TIDMVSL

RNS Number : 9838W

VPC Specialty Lending Invest. PLC

29 April 2021

29 April 2021

VPC SPECIALTY LING INVESTMENTS PLC

(the "Company" or " Parent Company ") with its subsidiaries (together) the "Group" )

ANNUAL FINANCIAL REPORT FOR THE YEARED 31 DECEMBER 2020

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 2020.

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 "Balance Sheet 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.

This annual report for the year to 31 December 2020 (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 2021 Annual General Meeting will be held on Thursday, 24 June 2021.

Printed copies of the Annual Report and Notice of the Company's 2021 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 www.morningstar.co.uk/uk/nsm and will also available on the Company's website at https://vpcspecialtylending.com/

A copy of the Notice of the Company's 2021 Annual General Meeting will be published and made available in due course.

The following text is extracted from the Annual Report and Financial Statements of the Company for the year ended 31 December 2020. 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 2020 are as follows:

v February 2020 : SVS Opportunity Fund, L.P., an investment vehicle managed by the Investment Manager, acquired 16.61% of the outstanding shares in the Company from a major shareholder and announced that it owned 18.12% of the Company.

v February 2020 : The Company declared a dividend of 2.00 pence per share for the three-month period to 31 December 2019.

v March 2020 : The Investment Manager released updates regarding the potential impact of COVID-19 and the initial impact of the pandemic on the Company's investment portfolio.

v April 2020 : The Company announced it received USD$22.2 million of partial paydowns from its Portfolio Companies during the month and used those proceeds, along with other cash, to repay USD$25 million of the Pacific Western Bank leverage facility, which could be redrawn in the future.

v May 2020 : The Company declared a dividend of 2.00p for the three-month period to 31 March 2020.

v June 2020 : The Company announced that the continuation vote passed with 86.6% of the shares voting in favour of the resolution.

v August 2020: The Company declared a dividend of 2.00p for the three-month period to 30 June 2020.

v October 2020: The Company announced that one of its investments, Bread Financial, Inc., signed a definitive agreement to be acquired by Alliance Data Systems Corporation. The transaction was completed by December and the Company fully exited its investment to realise a USD$1.3 million gain on the investment.

v November 2020: The Company declared a dividend of 2.00p for the three-month period to 30 September 2020.

v November 2020: The Company was named "Best Performing Debt Fund" in Citywire's Fourth Annual Investment Trust Awards.

v December 2020 : The Company announced that Katapult Holdings, Inc. ("Katapult"), announced that it had entered into a Definitive Merger Agreement with FinServ Acquisition Corp (Nasdaq: FSRV) a publicly traded SPAC focused on Fintech investments.

SUBSEQUENT EVENTS

Since the year ended 31 December 2020:

v January 2021: VPC Impact Acquisition Holdings (NASDAQ: "VIH") announced on 11 January 2021 that it had entered into a definitive agreement to combine with Bakkt Holdings, LLC. The Company owns 2,220,530 Class B Shares and 2,697,467 private placement warrants in VIH, held at an aggregate cost basis of USD$2.7 million. The Company expects that the transaction will close during Q2 2021.

v February 2021: The Company declared a dividend of 2.00p for the three-month period to 31 December 2020.

v March 2021 : The Company fully exited its equity investment in Elevate Credit, Inc. (NYSE: ELVT) and the Company funded equity investments in VPC Impact Acquisition Holdings II (NASDAQ: VPCB) and VPC Impact Acquisition Holdings III (NYSE: VPCC) for USD$1.3 million each. Additionally, the Company closed on a USD$130 million gearing facility with Massachusetts Mutual Life Insurance Company, which was used to repay the Company's previous gearing facility with Pacific Western Bank and the first-out participation facility on Avant, held with Axos Bank.

v April 2021: From 1 January 2021 through the date of this report, the Company has repurchased 2,720,972

shares at an average price of   85.83p. 

ENQUIRIES

For further information, please contact:

 
 Victory Park Capital                    via Jefferies or Winterflood 
  Brendan Carroll (Senior Partner         (below) info@vpcspecialtylending.com 
  and Co-Founder) 
  Gordon Watson (Partner) 
 
 Jefferies International Limited         Tel: +44 20 7029 8000 
 Stuart Klein 
  Neil Winward 
 Gaudi le Roux 
 
 Winterflood Securities Limited          Tel: +44 20 3100 0000 
 Neil Morgan 
 Chris Mills 
 
 Link Company Matters Limited (Company   Tel: +44 20 7954 9567 
  Secretary)                              Email: VPC@linkgroup.co.uk 
 

STRATEGIC REPORT

CHAIRMAN'S STATEMENT

The past year has proven to be the most challenging time with extreme uncertainty, disruption to our daily lives, hardship and sadly, for many, personal tragedy. Hopefully, with the worldwide vaccination programme, we may be able to return to some semblance of normality and start on a path to recovery from the COVID-19 pandemic. Against this challenging background, the Company delivered a strong performance overall in 2020.

HIGHLIGHTS IN 2020

v Total NAV return of 11.12% for the year, only marginally down from the record-breaking performance in 2019 of 11.34%;

v Total Shareholder Return of 10.87% for the year;

v The Company was named as "Best Performing Debt Fund" in Citywire's Fourth Annual Investment Trust Awards;

v Continuation vote resolution passed at the 2020 AGM;

v Resilient performance of the balance sheet loan investments with the Company receiving all interest payments on time during the year; and

v Refreshed and strengthened the Board with the appointment of two new independent non-executive directors.

PERFORMANCE

Despite the significant challenges that the year has brought, I am happy to report a very respectable performance. In 2020, the NAV per share of the Company increased by 11.12% on a total return basis, comprising NAV per share increase to 95.72p from 93.33p, plus the 8.00p of dividends paid in 2020. During the year, the share price increased to 78.70p from 78.20p. Despite stable NAV and dividends, there was significant volatility in the share price, which recovered from the historic trading low of 43.00p on 23 April 2020. The dividends paid are in line with the target dividend of 8.00p per year set out in the IPO Prospectus, were fully covered by revenue returns during the year, and continue to be the long-term dividend target of the Company.

The Group generated revenue returns of GBP23,898,852 (2019: GBP27,054,994) and paid fully covered dividends of GBP23,674,744 (2019: GBP26,627,820) for the year. Additionally, the Company repurchased 29,654,941 Ordinary Shares (2019: 47,808,578) through the share buyback programme.

The Company remains focused on risk and takes nothing for granted in the future. It is however more optimistic that performance this year should continue to reinforce the investment case for the Company. We have long spoken of the resilient nature of the balance sheet investments held by the Company, reflecting the investment positioning of VPC as the Investment Manager for the Company, as evidenced by the strong performance during the year.

INVESTMENTS

As at 31 December 2020, the Group was fully invested in a diversified portfolio of balance sheet and equity investments that continue to deliver strong risk-adjusted returns. Most of the Company's balance sheet investments are delayed draw, floating rate senior secured loans that have equity subordination. The balance sheet investments are also backed by underlying collateral consisting of consumer loans, small business loans and other types of collateral. While the macro backdrop for non-traditional credit has been volatile, VPC's risk mitigation measures, the resilience of the portfolio and its performance have been encouraging.

The balance sheet loan portfolio comprised 22 Portfolio Companies with a weighted average coupon rate (excluding gearing) of 10.79% and a weighted average remaining life of 29 months. The total expected credit loss as at 31 December was GBP8,489,159, (2019: GBP9,631,612) as the Company continued to model a 100% likelihood of a stress scenario in the reserve analysis. Early in the pandemic, the Company took a conservative approach to expected credit loss provisions and assumed a severe downside scenario across the portfolio when provisioning for losses. Over the course of the remainder of the year the portfolio continued to perform in line with our expectations at the time of underwriting (and in some cases exceeded them) so we were able to release some of these reserves as the portfolio seasoned and pre-pandemic vintages continued to pay down. The reserve as at 31 December 2020 represented 2.8% of the cost before the expected credit losses (2019: 2.6%).

The equity portfolio comprised 34 investments in Portfolio Companies that ranged in size from 0.01% to 2.79% of the Company's NAV as at 31 December 2020. Many of the investments within the investment portfolio are warrants and common stock that are often received in conjunction with funding the Group's balance sheet loan investments. During the fourth quarter, the Company announced that it had invested in a special purpose acquisition company ("SPAC") launched by the Investment Manager. VPC has an extensive deal sourcing network in the fintech universe through its existing business and the SPAC was a natural way to capitalise on the network for the benefit of our shareholders.

GEARING

The Company closed the year with a look-through gearing ratio of 0.32x (2019: 0.38x), which is well below the limit of 1.50x outlined in the IPO Prospectus. Through the COVID-19 pandemic, the Company has taken a more conservative approach to liquidity and risk management with the gearing facilities. The gearing is in the form of US Dollar borrowings, which also assist in hedging the portfolio's US Dollar exposure in a flexible and cost-effective manner. It should be noted that slightly more than half the borrowings (0.18x) are non-recourse to the Company and are linked to specific investments.

After year end, the Company closed on a USD$130 million gearing facility with Massachusetts Mutual Life Insurance Company ("MassMutual"). At the closing, the Company drew USD$80 million which was used to repay the Company's previous gearing facility with Pacific Western Bank and the first-out participation facility on Avant loans, held with Axos Bank. After the closing of the new facility, the pro-forma look-through gearing ratio increased slightly to 0.33x from 0.32x. The negotiated terms of the MassMutual facility include a three-year revolving period, an interest rate lower than that of the previous facility, and an option to upsize the facility from $72 million to $200 million and a six-year maturity.

