 744
========================= ============================================ ==================
Private Debt Fund Feeder
, L.P. Assets as at 31 December 2021 4 , 431 , 392
========================= ============================================ ==================
Liabilities at 31 December 2021 157 , 672
====================================================================== ==================
Profit/(loss) of associate for period ended
VPC Synthesis , L.P. 31 December 2021 5 , 838 , 471
========================= ============================================ ==================
283 , 302 ,
Assets as at 31 December 2021 763
====================================================================== ==================
237 , 818 ,
Liabilities at 31 December 2021 787
====================================================================== ==================
The Group ' s investments in associates all consist of limited
partner interest in funds. There are no significant restrictions
between investors with joint control or significant influence over
the associates listed above on the ability of the associates to
transfer funds to any party in the form of cash dividends or to
repay loans or advances made by the Group.
20. SUBSEQUENT EVENTS AFTER THE REPORTING PERIOD
The Company declared a dividend of 2.00 pence per Ordinary Share
, equalling GBP 2,565,528 for the three-month period ended 31
December 2022 and paid the dividend on 30 March 2023.
There were no other significant events subsequent to the year
end.
APPROVAL OF CONSOLIDATED FINANCIAL STATEMENTS
The Annual report and Financial Statements were approved and
authorised for issue by the Directors on 27 April 2023.
GOVERNANCE
Responsibility for Financial Statements and Going Concern
Statement
The Directors have reviewed the financial projections of the
Group and Company from the date of this report, which shows that
the Group and Company will be able to generate sufficient cash
flows in order to meet its liabilities as they fall due. In
assessing the Group's and Company's ability to continue as a going
concern, the Directors have considered the Company's investment
objective, risk management policies capital management, the monthly
NAV and the nature of its portfolio and expenditure
projections.
Additionally, the Directors have considered the risks arising of
reduced asset values, adverse economic conditions and the impact of
the proposed managed winddown. The Investment Manager has performed
a range of stress tests and demonstrated to the Directors that even
in an adverse scenario of depressed markets that the Group could
still generate sufficient funds to meet its liabilities over the
next twelve months in scenarios where the proposed winddown is
approved and not approved by shareholders. The Directors believe
that the Group has adequate resources, an appropriate financial
structure and suitable management arrangements in place to continue
in operational existence for the foreseeable future being a period
of at least twelve months from the date of this report.
Based on their assessment and considerations above, the
Directors have concluded that the financial statements of the Group
and Company should continue to be prepared on a going concern
basis.
Viability Statement
In accordance with provision 31 of the UK Corporate Governance
Code, published by the Financial Reporting Council in July 2018,
and as part of an ongoing programme of risk assessment, the
Directors have assessed the prospects of the Company, to the extent
that they are able, over a three-year period from 31 December 2022.
The Directors have chosen a three-year period as this is viewed as
sufficiently long term to provide shareholders with a meaningful
view, without extending the period so far into the future as to
undermine the exercise. Additionally, the asset backed investments
held by the Group have maturities that extend beyond three years
allowing for the investment cash flows, recycling of investments
and expenditures commitments of the Group to be reasonably
forecasted over this timeframe.
The three-year review considers the Group's cash flow, cash
distributions and other key financial ratios over the period. The
three-year review also makes certain assumptions about the normal
level of expenditure likely to occur and considers the impact on
the financing facilities of the Group.
Furthermore, the three-year review period to 31 December 2025
was modelled considering the impact of the proposed winddown. After
being so advised by Winterflood and Jefferies, the Directors
considered a number of factors in determining unanimously that
shareholders should vote in favour of the amendment to the
investment policy and has engaged in discussions with a number of
shareholders and its advisers in reaching that conclusion, in
addition to having considered the recent performance of the
Company. Based on this assessment the Directors have made the
assumption that the vote will pass, however recognise that the
outcome of the vote is not yet known and therefore creates some
uncertainty.
As a part of this review, the Directors reviewed a series of
stress test scenarios carried out by the Investment Manager which
assumed a significant fall in income and asset levels, delay in
repayment of the asset backed lending facilities, and various
assumptions on the equity investment portfolio, including the
impacts to the Group's financing facilities and were satisfied with
the result of this analysis. Additionally, the Directors reviewed
models where the proposed managed winddown vote does not pass.