RESPONSIBLE INVESTING

While the pure financial returns of the year have been resilient, I would like to draw your attention to the effort which the Board and the Investment Manager apply to how we do business. The Board of the Company and the Manager share a firmly held perspective that not only should the financial returns to you, our shareholders, be attractive, but these must be delivered in a manner which is consistent with our responsibility to society. This year has been a year when this focus on responsibility and sustainability, and the overall commitment was more important than ever and we plan to implement this within the investment policy.

During the year, the Investment Manager worked closely with our portfolio companies regarding collection and borrower contact strategies. This included: (a) ensuring companies have adequate resources to manage collections and servicing of the portfolio, including geographically redundant call centres and remote employee access; (b) developing fair and transparent hardship relief options which allow the portfolio companies to provide relief to borrowers facing difficulty, but also positioning the portfolio companies to maximise the collectability of those loans once borrowers regain the ability to make payments; and (c) generally making sure that portfolio companies are employing best practices in servicing the portfolio. In certain instances, the Investment Manager had brought in external collections experts via a third-party consulting firm with deep expertise in consumer credit and collections to ensure portfolio companies further enhance collections capabilities.

SHARE PRICE DISCOUNT MANAGEMENT POLICY

During the year, the share price discount to NAV ranged from 11.07% to 54.37%. This continues to be a major area of focus for both the Board and to shareholders and was much discussed prior to last year's AGM and during the shareholder consultation process that took place following last year's AGM. The uncertain impact of the COVID-19 pandemic on our investment performance and the outcome of the 2020 continuation vote were the key factors putting pressure on the share price during the year.

During the year, the Company continued to implement an active share buyback programme. The Company bought back a total of 29,654,941 shares (2019: 47,808,578) at an average price of 67.99p (2019: 73.31p), representing 9.50% of the Company's issued shares as at 31 December 2020.

The Board believes that the best form of discount management over time is to have strong and consistent investment performance, backed by active risk management, to demonstrate that to existing and potential shareholders and to market the shares actively. The Board continually monitors the share buyback programme, as well as the Company's premium or discount, and has the ability to issue or buy back shares to limit the volatility of the share price discount or premium. The targets put in place at the time of the 2020 continuation vote should also play a role in reducing the discount. The Board and Investment Manager are aware of these targets and the need to meet them.

BOARD COMPOSITION

During 2020 the Board agreed a process that would lead to the refreshment and strengthening of the Board. I indicated my intention to stand down as Chair at the 2021 AGM and Richard Levy retired from the Board at the end of December 2020. The Board agreed to recruit two new independent non-executive Directors and we used an independent search consultancy to source candidates for both of these roles. The Board's Nomination Committee, led by its Chair Mark Katzenellenbogen, took responsibility for the selection of these new Directors and the selection of a new Chair. The Company Secretary's report on this process appears on pages 120 and 121.

I am delighted to report that Graeme Proudfoot and Oliver Grundy have been appointed to the Board and that Graeme will be appointed as my successor.

Graeme is also chairman of BlackRock Income and Growth Investment Trust plc and brings a wealth of asset management expertise and investment trust experience, having spent his executive career at Invesco. Graeme joined Invesco in 1992 as a legal advisor and held various roles within the Invesco Group, including General Counsel of Invesco Global, before moving to take responsibility for a number of businesses in the UK including Invesco's investment trust business, which he led from 1999 until his retirement from Invesco in 2019.

Oliver was appointed with effect from 12 March 2021. Following publication of this annual report, he will succeed Clive Peggram as Chair of the Audit and Valuation Committee. Clive Peggram will remain on the Board as an independent non-executive director. Oliver was an audit partner of Deloitte, LLP for 28 years until his retirement in November 2019. He worked both in London and New York in various roles, including leading Deloitte's Banking Group. During his Deloitte career he also had a number of roles at the Institute of Chartered Accountants of England & Wales (ICAEW).

I wish to express my gratitude to Richard Levy for the significant contribution he has made during his tenure as a Director. He has brought relevant sector insight and expertise and his market knowledge and commercial judgement have been of particular value during the recent market turbulence.

OUTLOOK

As I noted at the opening of my statement, current expectations are that, while 2021 will see its share of challenges, we will also see some form of recovery from the COVID-19 pandemic and a gradual return to a more normal way of life. As of the date of this report, the existing balance sheet debt investment portfolio has remained resilient to the macroeconomic stress resulting from the COVID-19 pandemic and has continued to perform. In this context, the prospects for the Company's outlook remain attractive. As this year has proven, not only have the balance sheet investments within the portfolio withstood significant shocks, but the Investment Manager has shown that it can continue its normal course of business, invest responsibly, and find attractive risk-adjusted returns for the Company.

As I prepare to step down at the forthcoming AGM, I remain confident that the outstanding NAV performance the Company has delivered throughout my period as Chair will continue. I take this opportunity to thank all the partners and staff of VPC who have made such an impressive contribution to the success of the Company, and my fellow directors for their wise counsel. My successor, Graeme Proudfoot, is well qualified to lead the Board in the next stage of its journey and I wish him and the Board and VPC continued success.

Finally, the Board wants to express the hope that you, your family, friends and colleagues are and remain healthy.

Kevin Ingram

Chair

28 April 2021

TOP TEN POSITIONS

The table below provides a summary of the top ten positions of the Group, net of gearing and excluding equity exposure, as at 31 December 2020. The summary includes a look-through of the Group's investment in 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 134 and 135) to consider the application of the restrictions in this policy on a look-through basis.

All balance sheet investments are disclosed as loans at amortised cost in accordance with the International Financial Reporting Standards within the Statement of Financial Position.

 
 INVESTMENT                                                    COUNTRY       INVESTMENT    PERCENTAGE OF 
                                                                                   TYPE              NAV 
===============================================  =====================  ===============  =============== 
                                                                           Balance Sheet 
 Applied Data Finance, LLC                              United States            Lending          15.27% 
================================================  ===================  =================  ============== 
    Applied Data Finance, LLC. ("ADF") provides credit to 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 centre support in 
     Chennai, India. Financings are in the form of installment loans and range 
     up to $10,000. 
======================================================================================================== 
 Caribbean Financial Group Holdings,                                       Balance Sheet 
  L.P.                                                  Latin America            Lending          13.59% 
================================================  ===================  =================  ============== 
    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 seven Caribbean countries 
     and has its largest operations in Panama and Trinidad & Tobago. CFG's 
     product offering includes loan sizes ranging from $200 to $10,000, loan 
     terms up to 79 months with no prepayment penalties and fully amortizing 
     simple interest loans with equal monthly payments and rates based on 
     underwriting customers' ability to pay. 
======================================================================================================== 
                                                                           Balance Sheet 
 Elevate Credit, Inc.                                   United States            Lending          11.56% 
================================================  ===================  =================  ============== 
    Elevate Credit, Inc. ("Elevate") is a lender of unsecured short-term 
     cash advances and installment loans to individuals primarily through 
     the internet. The company 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 card (Today 
     Card). 
======================================================================================================== 
                                                                           Balance Sheet 
 ATA KS Holdings, LLC                                   United States            Lending          11.00% 
================================================  ===================  =================  ============== 
    ATA KS Holdings, LLC ("ATA") is a national law firm that represents a 
     broad array of clients as plaintiffs in complex litigation at the trial 
     and appellate levels. The company will (i) co-counsel in high profile 
     mass tort litigations, (ii) purchase minority equity interests in small- 
     to mid-sized law firms across the United States and (iii) provide entrepreneurial 
     lawyers a platform to monetize an existing book of business. 
======================================================================================================== 
                                                                           Balance Sheet 
 Deinde Group, LLC                                      United States            Lending           3.76% 
================================================  ===================  =================  ============== 
    Deinde Group, LLC ("Integra") is an early stage, online provider of unsecured 
     consumer loans to 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, with prior experience including TitleMax, a $400.0 
     million nonprime consumer lender, and Enova, a $800.0 million nonprime 
     consumer lender. 
======================================================================================================== 
                                                                           Balance Sheet 
 Perch HQ, LLC                                          United States            Lending           3.34% 
================================================  ===================  =================  ============== 
    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. Perch utilizes its technology and operational expertise 
     to drive growth through pricing strategy, advertising strategy, inventory 
     management, supply chain efficiencies and general brand/account management 
     optimization. 
======================================================================================================== 
                                                                           Balance Sheet 
 West Creek Financial, Inc.                             United States            Lending           3.24% 
================================================  ===================  =================  ============== 
    West Creek Financial, Inc. ("West Creek") provides a point-of-sale, lease-to-own 
     solution for underserved customers enabling purchases of durable goods 
     such as furniture, mattresses, appliances and tires. West Creek's proprietary 
     underwriting model verifies FICO scores, a measure of consumer credit 
     risk, and collects additional data from third-party providers such as 
     Clarity, DataXRisk, and FactorTrust to analyse numerous variables to 
     evaluate and approve users. 
======================================================================================================== 
                                                                           Balance Sheet 
 Avant, Inc.                                            United States            Lending           2.72% 
================================================  ===================  =================  ============== 
    Avant, Inc. ("Avant") is an online lending platform that is changing 
     the way consumers obtain credit by lowering the costs and barriers of 
     borrowing. Utilizing big data and machine-learning algorithms, the company 
     offers a unique and highly customized approach to streamlined credit 
     options. Avant has been featured in publications such as Wall Street 
     Journal, The New York Times, TechCrunch, Fortune, Bloomberg and Crain's 
     Chicago Business and was named to Forbes America's Most Promising Companies 
     list for 2015. Avant provides credit to near-prime and prime consumers 
     in 49 states. 
======================================================================================================== 
                                                                           Balance Sheet 
 Counsel Financial Holdings LLC                         United States            Lending           2.63% 
================================================  ===================  =================  ============== 
    Counsel Financial Holdings LLC ("Counsel") is a specialty non-bank commercial 
     lender that originates and services senior secured loans to law firms 
     that maintain primarily contingent fee practices. Counsel's borrowers 
     represent plaintiffs in (i) class action, (ii) mass tort and (iii) personal 
     injury litigation throughout the United States. Since inception, Counsel 
     has extended approximately 200 individual credit lines to law firms collectively 
     totalling over $700 million. 
======================================================================================================== 
                                                                           Balance Sheet 
 Sunbit, Inc.                                           United States            Lending           2.21% 
================================================  ===================  =================  ============== 
    Sunbit, Inc. ("Sunbit") is a differentiated point-of-sale financing provider 
     focused on near-prime customers within the brick-and-mortar retail space. 
     Sunbit offers customers instant and customizable unsecured installment 
     loans to finance on the spot purchases made in person at brick-and-mortar 
     retail locations across 45 states. In 2020, the company launched Sunbit 
     Card which provides approved customers the flexibility of a credit card 
     with a payment mechanism comparable to Sunbit's core point-of-sale amortizing 
     installment loan product. 
-------------------------------------------------------------------------------------------------------- 
 
 

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 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 our 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 our 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.