In making this assessment on the viability of the Group, the
Directors have also taken into consideration each of the principal
risks and uncertainties on pages 21 to 24, their mitigants and the
impact these might have on the business model, future performance,
solvency and liquidity. Both the principal risks and the monitoring
system are subject to a robust assessment at least annually.
In addition, the Directors considered the Company's current
financial position and prospects, the composition of the investment
portfolio, the level of outstanding capital commitments, the term
structure and availability of borrowings and the ongoing costs of
the business. As part of the approach, due consideration has been
given to the uncertainty inherent in financial forecasts and, where
applicable, as described above reasonable sensitivities have been
applied to the investment portfolio in stress situations.
All the analysis above indicates that due to the stability and
cash generating nature of the investment portfolio throughout the
managed winddown of the Company, specifically the asset backed
lending investments, the Group would be able to withstand the
impacts outlined above. Based on the robust assessment of the
principal risks, prospects and viability of the Group, the Board
confirms that they have reasonable expectation that the Group will
be able to continue operation and meet its liabilities as they fall
due over the three-year period to 31 December 2025.
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE
FINANCIAL STATEMENTS
The directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulation.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have prepared the group and the company financial statements in
accordance with UK-adopted international accounting standards.
Under company law, directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the group and company and of the
profit or loss of the group for that period. In preparing the
financial statements, the directors are required to:
v select suitable accounting policies and then apply them
consistently;
v state whether applicable UK-adopted international accounting
standards have been followed, subject to any material departures
disclosed and explained in the financial statements;
v make judgements and accounting estimates that are reasonable
and prudent; and
v prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the group and company
will continue in business.
The directors are responsible for safeguarding the assets of the
group and company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The directors are also responsible for keeping adequate
accounting records that are sufficient to show and explain the
group's and company's transactions and disclose with reasonable
accuracy at any time the financial position of the group and
company and enable them to ensure that the financial statements and
the Directors' Remuneration Report comply with the Companies Act
2006.
The directors are responsible for the maintenance and integrity
of the company's website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
DIRECTORS' CONFIRMATIONS
The directors consider that the Annual Report and the financial
statements, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the Group's and Company's position and performance, business model
and strategy.
Each of the directors, whose names and functions are listed in
Strategic Report and Directors' Report confirm that, to the best of
their knowledge:
v the group and company financial statements, which have been
prepared in accordance with UK-adopted international accounting
standards, give a true and fair view of the assets, liabilities and
financial position of the group and company, and of the loss of the
group; and
v the Strategic Report and Directors' Report includes a fair
review of the development and performance of the business and the
position of the group and company, together with a description of
the principal risks and uncertainties that it faces.
For and on behalf of the Board:
Graeme Proudfoot
Chair
27 April 2023
SHAREHOLDER INFORMATION
INVESTMENT OBJECTIVE
The Company provides asset- backed lending solutions to emerging
and established businesses with the goal of building long-term,
sustainable income generation. The Company focuses on providing
capital to vital segments of the economy, which for regulatory and
structural reasons are underserved by the traditional banking
industry. Among others, these segments include small business
lending, working capital products, consumer finance and real
estate. The Company offers shareholders access to a diversified
portfolio of opportunistic credit investments originated by
non-bank lenders with a focus on the rapidly developing
technology-enabled lending sector. Through rigorous diligence and
credit monitoring, the Company generates stable income with
significant downside protection.
As previously disclosed, the Board determined that it would be
in the best interests of the Company and its shareholders to put
forward formal proposals for a managed wind-down of the Company.
Upon a successful vote at the general meeting on the proposals put
forth by the Board, the updated investment objective of the Company
will be to conduct an orderly realisation of the assets of the
Company and be effected in a manner that seeks to achieve a balance
between returning cash to Shareholders promptly and maximising
value.
INVESTMENT POLICY
The Company seeks to achieve its investment objectives by
investing in opportunities in the financial services market through
portfolio companies and other lending related opportunities.
The Company invests directly or indirectly into available
opportunities, including by making investments in, or acquiring
interests held by, third-party funds (including those managed by
the Investment Manager or its affiliates).
Direct investments include consumer loans, SME loans, advances
against corporate trade receivables and/or purchases of corporate
trade receivables originated by portfolio companies ("Debt
Instruments"). Such Debt Instruments may be subordinated in nature,
or may be second lien, mezzanine or unsecured loans.