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 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 90 and 91.

Merrill Lynch, Pierce, Fenner & Smith Incorporated and Millennium Trust Company have been appointed as the Company's Custodians and are entitled to be paid a fee of between US$180 and US$500 per annum per holding of securities in an entity under the terms of the Custodian Agreement. In addition, the Custodians are 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.

Under the terms of the Company Secretarial Agreement, Link Company Matters Limited is entitled to an annual fee of GBP76,800 (exclusive of VAT and disbursements). All Secretary fees are included in other expenses on the Consolidated Statement of comprehensive Income.

The Group has entered into an administration agreement with Northern Trust Hedge Fund Services LLC. The Group pays to the Administrator an annual administration fee based on the 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.

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.

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. A full description of performance and the investments is contained in the Investment Manager's Report, commencing on page 24.

DIVID YIELD

The Company intends to distribute at least 85% of its distributable income earned in each financial year by way of dividends. Including the distribution made in April 2021, which related to the three-month period ended 31 December 2020, the Company has distributed 97% of its distributable income earned during the year ended 31 December 2020.

GEARING RATIO

As at 31 December 2020, the look-through gearing ratio was 0.32x for the Company. As disclosed in the investment policy, 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 108.

During the trading period, the Ordinary Shares moved in a discount range of 11.07% to 54.37%. The Company closed the year at a discount of 17.77% to NAV. During the year, the Company repurchased a total of 29,654,941 shares at an average price of 67.99 pence per share.

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 2020 was 1.86%. After factoring in the change in the average NAV over 2020 as compared to 2019, the on-going charges ratio would be 1.70% for 2020, which would be consistent with the 1.70% disclosed in 2019. 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

Because the Company operates globally, it 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 2021.

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.

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. The non-financial risks comprise of regulatory risk, business continuity risk and pandemic risk and the financial risks comprise of liquidity risk, credit risk, financing risk, market risk and portfolio company risk. These are set out below:

 
                     RISK                                          MITIGATION 
==============================================  =============================================== 
 
                 LIQUIDITY RISK 
        Liquidity risk is defined as the           The Investment Manager manages the 
       risk that the Group may not be able         Group's liquidity risk by investing 
        to settle or meet its obligations          primarily in a diverse portfolio of 
        on time or at a reasonable price.          assets. As at 31 December 2020, 15% 
       The Group may invest in the listed          of the loans had a stated maturity 
       or unlisted equity of any Portfolio         date of less than a year. 
        Company. Investments in unlisted           In general, the weighted average maturity 
        equity, by their nature, involve           profile of the Group's assets was 
        a higher degree of valuation and           lower than or equal to the term of 
     performance uncertainties and liquidity       the Group's corresponding debt facilities 
        risks than investments in listed           which thereby reduced liquidity risk. 
         securities and therefore may be           Refer to Note 6 of the financial statements 
           more difficult to realise.              for the maturity profile of the Group's 
        In the event of adverse economic           assets and liabilities. 
         conditions in which it would be           The Board and the Investment Manager 
        preferable for the Group to sell           review the investment portfolio to 
        certain of its assets, the Group           ensure it is in line with the investment 
      may not be able to sell a sufficient         policy, including restrictions, as 
        proportion of its portfolio as a           outlined on pages 134 and 135. The 
        result of liquidity constraints.           Board reviews cash flow forecasts 
       In such circumstances, the overall          to ensure the group can meet its liabilities 
    returns to the Group from its investments      as they fall due. 
           may be adversely affected.              The Group continuously monitors fluctuations 
     The Group is also exposed to liquidity        in currency rates. The Group performs 
      risk with respect to the requirement         stress tests and liquidity projections 
       to pay margin cash to collateralise         to determine how much cash should 
       forward foreign exchange contracts          be held back to meet potential future 
       used for currency hedging purposes.         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. As of the 
                                                   writing of this report, the Group 
                                                   has received all contractual interest 
                                                   payments and continues to monitor 
                                                   cash flow closely during the COVID-19 
                                                   pandemic. 
==============================================  =============================================== 
 
   CREDIT RISK 
   Credit risk is the risk that one                There is inherent credit risk in the 
   party to a financial instrument                 Group's investments in credit assets. 
   will cause a financial loss for                 However, this is typically mitigated 
   the other party by failing to discharge         by the significant first loss protection 
   an obligation.                                  provided by the Portfolio Company 
   The Group's credit risks arise principally      under the Balance Sheet Model and 
   through exposures to loans acquired             the excess spread generated by the 
   by the Group, which are subject                 underlying assets under both models. 
   to risk of borrower default. The                The Investment Manager performs a 
   ability of the Group to earn revenue            robust analysis during the underwriting 
   is completely dependent upon payments           process for all new investments of 
   being made by the borrower, such                the Group and monitors the eligibility 
   as adverse movements in financial               of the collateral at least monthly 
   markets.                                        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 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 134 and 135. The 
                                                   Investment Manager monitors performance 
                                                   and underwriting on an on-going basis. 
==============================================  =============================================== 
 
                 FINANCING RISK 
        Financing risk is the risk that,           This risk is mitigated by limiting 
         whilst the use of borrowings by           borrowings to ring-fenced SPVs without 
        the Group should enhance the net           recourse to the Group and employing 
        asset value of an investment when          gearing in a disciplined manner. 
     the value of an investment's underlying       The Group has maintained a level of 
       assets is rising, it will, however,         gearing throughout the year significantly 
        have the opposite effect when the          below the limit as the Group is primarily 
       underlying asset value is falling.          invested in the Balance Sheet Model. 
         In addition, if an investment's           After year end, the Group replaced 
        income falls for whatever reason,          the current gearing provider with 
       the use of borrowings will increase         a new provider, as detailed in the 
        the impact of such a fall on the           Chairman's Statement. The new facility 
      net revenue of the Group's investment        was negotiated at attractive terms 
      and accordingly will have an adverse         including a three-year revolving period, 
     effect on the ability of the investment       an interest rate lower than that of 
       to make distributions to the Group.         the previous facility, and an option 
        The Group uses gearing to enhance          to upsize the facility from $130 million 
       returns generated by the underlying         to $200 million and a six-year maturity. 
         credit assets and is exposed to           The Board and the Investment Manager 
        the availability of financing at           review the investment portfolio to 
      acceptable terms as well as interest         ensure it is in line with the investment 
         rate expenses and other related           policy, including restrictions, as 
                     costs.                        outlined on pages 134 and 135. 
==============================================  =============================================== 
 
                   MARKET RISK 
         Market risk is the risk of loss              The Group has a diversified investment 
      arising from movements in observable            portfolio which significantly reduces 
        market variables such as foreign              the exposure to individual asset price 
        exchange rates, equity prices and              risk. Detailed portfolio valuations 
      interest rates. The Group is exposed              and exposure analysis are prepared 
        to market risk primarily through                monthly and form the basis for the 
           its Financial Instruments.                on-going risk management and investment 
       The Group is exposed to price risk            decisions. In addition, regular scenario 
        arising from the investments held            analysis is undertaken to assess likely 
        by the Group for which prices in                downside risks and sensitivity to 
    the future are uncertain. The investments       broad market changes, as well as assessing 
      in funds are exposed to market price             the underlying correlations amongst 
     risk. Refer to Note 3 in the Financial                the separate asset classes. 
        Statements for further details on               Exposure to interest rate risk is 
      the sensitivity of the Group's Level           limited as the underlying credit assets 
          3 investments to price risk.                 are typically fully amortising with 
       Interest rate risk arises from the               a maximum maturity of five years. 
      possibility that changes in interest              Furthermore, generally the Group's 
       rates will affect future cash flows             Credit Facilities include a floating 
         or the fair values of financial             interest rate component to the Portfolio 
                  instruments.                         Companies to account for an increase 
       Currency risk is the risk that the              in interest rate risk and they also 
       value of net assets will fluctuate             have a set floor in the instance that 
       due to changes in foreign exchange                  interest rates were to drop. 
       rates. Relevant risk variables are              The Group mitigates its exposure to 
       generally movements in the exchange              currency risk by hedging exposure 
       rates of non-functional currencies              between Pound Sterling and any other 
       in which the Group holds financial               currencies in which a significant 
             assets and liabilities.                    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. 
==============================================  =============================================== 
 
   PORTFOLIO COMPANY RISK 
   The current market in which the                 VPC has negotiated a significant number 
   Group participates is competitive               of proprietary capital deployment 
   and rapidly changing. There is a                agreements with its existing balance 
   risk that the Group will not be                 sheet partners each of which typically 
   able to deploy its capital, re-invest           ensures the ability to deploy capital 
   capital and interest of the proceeds            on attractive terms for several years. 
   of any future capital raisings,                 In addition, VPC is one of the largest 
   in a timely or efficient manner                 investors in the specialty lending 
   given the increased demand for suitable         sector and therefore enjoys timely 
   investments.                                    information and good access to emerging 
   The Group may face increasing competition       Portfolio Company opportunities. VPC 
   for access to investments as the                has a team of investment and operational 
   alternative finance industry continues          professionals which ensures that deployment 
   to evolve. The Group may face competition       opportunities with new and existing 
   from other institutional lenders                Portfolio Companies can be executed 
   such as fund vehicles and commercial            rapidly while minimising operational 
   banks that are substantially larger             risk. 
   and have considerably greater financial,        VPC's pipeline of deployment opportunities 
   technical and marketing resources               remains strong with both existing 
   than the Group. Other institutional             and new balance sheet lending Portfolio 
   sources of capital may enter the                Companies. 
   market in the UK, US and other geographies. 
==============================================  =============================================== 
 
   REGULATORY RISK 
   As an investment trust, the Company's           The Company provides debt capital 
   operations are subject to wide ranging          to Portfolio Companies, which typically 
   regulations. The financial services             must comply with various state and 
   sector continues to experience significant      national level regulations. This includes 
   regulatory change at national and               some operating under interim permission 
   international levels. Failure to                and some now regulated from the FCA 
   act in accordance with these regulations        in the UK as well as consumer lending 
   could cause fines, censure or other             and collections licenses in some US 
   losses including taxation or reputational       states. This risk is limited via detailed 
   loss.                                           upfront due diligence of Portfolio 
   In order to continue to qualify                 Companies' regulatory environments 
   as an investment trust, the Company             performed by the Investment Manager 
   must comply with the requirements               on behalf of the Board. 
   of Section 1158 of the Corporation              The Company has procedures to monitor 
   Tax Act 2010.                                   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. 
==============================================  =============================================== 
 
   BUSINESS CONTINUITY RISK 
   As a result of the COVID-19 pandemic,           The Investment Manager reviews its 
   there has been increased focus from             business continuity plans and operational 
   financial services regulators around            resilience strategies on an ongoing 
   the world on the contingency plans              basis and will take all reasonable 
   of regulated financial firms.                   steps to continue meeting its regulatory 
                                                   obligations and to assess operational 
                                                   risks, the ability to continue operating 
                                                   and the steps it needs to take to 
                                                   serve and support its clients, including 
                                                   the Board. For example, to enhance 
                                                   its resilience during the year, the 
                                                   Investment Manager has mandated work 
                                                   from home arrangements for all employees. 
                                                   The Company's other third-party service 
                                                   providers have also confirmed the 
                                                   implementation of similar measures 
                                                   to ensure no business disruption to 
                                                   the Investment Manager. 
                                                   The Investment Manager has not seen 
                                                   any disruptions to business during 
                                                   2020 and into the beginning of 2021. 
==============================================  =============================================== 
 
   PANDEMIC RISK 
   The impact on the global economy                The Investment Manager has a dedicated 
   from the COVID-19 pandemic created              risk committee comprised of senior 
   additional credit risk.                         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. Additional information 
                                                   on the Investment Manager's Pandemic 
                                                   Response plan can be found on pages 
                                                   27 and 28. 
                                                   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 majority of the underlying exposure 
                                                   in the Group is to the U.S. consumer. 
                                                   As such, the impact on the US economy 
                                                   from the COVID-19 pandemic creates 
                                                   potential additional credit risk. 
                                                   While we have seen modest deterioration 
                                                   in loan performance, it is not as 
                                                   drastic as might have been expected 
                                                   when the pandemic began. Further, 
                                                   all portfolio companies have revised 
                                                   underwriting criteria, and originations 
                                                   were significantly reduced or completely 
                                                   stopped during the peak of the pandemic. 
                                                   Given the short duration of the overall 
                                                   portfolio and reduction of originations, 
                                                   the Group's portfolio companies generated 
                                                   a significant amount of cash during 
                                                   the first half of the year, which 
                                                   was either repaid to the Group as 
                                                   a prepayment on the credit facility 
                                                   or remained at the portfolio company 
                                                   and directly collateralised the Group's 
                                                   investment. As the situation stabilised 
                                                   in the second half of the year, the 
                                                   Group began to redeploy capital back 
                                                   to new and existing portfolio companies. 
                                                   Lenders had experienced some immediate 
                                                   increases in requests for payment 
                                                   deferrals from their customers when 
                                                   the pandemic began. However, during 
                                                   the second half of the year, two important 
                                                   signals have been observed consistently 
                                                   across the portfolio; first, rates 
                                                   of payment deferral have reverted 
                                                   to pre-COVID levels, and second, the 
                                                   performance of borrowers who had taken 
                                                   deferrals has continued to exceed 
                                                   best case expectations. A significant 
                                                   majority of borrowers who had taken 
                                                   payment deferrals successfully returned 
                                                   to a normal payment schedule after 
                                                   the deferral elapsed, which, along 
                                                   with the continued seasoning of the 
                                                   portfolio, provides a strong indication 
                                                   that the environment has stabilised. 
                                                   There is potential for a new wave 
                                                   of unemployment as the virus continues 
                                                   to take a toll on populations and 
                                                   economies, but the Investment Manager 
                                                   considers the portfolio to be significantly 
                                                   de-risked and any new originations 
                                                   have been underwritten to tighter 
                                                   credit standards which specifically 
                                                   factor in macro COVID-19 risk factors. 
                                                   Accordingly, the portfolio should 
                                                   be well positioned should further 
                                                   stress materialise. 
==============================================  =============================================== 
 

Discussion on the Group's risk management and internal controls is on page 125.

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 seeks to promote a culture of openness, debate and integrity through on-going 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 116).

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 115. 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.

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 2021, following the retirement of Richard Levy, the Board of Directors of the Company comprised four male Directors and one female Director. As at the date of this report the Board comprises five male Directors and one female Director. 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 120.

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 Company believes that high standards of corporate social responsibility such as the recycling of paper waste will support its strategy and make good business sense.

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:

Kevin Ingram

Chair

28 April 2021

INVESTMENT MANAGER'S REPORT

The Company's investment manager is Victory Park Capital Advisors, LLC ("VPC" or the "Investment Manager"), 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 "Balance Sheet Lending, " designed to limit downside risk while providing shareholders with strong income returns.

VPC's senior secured credit strategy provides opportunistic financing across select investment verticals. Target investments are typically shorter in duration and aim to offer higher yields and greater structural protections than traditional lenders with an emphasis on capital preservation and income generation across market cycles. VPC generates value through its core competency as a credit investor with direct origination and primarily acts as a sole lender. VPC believes its dedicated, seasoned and experienced investment team provides an advantage in sourcing, deal structuring and risk management. Together, this allows VPC to provide reliable capital solutions throughout the ecosystem. We offer an institutional-calibre partnership with a hands-on approach and as a result, companies and global partners continue to seek out VPC as a leading capital provider.

VPC believes it is uniquely positioned to unlock potential value given its background investing across multiple, complex and non-traditional assets as a financial services investor, together with its special situations and event-driven investing expertise.

 
 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 and 
  San Francisco 
  v Investment Manager of the Company since its IPO in 2015 
  v Company named "Best Performing Debt Fund" in Citywire's Fourth Annual 
  Investment Trust Awards 
  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 permeates the Company 
  v VPC leverages proprietary risk tools and analytics to drive underwriting 
  and portfolio management decisions 
  v Customized monitoring and reporting process allows for granular analysis 
  across multiple dimensions 
  SEASONED INVESTMENT TEAM 
  v Senior investment team averages over 20 years of relevant experience 
  v Since inception, VPC has invested approximately USD$6.0 billion across 
  more than 120 investments 
  v History of generating strong returns throughout various market cycles 
  v Differentiated restructuring expertise complements strong risk management 
 

STRATEGY AND BUSINESS MODEL

STRUCTURING APPROACH

During 2020, the Company's strong returns continued to be driven by the success of its assets invested in the "Balance Sheet Lending Model" for providing debt capital to Portfolio Companies. Under the Balance Sheet Lending Model, the Company provides a floating rate Credit Facility with an interest rate floor to the Portfolio Company via a Special-Purpose Vehicle ("SPV"), which retains assets 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 into the SPV, along with the excess spread from the underlying assets providing significant first loss protection to the Company.

The Company's investments are typically structured with significant overcollateralisation and credit enhancement to minimise any loss given default in a scenario where VSL must foreclose on collateral to repay its investment. The overcollateralisation is sized to withstand significant stress to liquidation values without impacting the Company's investment outcome. VPC as the Investment Manager of the Company targets collateral assets with stable and predictable liquidation value and a clear path to exit in the event of a default. Investments are secured via liens and equity pledges on the corporate entity or collateral which provide multiple avenues of structural protection.