Indirect investments include investments in portfolio companies
(or in structures set up by portfolio companies) through the
provision of senior secured floating rate credit facilities
("Credit Facilities"), equity or other instruments. Additionally,
the Company's investments in Debt Instruments and Credit Facilities
are made through subsidiaries of the Company or through
partnerships in order to achieve bankruptcy remoteness from the
platform itself, providing an extra layer of credit protection.
The Company may also invest in other financial services related
opportunities through a combination of debt facilities, equity or
other instruments.
The Company may also invest (in aggregate) up to 10% of its
Gross Assets (at the time of investment) in listed or unlisted
securities (including equity and convertible securities or any
warrants) issued by one or more of its portfolio companies or
financial services entities.
The Company invests across several portfolio companies, asset
classes, geographies (primarily US, UK, Europe, Australia, Asia and
Latin America) and credit bands in order to create a diversified
portfolio and thereby mitigates concentration risks.
INVESTMENT RESTRICTIONS
The following investment limits and restrictions apply to the
Company, to ensure that the diversification of the Company's
portfolio is maintained, and that concentration risk is
limited.
PLATFORM RESTRICTIONS
Subject to the following, the Company generally does not intend
to invest more than 20% of its Gross Assets in Debt Instruments
(net of any gearing ring-fenced within any SPV which would be
without recourse to the Company), originated by, and/or Credit
Facilities and equity instruments in, any single portfolio company,
calculated at the time of investment. All such aggregate exposure
to any single portfolio company (including investments via an SPV)
will always be subject to an absolute maximum, calculated at the
time of investment, of 25% of the Company's Gross Assets.
ASSET CLASS RESTRICTIONS
Single loans acquired by the Company will typically be for a
term no longer than five years.
The Company will not invest more than 20% of its Gross Assets,
at the time of investment, via any single investment fund investing
in Debt Instruments and Credit Facilities. In any event, the
Company will not invest, in aggregate, more than 60% of its Gross
Assets, at the time of investment, in investment funds that invest
in Debt Instruments and Credit Facilities.
The Company will not invest more than 10% of its Gross Assets,
at the time of investment, in other listed closed-ended investment
funds, whether managed by the Investment Manager or not, except
that this restriction shall not apply to investments in listed
closed-ended investment funds which themselves have stated
investment policies to invest no more than 15% of their gross
assets in other listed closed-ended investment funds.
The following restrictions apply, in each case at the time of
investment by the Company, to both Debt Instruments acquired by the
Company via wholly-owned SPVs or partially-owned SPVs on a
proportionate basis under the Marketplace Model, on a look-through
basis under the Asset Backed Lending Model and to any Debt
Instruments held by another investment fund in which the Company
invests:
v No single consumer loan acquired by the Company shall exceed
0.25% of its Gross Assets.
v No single SME loan acquired by the Company shall exceed 5.0%
of its Gross Assets. For the avoidance of doubt, Credit Facilities
entered into directly with portfolio companies are not considered
SME loans.
v No single trade receivable asset acquired by the Company shall
exceed 5.0% of its Gross Assets.
OTHER RESTRICTIONS
The Company's un-invested or surplus capital or assets may be
invested in Cash Instruments for cash management purposes and with
a view to enhancing returns to shareholders or mitigating credit
exposure.
Where appropriate, the Company will ensure that any SPV used by
it to acquire or receive (by way of assignment or otherwise) any
loans to UK consumers shall first obtain the appropriate
authorisation from the FCA for consumer credit business.
BORROWING POLICY
Borrowings may be employed at the level of the Company and at
the level of any investee entity (including any other investment
fund in which the Company invests or any SPV that may be
established by the Company in connection with obtaining gearing
against any of its assets).
The Company may, in connection with seeking such gearing or
securitising its loans, seek to assign existing assets to one or
more SPVs and/or seek to acquire loans using an SPV.
The Company may establish SPVs in connection with obtaining
gearing against any of its assets or in connection with the
securitisation of its loans (as set out further below). It intends
to use SPVs for these purposes to seek to protect the geared
portfolio from group level bankruptcy or financing risks.
The aggregate leverage of the Company and any investee entity
(on a look-through basis, including borrowing through
securitisation using SPVs) shall not exceed 1.5 times its NAV
(1.5x).