One of the pioneers of financial services lending, VPC has structuring expertise and relationships, enabling it to secure preferential capacity to lock up attractive, long-term economics through structured facility upsizes and rights of first refusal. The hunt for yield is extremely competitive in a low interest rate environment. This means that VPC competes with some of the largest and most recognised firms in the world when sourcing new investments. However, we believe that we have created a sustainable competitive advantage in our investment strategy. Having invested approximately USD$6.0 billion across more than 120 investments, VPC benefits from sourcing relationships, pattern recognition and an intense focus on process. The Company's performance in 2020, following the performance in 2019 and 2018, reflects the accumulated results of VPC's decade-plus track record of investing in asset-backed, balance sheet investments. VPC's investment approach has consistently paid off, as we have been successful in backing earlier-stage companies with excellent management and marquee venture capital backing, allowing for locked-up terms that would otherwise be difficult to negotiate at a later stage. Not only does this provide better economics, but VPC can also structure its investments more conservatively than we might be able to negotiate in a more competitive process. VPC benefits from working with companies as they scale under a conservative structure. As investments approach maturity several years later, VPC has an informed opinion to approach an extension and/or upsize negotiations. We believe that the Company's investment performance over the past three years reflects the successful execution of its investment approach over the past decade. Notably, the Company was recognized as "Best Performing Debt Fund" in Citywire's Fourth Annual Investment Trust Awards.

Since the Company invests alongside VPC's private funds into the underlying balance sheet investments, many of the portfolio's investments precede the listing of the Company in 2015 and have grown significantly over time. The Company, alongside VPC's private funds, also receives the benefit of scale from the arrangement. We are in a position to negotiate better terms and grow with the Portfolio Companies, ultimately resulting in the ability to provide larger facilities. All investors benefit, as we continue to have significant undrawn investment opportunities from longstanding investments, some of which were initiated a decade ago. The scale of the relationships also serves to minimise the cash drag within the Company. Investments are funded based on draw requests received on a weekly basis. As the Company receives a repayment on an investment, capital can be redeployed quickly, and in some cases even the same day.

PROPRIETARY SOURCING ADVANTAGE

The Company has exposure to several proprietary investments in Portfolio Companies with attractive risk/reward characteristics that other investors in the sector are typically unable to access. We believe this is due to VPC's long experience and reliable reputation in the sector as an early participant with an extensive sourcing network, having executed transactions partnering with several leading financial and venture capital sponsors in the financial services sector.

VPC also leverages its relationships with Portfolio Companies and financial sponsors to secure significant lending capacity and negotiate attractive equity kickers as well as mitigate prepayment and interest rate risks. The rapid growth of capital deployed in this sector since 2010 has also generated positive network effects and helps ensure that the Investment Manager has a first look at opportunities developing in the sector.

RISK MANAGEMENT

With a strong focus on capital preservation, VPC structures its investments to minimise risk for the Company and augments this with a comprehensive risk management framework. This involves a rigorous, hands-on approach to post-investment monitoring of portfolio risk and performance. Assessing the balance of expected returns with inherent risks is an integral part of the Investment Manager's investment strategy and drives all aspects of portfolio construction. We believe that this approach and focus are a key driver in meeting the Company's investment objectives, particularly in a potentially more challenging future credit environment.

Stress Scenario Performance and Wind-down Analysis

Our risk management team performs regular analysis to stress test each Portfolio Company's lending performance to determine a portfolio level downside scenario. The largest risk mitigant in the downside scenarios is the first-loss protections that are structured into the Company's balance sheet investments. This ensures that the Portfolio Companies and their equity investors' capital would have to be fully impaired before a balance sheet facility loses any interest income or principal invested. In the Company's recourse investments, this means the portfolio companies would also lose the cash and other assets that are outside of the borrowing base to cover the first-loss protections. We pride ourselves on our structural protections, risk management and portfolio monitoring as this is an important area of focus that is constantly evaluated.

As we continue to navigate the COVID-19 pandemic, the focus is squarely around risk management and risk controls with a particular emphasis on managing liquidity across the portfolio. Our dedicated VPC risk management team continues to work collaboratively with the VPC investment teams to closely monitor the Company's investment portfolio and have continued to proactively work with the Portfolio Companies to ensure that they are taking prudent steps to mitigate risk and manage through the pandemic.

REVIEW OF 2020 PERFORMANCE

Despite the challenging societal, economic and market activity during the year, we believe the portfolio is in a strong position due to the protections structured into the balance sheet investments. Since the onset of the pandemic, VPC has been proactive and decisive in its portfolio management. In addition to relying on the structured portfolio protections in place, VPC's senior management team has been in constant communication with each Portfolio Company to ensure that they are taking prudent steps to mitigate risk on a real time basis.

The COVID-19 pandemic continues to significantly impact global health, economies and social behaviour. As the world continues to navigate towards a road to recovery, VPC has adapted to the new environment while closely following the everchanging health rules and regulations, governmental policies and safety guidelines. VPC employees continue to work remotely, following the implementation of VPC's Business Continuity Plan on 12 March 2020. VPC's robust technology systems and resources have enabled us to operate during this period without disruption. We are proud of the work we have done as a team during these unprecedented times, with a specific emphasis on telecommuting since the health and safety of our employees and their families remain most important.

We continue to closely monitor the latest health developments to determine when it will be appropriate to return to our offices. To that point, in July, VPC instated a Pandemic Response Plan which includes defined safety policies and procedures surrounding the action plan if a COVID-19 case is confirmed in our office once we reopen. In addition, VPC formed an internal team dedicated to monitoring health metrics and guidance, implementing relevant changes to our policies and procedures as applicable to ensure the safest work environment and diligently communicating the updates to the firm as they are developed.

The Company completed the year with a total NAV return of 11.12% and a gross revenue return of 13.93%. The strong revenue returns were the result of the Company's investments continuing to perform in line with underwriting expectations despite the effects of the COVID-19 pandemic across the globe. Capital returns were more volatile over the course of the year because of the effect of the pandemic on equity valuations and the provision for expected credit losses, both of which had negative returns in first half of the year and then recovered by the end of the year.

Overall, we are pleased with the Company's performance and believe it demonstrates the resilience of VPC's approach to lending through structured balance sheet loans. Despite facing the worst economic shock in a generation, the Company experienced no realised credit losses and received all interest payments on time throughout the year.

With regard to expected credit loss provisions, and in conjunction with VPC's independent risk review, we took a very conservative approach early in the pandemic and assumed a severe downside scenario across the portfolio when provisioning for losses. Over the course of the remainder of the year, the portfolio continued to perform in line with our expectations at the time of underwriting (and in some cases better) so we were able to release some of these reserves as the portfolio seasoned and pre-pandemic vintages continued to pay down.

There was a similar pattern in the equity returns which turned negative as markets sold off in the first quarter, but then recovered in the back half of the year as we experienced some catalysts in our portfolio including a realised exit in Bread Financial, Inc. and Katapult Holdings, Inc. (formerly known as Cognical Holdings, Inc.) agreeing to merge with a special purpose acquisition company (SPAC), both at substantial premiums to the carrying value of investments prior to the announcement.

Given the significant increase in SPAC issuances during 2020, this could potentially benefit our portfolio of equity investments as more portfolio companies might choose to enter the public markets via the SPAC route in the coming years.

COMPANY PERFORMANCE

During the year, the Company generated a total NAV return of 11.12% for the Ordinary Shares and declared dividends relating to the period totalled 8.00p. The NAV per share at year end 2020 was 95.72p. The Company generated gross revenue returns of 13.93% as a percentage of NAV in 2020 from the Company's balance sheet investments, continuing the strong performance trend of the past few years. Capital returns comprised of -0.27% from the balance sheet expected credit loss reserves, 0.71% from equity investments and 0.29% from the marketplace loan and securitisation investments. The expenses comprised of finance costs relating to the Company's gearing facility of -1.67%, operating expenses and management fees of -1.94% and performance fees of -1.49. The F/X and other returns relates to the cost of the Company's hedging program, offset with the impact of the share buyback program during the year.

The Company generated revenue returns of GBP23,898,852 (31 December 2019: GBP27,054,994) and paid dividends of GBP23,674,744 (31 December 2019: GBP26,627,820) for the year, fully covering the dividends for the year with the revenue returns generated by the Company. Additionally, the Company repurchased GBP20,161,216 of Ordinary Shares (31 December 2019: GBP35,049,382) through the buyback programme during the year.

The total expected credit losses as at 31 December 2020, which also includes reserves on the residual marketplace loans, was GBP8,489,159, (31 December 2019: GBP9,631,612) as throughout 2020 the Company continues to model a 100% likelihood of a stress scenario in the reserve analysis (2019: 27% to 33%). The impairment charge for the year was GBP112,550 (31 December 2019: GBP2,402,296). The modelling of the stress scenario was the result of a stringent analysis performed by the Investment Manager with a conservative set of assumptions. The reserve as at 31 December 2020 represented 2.8% of the cost before the expected credit losses (31 December 2019: 2.6%).

INVESTMENTS

In order to meet the Company's investment objectives within the pre-defined portfolio limits, we allocate capital across several Portfolio Companies with a focus on portfolio level diversification. As at 31 December 2020, the Company's investments were diversified across 43 different Portfolio Companies across the U.S., UK, Europe, Australia, Asia and Latin America. As at 31 December 2020, the Company had exposure to 22 Portfolio Companies through balance sheet loans and 34 portfolio companies through equity securities or convertible notes.

During the year, the Company's portfolio of balance sheet investments continued to generate strong risk-adjusted returns. These investments benefit from first-loss protection and excess spread, which provides downside protection in the case of increased credit losses. The credit metrics on the portfolio's underlying loans have continued to show strong performance with no signs of immediate macro weakness. Furthermore, the pipeline of available balance sheet investment opportunities remains strong.