As is customary in financing transactions of this nature, the
particular SPV will be the borrower and the Company may from time
to time be required to guarantee or indemnify a third-party lender
for losses incurred as a result of certain "bad boy" acts of the
SPV or the Company, typically including fraud or wilful
misrepresentation or causing the SPV voluntarily to file for
bankruptcy protection. Any such arrangement will be treated as
'non-recourse' with respect to the Company provided that any such
obligation of the Company shall not extend to guaranteeing or
indemnifying Ordinary portfolio losses or the value of the
collateral provided by the SPV.
SHARE REGISTER ENQUIRIES
For shareholder enquiries, please contact the Company's
registrar, Link Group on +44 (0) 371 664 0391.
Calls are charged at the standard geographic rate and will vary
by provider. Calls outside the United Kingdom will be charged at
the applicable international rate. Lines are open between 09:00 -
17:30, Monday to Friday (excluding public holidays in England and
Wales).
SHARE CAPITAL AND NET ASSET VALUE INFORMATION
Ordinary GBP0.01
Shares 278,276,392
================== =============
SEDOL Number BVG6X43
================== =============
ISIN Number GB00BVG6X439
================== =============
SHARE PRICES
The Company's shares are listed on the London Stock
Exchange.
ANNUAL AND HALF-YEARLY REPORTS
Copies of the Annual and Half-Yearly Reports are available from
the Investment Manager on and are available on the Company's
website http://vpcspecialtylending.com.
PROVISIONAL FINANCIAL CALAR
June 2023 Annual General Meeting
=============== ====================================
30 June 2023 Half-year End
=============== ====================================
July 2023 Payment of interim dividend to 31
March 2022
=============== ====================================
September 2023 Announcement of half-yearly results
=============== ====================================
October 2023 Payment of interim dividend to 30
June 2022
=============== ====================================
December 2023 Payment of interim dividend to 30
September 2022
=============== ====================================
31 December Year End
2023
=============== ====================================
DIVIDS
The following table summarises the amounts recognised as
distributions to equity shareholders relating to 2022:
GBP
======================================================== ======================
2022 interim dividend of 2.00 pence per Ordinary Share
paid on 21 July 2022 5,565,527
======================
2022 interim dividend of 2.00 pence per Ordinary Share
paid on 6 October 2022 5,565,528
======================
2022 interim dividend of 2.00 pence per Ordinary Share
paid on 29 December 2022 5,565,528
======================================================== ======================
2022 interim dividend of 2.00 pence per Ordinary Share
paid on 30 March 2023 5,565,528
======================================================== ======================
Total 22,262,111
======================================================== ======================
DEFINITIONS OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES
The Group uses the terms and alternative performance measures
below to present a measure of profitability which is aligned with
the requirements of the investors and potential investors, to draw
out meaningful subtotals of revenues and earnings and to provide
additional information not required for disclosure under accounting
standards to assist users of the financial statements in gauging
the profit levels of the Group. Alternative performance measures
are used to improve the comparability of information between
reporting periods, either by adjusting for uncontrollable or
one-off factors which impact upon IFRS measures or, by aggregating
measures, to aid the user understand the activity taking place. The
Strategic Report includes both statutory and adjusted measures, the
latter of which, reflects the underlying performance of the
business and provides a more meaningful comparison of how the
business is managed. APMs are not considered to be a substitute for
IFRS measures but provide additional insight on the performance of
the business. All terms and performance measures relate to past
performance:
Discount to NAV - Calculated as the difference in the NAV (Cum
Income) per Ordinary Share and the Ordinary Share price divided by
the NAV Cum (Income) per Ordinary Share.
Dividend Yield on Average NAV - Calculated as the dividends
declared during 2022 divided by the average Net Asset Value (Cum
Income) of the Company for the year.
Gross Returns - The gross revenue and gross capital returns
represent the return on shareholder's funds per share on
investments of the Company before operating and other expenses of
the Company.
Look-Through Gearing Ratio - The aggregate gearing of the
Company and any investee entity (on a look through basis, including
borrowing through securitisations using SPVs) shall not exceed 1.50
times its NAV (1.5x).
NAV (Cum Income) or NAV or Net Asset Value - T he value of
assets of the Company less liabilities determined in accordance
with the accounting principles adopted by the Company.