New Investments in 2020

Since the onset of the COVID-19 pandemic VPC has closed on nearly USD$600 million of new deal capacity that will provide significant investment opportunities for the Company as these portfolio companies scale in the coming years:

v Exzu Inc. (d/b/a "Cap Hill Brands"): VPC closed on a USD$110 million senior secured credit facility with Cap Hill Brands, a de novo technology driven consumer-packaged goods platform that will acquire and operate a diverse portfolio of branded Amazon third-party seller ("TPS") assets. Cap Hill Brands then leverages its platform and industry expertise to drive growth through improved marketing strategy, pricing strategy, cost savings, channel expansion and general TPS optimisation.

v FinAccel Pte. Ltd. ("FinAccel"): FinAccel is a Singapore-based financial technology ("Fintech") company that provides Indonesian consumers with a digital credit platform (d/b/a "Kredivo") to finance e-commerce purchases, pay bills, and secure personal loans. In July, VPC provided a USD$100 million senior secured credit facility and received penny-warrants exercisable into 1.0% of the fully diluted common equity of the company. FinAccel is one of the fastest growing Fintechs in Indonesia with two million active users and USD$50 million in monthly originations. In 2019, the company raised USD$90 million in Series C equity funding in round that was jointly led by Mirae Asset-Naver's Asia Growth Fund and Square Peg Capital, joining existing investors Jungle Ventures, Openspace Ventures and MDI Ventures.

v Heyday Technologies, Inc. ("Heyday"): Heyday is a tech-enabled company that seeks to acquire and aggregate a diverse portfolio of retail assets which are sold primarily via e-commerce marketplaces. In August, VPC closed on its investment in Heyday, consisting of a USD$150 million senior secured credit facility and investment into the Series A preferred stock. The credit facility will help to expand and grow Heyday's portfolio of third-party marketplace sellers backed by a diverse spectrum of cash flowing brands. The credit facility is secured by first priority lean on all of the brands and assets of the business.

v Laybuy Holdings Limited ("Laybuy"): Launched in 2017, Laybuy is New Zealand's leading buy now, pay later service partnering with over 4,500 retail merchants across the country, and is also available in the UK and Australia. Laybuy allows the customer to purchase and receive the item immediately and pay for the item in six equal weekly instalments with zero interest. As previously disclosed in the third quarter letter, VPC closed on a new GBP80 million facility with Laybuy to help grow their product in the UK. The investment comes with a warrant package that can be converted into common shares of Laybuy which, as of as of the writing of this letter, traded in Australia under the ticker LBY.

v PerchHQ LLC ("Perch"): Perch acquires winning consumer brands and uses its technology and operational expertise to drive growth through pricing strategy, advertising strategy, cost savings, supply chain efficiencies, and general Amazon account management optimisation. Perch was founded by CEO Chris Bell in October 2019 and is led by a team of former colleagues from Wayfair and Bain & Company. In July 2020, VPC closed on a USD$100 million senior secured credit facility with Perch. Perch is a technology-enabled platform that acquires and operates a diverse portfolio of Amazon third-party seller assets. As part of the transaction the Company received warrants in exchange for providing the credit facility.

v VPC Impact Acquisition Corp. ("VIH"): The Company was one of the sponsors of VIH, the first special purpose acquisition company ("SPAC") launched by VPC, which closed in September and trades on the Nasdaq under the tickers VIH and VIHAW. The SPAC entered into a definitive merger agreement with a high growth Fintech firm with a target valuation of USD$1-2 billion. VPC has an extensive deal sourcing network in the Fintech universe through its existing business and the SPAC was a natural way to capitalise on the network for the benefit of our shareholders. Through the sponsor entity of the SPAC, the Company owns 2,220,530 Class B Shares and 2,697,467 private placement warrants in VIH, held at an aggregate cost basis of USD$2,713,994. While the investment is relatively small for the Company, the economics of SPAC sponsorship are highly asymmetrical and if the SPAC was able to execute on a high-quality deal, this could potentially add meaningfully to the Company's returns over the next one to two years.

v Zip Co Limited ("Zip Money"): A leading provider of buy-now-pay-later ("BNPL") point-of-sale credit and digital payment services to consumers in Australia, New Zealand, U.S., UK and South Africa. VPC recently announced a second credit facility with listed Australian point of sale lender Zip Money, after having been previously refinanced from our first facility in 2017. This facility is for A$100 million and will help finance the growth of their small business working capital product, which was recently expanded through a joint venture with eBay.

GEARING AND CAPITAL MARKETS

The Company selectively employs gearing to enhance returns generated by the underlying credit assets. This is structured to limit the borrowings to individual SPVs that hold the assets and to ensure the gearing providers have no recourse to the Company. As the financial services industry continues to grow and become more established, VPC has been approached by multiple large global banks to offer the Company attractive gearing facilities. Given the breadth of VPC's portfolio, we believe the Company has a distinct competitive advantage in securing these gearing facilities at attractive rates.

At the beginning of 2020, the Company had a Look-Through Gearing Ratio of 0.38x and the Company finished the year with a Look-Through Gearing Ratio of 0.32x. During the year, we slightly reduced the overall gearing exposure of the Company as trough the COVID-19 pandemic, VPC took a more conservative approach to liquidity and risk management with the gearing facilities.

After year end, the Company closed on a USD$130 million gearing facility with Massachusetts Mutual Life Insurance Company ("MassMutual"). At the closing, the Company drew USD$80 million which was used to repay the Company's previous gearing facility with Pacific Western Bank and the first-out participation facility on Avant, held with Axos Bank. After the closing of the facility, the pro-forma look-through gearing ratio increased slightly to 0.33x from 0.32x as at 31 December 2020. The MassMutual facility was negotiated with terms including a three-year revolving period, an interest rate lower than that of the previous facility, and an option to upsize the facility from USD$130 million to USD$200 million and a six-year maturity.

OUTLOOK

We are proud of the investment portfolio returns and risk profile, especially in the current economic environment. While we often discuss the underlying credit performance of our balance-sheet investments, it is also important to emphasise that we have additional layers of protection beyond our direct asset security. Due to the structured nature of our balance-sheet investments, including (in most cases) corporate guarantees and significant first-loss protection, our investments are generally not affected by changes in credit performance until a platform defaults and all corporate resources (separate from our borrowing base of loan collateral) are exhausted. In addition to monitoring the credit performance, we monitor the overall corporate performance of our Portfolio Companies, including attending board meetings as an observer and having weekly update calls with management.

As we navigate through uncertainty caused by COVID-19 pandemic, we continue to exercise caution on the macro front by structuring our portfolios with the goal to perform in any economic environment. We structure and underwrite our investments with a focus on downside protection in addition to stress-testing our collateral across various scenarios. From a purely macroeconomic standpoint, we continue to believe that our current portfolio's main advantages include the floating rate, shorter duration and fully amortising underlying collateral. Specifically, the weighted average duration of VPC's underlying collateral as of year-end was less than one year. We believe that duration is a misunderstood risk, which has been added to fixed income portfolios in recent years as interest rates have come down and borrowers have looked to lock in long duration fixed rate credit.

Recently, we have seen demand divergence between the e-commerce purchase finance subset (sometimes referred to as "Buy Now, Pay Later") of our portfolio from other types of receivables that we finance. To capitalise on this, we focused our recent pipeline efforts on executing additional transactions in this sector as it meets all our desired credit expectations and there is a clear need for credit from prospective portfolio companies. This is highlighted by a few of the new investments made in 2020 that were summarised within this report.

We continue to look for and identify other trends that can create either risk in our existing portfolio or opportunities for additional investments in the future. In our opinion, the dramatic efforts taken by governments and central banks globally helped economic opportunities around the world, especially in the U.S. However, we believe that the government support and stimulus will eventually taper off, and although the next steps remain unclear, a volatile future over the medium-term seems likely. We will continue to cautiously deploy capital and at this point we believe the portfolio is well positioned to withstand future changes to come this year and next.

We are pleased to have completed another year with a fully covered dividend of 8.00p and double-digit total NAV returns, despite the ongoing COVID-19 pandemic. In addition, the Company is well positioned to continue to deliver consistent returns as VPC executed on eight new balance sheet transactions with a total capacity of USD$600 million during 2020 and has a strong pipeline of potential new investments. The interest rates on these facilities are in line with our current portfolio and we anticipate stable revenue returns. In addition, we remain optimistic about future capital gains through our equity portfolio and SPAC sponsorship. The arrival of several vaccines and their rapid deployment around the world has us optimistic that the world will slowly open over the coming months. We also believe that the risks of another severe employment shock are receding. We continue to monitor risk very closely and do our best to make sure the portfolio can perform regardless of the economic environment.

Victory Park Capital Advisors, LLC

Investment Manager

28 April 2021

NON-STATUTORY ACCOUNTS

The financial information set out below does not constitute the Company's statutory accounts for the year ended 31 December 2020 but is derived from those accounts. Statutory accounts for the year ended 31 December 2020 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 2020 
                                                                    31 DECEMBER                      31 DECEMBER 
                                                                           2020                             2019 
                                           NOTES                            GBP                              GBP 
========================================  ==========  =========================  =============================== 
 
 Assets 
========================================  ==========  =========================  =============================== 
 Cash and cash equivalents                         7                  6,416,028                        6,131,122 
========================================  ==========  =========================  =============================== 
 Cash posted as collateral                         7                  1,140,000                          980,000 
========================================  ==========  =========================  =============================== 
 Derivative financial assets                     3,4                  5,758,880                        3,985,365 
========================================  ==========  =========================  =============================== 
 Interest receivable                                                  3,613,047                        5,230,350 
========================================  ==========  =========================  =============================== 
 Dividend and distribution receivable                                     3,812                           19,372 
========================================  ==========  =========================  =============================== 
 Other assets and prepaid expenses                                      889,148                          894,157 
========================================  ==========  =========================  =============================== 
 Loans at amortised cost                         3,9                293,123,379                      352,910,880 
========================================  ==========  =========================  =============================== 
 Investment assets designated as held 
  at fair value through profit or loss             3                 51,417,983                       42,502,134 
========================================  ==========  =========================  =============================== 
 Total assets                                                       362,362,277                      412,653,380 
----------------------------------------  ----------  -------------------------  ------------------------------- 
 