NAV (Cum Income) Return - The theoretical total return on
shareholders' funds per share reflecting the change in NAV assuming
that dividends paid to shareholders were reinvested at NAV at the
time dividend was announced.
2022 Calculation 2021 Calculation Inception
to Date Calculation
(A) Closing NAV (Cum
Income) per share 98.19p 114.14p 98.19p
----------------- ----------------- ---------------------
(B) Opening NAV (Cum
Income) per share 114.14p 95.72p 98.00p
----------------- ----------------- ---------------------
(C) Dividends declared
and paid 8.00p 8.00p 55.59p
----------------- ----------------- ---------------------
D = (A - B + C) / B -6.97% 27.60% 56.91p
----------------- ----------------- ---------------------
NAV per Share (Cum Income) - The NAV (Cum Income) divided by the
number of shares in issue.
Net Returns - Represents the return on shareholder's funds per
share on investments of the Company after operating and other
expenses of the Company.
Ongoing Charges Ratio - Ongoing charges represents the
management fee and all other operating expenses, excluding finance
costs, transaction costs and any performance fee payable, expressed
as a percentage of the average net asset values during the
year.
2022 Calculation 2021 Calculation
(A) Ongoing Charges GBP5,911,749 GBP5,460,145
----------------- -----------------
(B) Average Net Asset GBP296,360,140 GBP304,231,779
Value
----------------- -----------------
C = A / B 1.99% 1.79%
----------------- -----------------
Premium/(Discount) to NAV (Cum Income) - The amount by which the
share price of the Company is either higher (at a premium) or lower
(at a discount) than the NAV per Share (Cum Income), expressed as a
percentage of the NAV per share.
Share Price - Closing share price at month end (excluding
dividends reinvested).
Total Shareholder Return - Calculated as the change in the
traded share price from 31 December 2022 to 31 December 2021 plus
the dividends declared in 2022 divided by the traded share price as
at 31 December 2021.
2022 Calculation 2021 Calculation Inception
to Date Calculation
(A) Closing Ordinary
Share price 83.10p 92.20p 83.10p
----------------- ----------------- ---------------------
(B) Opening Ordinary
Share price 92.20p 78.70p 100.00p
----------------- ----------------- ---------------------
(C) Dividends declared
and paid 8.00p 8.00p 55.59p
----------------- ----------------- ---------------------
D = (A - B + C) / B -1.19% 27.32% 38.69%
----------------- ----------------- ---------------------
Trailing Twelve Month Dividend Yield - Calculated as the total
dividends declared over the last twelve months as at 31 December
2022 divided by the 31 December 2022 closing share price.
CONT A CT D E T A I LS O F TH E A D VISE RS
Directors Oliver Grundy
Mark Katzenellenbogen
Elizabeth Passey
Clive Peggram
Graeme Proudfoot
all of the registered office below
Registered Office 6(th) Floor
65 Gresham Street
London EC2V 7NQ
United Kingdom
Company Number 9385218
Website Address https://vpcspecialtylending.com
Corporate Brokers Jefferies International Limited
100 Bishpsgate
London EC2N 4JL
United Kingdom
Winterflood Securities Limited
Cannon Bridge House
25 Dowgate Hill
London EC4R 2GA
Investment Manager and AIFM Victory Park Cap ital Advisors, LLC
150 North Riverside Plaza, Suite 5200
Chicago
IL 60606
United States
Company Secretary Link Company Matters Limited
Beaufort House
51 New North Road
Exeter EX4 4EP
United Kingdom
Administrator Citco Fund Administration (Cayman Islands)
Limited
3 Second Street, Harborside Plaza 10,
6(th) Floor
Jersey City
NJ 07302
United States
Registrar Link Group
Central Square
29 Wellington Street
Leeds
LS1 4DL
United Kingdom
PR Advisor Montfort Communications
Chelsea Harbour
109 Harbour Yard
London
SW10 0XD
United Kingdom
Custodians Merrill Lynch, Pierce, Fenner & Smith
Incorporated
101 California Street
San Francisco
CA 94111
United States
English Legal Adviser to the Company Stephenson Harwood LLP
1 Finsbury Circus
London EC2M 7SH
United Kingdom
Independent Auditors PricewaterhouseCoopers LLP
7 More London Riverside
London SE1 2RT
United Kingdom
ENDS
LEI: 549300UPEXC5DQB81P34
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