 Liabilities 
========================================  ==========  =========================  =============================== 
 Management fee payable                           10                     92,241                          143,415 
========================================  ==========  =========================  =============================== 
 Performance fee payable                          10                  4,040,085                        7,410,614 
========================================  ==========  =========================  =============================== 
 Unsettled share buyback payable                                              -                           52,506 
========================================  ==========  =========================  =============================== 
 Deferred income                                                        253,403                          490,322 
========================================  ==========  =========================  =============================== 
 Other liabilities and accrued expenses                               1,332,920                        1,349,263 
========================================  ==========  =========================  =============================== 
 Notes payable                                     8                 86,087,183                      111,667,069 
 Total liabilities                                                   91,805,832                      121,113,189 
----------------------------------------  ----------  -------------------------  ------------------------------- 
 
 Total assets less total liabilities                                270,556,445                      291,540,191 
----------------------------------------  ----------  -------------------------  ------------------------------- 
 
 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                116,520,960                      136,682,176 
========================================  ==========  =========================  =============================== 
 Capital reserve                                                   (50,393,578)                     (49,374,355) 
========================================  ==========  =========================  =============================== 
 Revenue reserve                                                     21,847,960                       21,623,852 
========================================  ==========  =========================  =============================== 
 Currency translation reserve                                         1,221,766                        1,207,578 
========================================  ==========  =========================  =============================== 
 
 Total equity attributable to shareholders of 
  the Parent Company                                                270,537,108                      291,479,251 
----------------------------------------------------  -------------------------  ------------------------------- 
 
 Non-controlling interests                        18                     19,337                           60,940 
 Total equity                                                       270,556,445                      291,540,191 
----------------------------------------  ----------  -------------------------  ------------------------------- 
 
 Net Asset Value per Ordinary Share               12                     95.72p                           93.33p 
========================================  ==========  =========================  =============================== 
 
 

The financial statements on pages 44 to 50 were approved by the Board of Directors on 28 April 2021 and signed on its behalf by:

 
 Kevin Ingram 
 Chair 
 28 April 2021 
 
 
 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 
 FOR THE YEARED 31 DECEMBER 
  2020 
                                                                                           REVENUE                                            CAPITAL                         TOTAL 
                                                              NOTES                            GBP                                                GBP                           GBP 
===========================================================  ======  =============================  =================================================  ============================ 
 Revenue 
===========================================================  ======  =============================  =================================================  ============================ 
 Net gain (loss) on investments                                   5                              -                                          1,845,962                     1,845,962 
===========================================================  ======  =============================  =================================================  ============================ 
 Foreign exchange gain (loss)                                                                    -                                        (2,970,304)                   (2,970,304) 
===========================================================  ======  =============================  =================================================  ============================ 
 Interest income                                                  5                     35,454,974                                            524,984                    35,979,958 
===========================================================  ======  =============================  =================================================  ============================ 
 Other income                                                     5                      5,799,767                                                  -                     5,799,767 
 Total return                                                                           41,254,741                                          (599,358)                    40,655,383 
-----------------------------------------------------------  ------  -----------------------------  -------------------------------------------------  ---------------------------- 
 
 Expenses 
===========================================================  ======  =============================  =================================================  ============================ 
 Management fee                                                  10                      3,394,740                                                  -                     3,394,740 
===========================================================  ======  =============================  =================================================  ============================ 
 Performance fee                                                 10                      4,040,085                                                  -                     4,040,085 
===========================================================  ======  =============================  =================================================  ============================ 
 Credit impairment losses                                         9                              -                                            112,550                       112,550 
===========================================================  ======  =============================  =================================================  ============================ 
 Other expenses                                                  10                      2,313,540                                            232,265                     2,545,805 
 Total operating expenses                                                                9,748,365                                            344,815                    10,093,180 
-----------------------------------------------------------  ------  -----------------------------  -------------------------------------------------  ---------------------------- 
 
 Finance costs                                                                           7,607,524                                                  -                     7,607,524 
-----------------------------------------------------------  ------  -----------------------------  -------------------------------------------------  ---------------------------- 
 
 Net return on ordinary activities 
  before taxation                                                                       23,898,852                                          (944,173)                    22,954,679 
===========================================================  ======  =============================  =================================================  ============================ 
 
 Taxation on ordinary activities                                 11                              -                                                  -                             - 
-----------------------------------------------------------  ------  -----------------------------  -------------------------------------------------  ---------------------------- 
 
 Net return on ordinary activities 
  after taxation                                                                        23,898,852                                          (944,173)                    22,954,679 
-----------------------------------------------------------  ------  -----------------------------  -------------------------------------------------  ---------------------------- 
 
 Attributable to: 
===========================================================  ======  =============================  =================================================  ============================ 
  Equity shareholders                                                                   23,898,852                                        (1,019,223)                    22,879,629 
===========================================================  ======  =============================  =================================================  ============================ 
  Non-controlling interests                                      18                              -                                             75,050                        75,050 
===========================================================  ======  =============================  =================================================  ============================ 
 
 Return per Ordinary Share (basic 
  and diluted)                                                   13                          8.08p                                             -0.34p                         7.74p 
-----------------------------------------------------------  ------  -----------------------------  -------------------------------------------------  ---------------------------- 
 
 Other comprehensive income 
===========================================================  ======  =============================  =================================================  ============================ 
 Currency translation differences                                                                -                                             21,443                        21,443 
-----------------------------------------------------------  ------  -----------------------------  -------------------------------------------------  ---------------------------- 
 
 Total comprehensive income                                                             23,898,852                                          (922,730)                    22,976,122 
-----------------------------------------------------------  ------  -----------------------------  -------------------------------------------------  ---------------------------- 
 
 Attributable to: 
===========================================================  ======  =============================  =================================================  ============================ 
  Equity shareholders                                                                   23,898,852                                        (1,005,035)                    22,893,817 
===========================================================  ======  =============================  =================================================  ============================ 
  Non-controlling interests                                      18                              -                                             82,305                        82,305 
===========================================================  ======  =============================  =================================================  ============================ 
 
 
 The total column of this statement represents the Group's statement 
  of comprehensive income, prepared in accordance with 
  international accounting standards in conformity with the requirements 
  of the Companies Act 2006 and also international financial reporting 
  standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies 
  in the European Union. 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 2019 
                                                                                           REVENUE                                            CAPITAL                         TOTAL 
                                        NOTES                                                  GBP                                                GBP                           GBP 
=====================================  ====================  =====================================  =================================================  ============================ 
 Revenue 
=====================================  ====================  =====================================  =================================================  ============================ 
 Net gain (loss) on investments                           5                                      -                                          5,736,103                     5,736,103 
=====================================  ====================  =====================================  =================================================  ============================ 
 Foreign exchange gain (loss)                                                                    -                                        (4,998,319)                   (4,998,319) 
=====================================  ====================  =====================================  =================================================  ============================ 
 Interest income                                          5                             43,342,988                                            504,443                    43,847,431 
=====================================  ====================  =====================================  =================================================  ============================ 
 Other income                                             5                              3,315,944                                                  -                     3,315,944 
 Total return                                                                           46,658,932                                          1,242,227                    47,901,159 
-------------------------------------  --------------------  -------------------------------------  -------------------------------------------------  ---------------------------- 
 
 Expenses 
=====================================  ====================  =====================================  =================================================  ============================ 
 Management fee                                          10                              3,604,121                                                  -                     3,604,121 
=====================================  ====================  =====================================  =================================================  ============================ 
 Performance fee                                         10                              7,411,745                                                  -                     7,411,745 
=====================================  ====================  =====================================  =================================================  ============================ 
 Credit impairment losses                                 9                                      -                                          2,402,296                     2,402,296 
=====================================  ====================  =====================================  =================================================  ============================ 
 Other expenses                                          10                              2,094,282                                            251,749                     2,346,031 
 Total operating expenses                                                               13,110,148                                          2,654,045                    15,764,193 
-------------------------------------  --------------------  -------------------------------------  -------------------------------------------------  ---------------------------- 
 
 Finance costs                                                                           6,493,790                                                  -                     6,493,790 
-------------------------------------  --------------------  -------------------------------------  -------------------------------------------------  ---------------------------- 
 
 Net return on ordinary activities 
  before taxation                                                                       27,054,994                                        (1,411,818)                    25,643,176 
=====================================  ====================  =====================================  =================================================  ============================ 
 
 Taxation on ordinary activities                         11                                      -                                                  -                             - 
-------------------------------------  --------------------  -------------------------------------  -------------------------------------------------  ---------------------------- 
 
 Net return on ordinary activities 
  after taxation                                                                        27,054,994                                        (1,411,818)                    25,643,176 
-------------------------------------  --------------------  -------------------------------------  -------------------------------------------------  ---------------------------- 
 
 Attributable to: 
=====================================  ====================  =====================================  =================================================  ============================ 
  Equity shareholders                                                                   27,054,994                                        (1,591,019)                    25,463,975 
=====================================  ====================  =====================================  =================================================  ============================ 
  Non-controlling interests                              18                                      -                                            179,201                       179,201 
=====================================  ====================  =====================================  =================================================  ============================ 
 
 Return per Ordinary Share (basic 
  and diluted)                                           13                                  8.11p                                             -0.48p                         7.63p 
-------------------------------------  --------------------  -------------------------------------  -------------------------------------------------  ---------------------------- 
 
 Other comprehensive income 
=====================================  ====================  =====================================  =================================================  ============================ 
 Currency translation differences                                                                -                                           (56,156)                      (56,156) 
-------------------------------------  --------------------  -------------------------------------  -------------------------------------------------  ---------------------------- 
 
 Total comprehensive income                                                             27,054,994                                        (1,467,974)                    25,587,020 
-------------------------------------  --------------------  -------------------------------------  -------------------------------------------------  ---------------------------- 
 
 Attributable to: 
=====================================  ====================  =====================================  =================================================  ============================ 
  Equity shareholders                                                                   27,054,994                                        (1,631,908)                    25,423,086 
=====================================  ====================  =====================================  =================================================  ============================ 
  Non-controlling interests                              18                                      -                                            163,934                       163,934 
=====================================  ====================  =====================================  =================================================  ============================ 
 
 
 The total column of this statement represents the Group's statement 
  of comprehensive income, prepared in accordance with 
  international accounting standards in conformity with the requirements 
  of the Companies Act 2006 and also international financial reporting 
  standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies 
  in the European Union. 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 2020 
                               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 
  at 
  1 January 2020           20,300,000           161,040,000                            136,682,176            (49,374,355)                 21,623,852                     1,207,578                 291,479,251                   60,940           291,540,191 
=================  ==================  ====================  =====================================  ======================  =========================  ============================  ==========================  =======================  ==================== 
 Amounts paid 
  on buyback of 
  Ordinary Shares                   -                     -                           (20,161,216)                       -                          -                             -                (20,161,216)                        -          (20,161,216) 
=================  ==================  ====================  =====================================  ======================  =========================  ============================  ==========================  =======================  ==================== 
 Contributions 
 by 
 non-controlling 
 interests                          -                     -                                      -                       -                          -                             -                           -                        -                     - 
=================  ==================  ====================  =====================================  ======================  =========================  ============================  ==========================  =======================  ==================== 
 Distributions 
  to 
  non-controlling 
  interests                         -                     -                                      -                       -                          -                             -                           -                (123,908)             (123,908) 
=================  ==================  ====================  =====================================  ======================  =========================  ============================  ==========================  =======================  ==================== 
 Return on 
  ordinary 
  activities 
  after 
  taxation                          -                     -                                      -             (1,019,223)                 23,898,852                             -                  22,879,629                   75,050            22,954,679 
=================  ==================  ====================  =====================================  ======================  =========================  ============================  ==========================  =======================  ==================== 
 Dividends 
  declared 
  and paid                          -                     -                                      -                       -               (23,674,744)                             -                (23,674,744)                        -          (23,674,744) 
-----------------  ------------------  --------------------  -------------------------------------  ----------------------  -------------------------  ----------------------------  --------------------------  -----------------------  -------------------- 
 
 Other 
 comprehensive 
 income 
=================  ==================  ====================  =====================================  ======================  =========================  ============================  ==========================  =======================  ==================== 
 Currency 
  translation 
  differences                       -                     -                                      -                       -                          -                        14,188                      14,188                    7,255                21,443 
-----------------  ------------------  --------------------  -------------------------------------  ----------------------  -------------------------  ----------------------------  --------------------------  -----------------------  -------------------- 
 Closing balance 
  at 
  31 December 
  2020                     20,300,000           161,040,000                            116,520,960            (50,393,578)                 21,847,960                     1,221,766                 270,537,108                   19,337           270,556,445 
-----------------  ------------------  --------------------  -------------------------------------  ----------------------  -------------------------  ----------------------------  --------------------------  -----------------------  -------------------- 
 
 
 
 

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 2019 
                               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 
  at 
  1 January 2019           20,300,000           161,040,000                171,731,558         (47,783,336)           21,196,678               1,248,467                 327,733,367                  246,346           327,979,713 
=================  ==================  ====================  =========================  ===================  ===================  ======================  ==========================  =======================  ==================== 
 Amounts paid 
  on buyback of 
  Ordinary Shares                   -                     -               (35,049,382)                    -                    -                       -                (35,049,382)                        -          (35,049,382) 
=================  ==================  ====================  =========================  ===================  ===================  ======================  ==========================  =======================  ==================== 
 Contributions 
 by 
 non-controlling 
 interests                          -                     -                          -                    -                    -                       -                           -                        -                     - 
=================  ==================  ====================  =========================  ===================  ===================  ======================  ==========================  =======================  ==================== 
 Distributions 
  to 
  non-controlling 
  interests                         -                     -                          -                    -                    -                       -                           -                (349,340)             (349,340) 
=================  ==================  ====================  =========================  ===================  ===================  ======================  ==========================  =======================  ==================== 
 Return on 
  ordinary 
  activities 
  after 
  taxation                          -                     -                          -          (1,591,019)           27,054,994                       -                  25,463,975                  179,201            25,643,176 
=================  ==================  ====================  =========================  ===================  ===================  ======================  ==========================  =======================  ==================== 
 Dividends 
  declared 
  and paid                          -                     -                          -                    -         (26,627,820)                       -                (26,627,820)                        -          (26,627,820) 
-----------------  ------------------  --------------------  -------------------------  -------------------  -------------------  ----------------------  --------------------------  -----------------------  -------------------- 
 
 Other 
 comprehensive 
 income 
=================  ==================  ====================  =========================  ===================  ===================  ======================  ==========================  =======================  ==================== 
 Currency 
  translation 
  differences                       -                     -                          -                    -                    -                (40,889)                    (40,889)                 (15,267)              (56,156) 
-----------------  ------------------  --------------------  -------------------------  -------------------  -------------------  ----------------------  --------------------------  -----------------------  -------------------- 
 Closing balance 
  at 
  31 December 
  2019                     20,300,000           161,040,000                136,682,176         (49,374,355)           21,623,852               1,207,578                 291,479,251                   60,940           291,540,191 
-----------------  ------------------  --------------------  -------------------------  -------------------  -------------------  ----------------------  --------------------------  -----------------------  -------------------- 
 
 

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 2020 
                                                                            31 DECEMBER                  31 DECEMBER 
                                                                                   2020                         2019 
                                                 NOTES                              GBP                          GBP 
==============================================  ======  ===============================  =========================== 
 Cash flows from operating activities: 
==============================================  ======  ===============================  =========================== 
 Total comprehensive income                                                  22,976,122                   25,587,020 
==============================================  ======  ===============================  =========================== 
 Adjustments for: 
==============================================  ======  ===============================  =========================== 
 - Interest income                                                         (35,979,958)                 (43,847,431) 
==============================================  ======  ===============================  =========================== 
 - Dividend and distribution income                  5                      (5,799,767)                  (3,315,944) 
==============================================  ======  ===============================  =========================== 
 - Finance costs                                                              7,607,524                    6,493,790 
==============================================  ======  ===============================  =========================== 
 - Exchange losses                                                            2,970,304                    4,998,319 
----------------------------------------------  ------ 
 Total                                                                      (8,225,775)                 (10,084,246) 
----------------------------------------------  ------  -------------------------------  --------------------------- 
 
 Gain on investment assets designated as 
  held at fair value through profit or loss                                 (1,845,962)                  (5,736,103) 
==============================================  ======  ===============================  =========================== 
 (Gain) loss on derivative financial 
  instruments                                                               (1,402,050)                    1,538,401 
==============================================  ======  ===============================  =========================== 
 Decrease (increase) in other assets and 
  prepaid expenses                                                                5,009                    (121,408) 
==============================================  ======  ===============================  =========================== 
 Decrease in management fee payable                                            (51,174)                      (9,886) 
==============================================  ======  ===============================  =========================== 
 (Decrease) increase in performance fee 
  payable                                                                   (3,370,529)                    5,133,399 
==============================================  ======  ===============================  =========================== 
 Decrease in deferred income                                                  (236,919)                     (54,263) 
==============================================  ======  ===============================  =========================== 
 Decrease in accrued expenses and other 
  liabilities                                                                 (458,591)                    (213,289) 
==============================================  ======  ===============================  =========================== 
 Interest received                                                           37,597,261                   42,093,734 
==============================================  ======  ===============================  =========================== 
 Purchase of loans                                                        (105,292,885)                (200,508,718) 
==============================================  ======  ===============================  =========================== 
 Redemption or sale of loans                                                160,405,704                  139,390,856 
==============================================  ======  ===============================  =========================== 
 Impairment of loans                                                            112,550                    2,402,296 
----------------------------------------------  ------ 
 Net cash inflow (outflow) from operating 
  activities                                                                 77,236,639                 (26,169,227) 
----------------------------------------------  ------  -------------------------------  --------------------------- 
 
 Cash flows from investing activities: 
==============================================  ======  ===============================  =========================== 
 Investment income received                                                   5,815,327                    3,915,612 
==============================================  ======  ===============================  =========================== 
 Purchase of investment assets designated 
  as held at fair value through profit 
  or loss                                                                  (16,671,467)                 (12,961,327) 
==============================================  ======  ===============================  =========================== 
 Sale of investment assets designated 
  as held at fair value through profit 
  or loss                                                                     8,538,783                   41,016,344 
==============================================  ======  ===============================  =========================== 
 (Decrease) increase of cash posted as 
  collateral                                                                  (160,000)                    1,302,428 
----------------------------------------------  ------  -------------------------------  --------------------------- 
 Net cash (outflow) inflow from investing 
  activities                                                                (2,477,357)                   33,273,057 
----------------------------------------------  ------  -------------------------------  --------------------------- 
 
 Cash flows from financing activities: 
==============================================  ======  ===============================  =========================== 
 Dividends distributed                                                     (23,674,744)                 (26,627,820) 
==============================================  ======  ===============================  =========================== 
 Treasury shares repurchased                                               (20,213,722)                 (34,996,876) 
==============================================  ======  ===============================  =========================== 
 Distributions to non-controlling interests                                   (123,908)                    (349,340) 
==============================================  ======  ===============================  =========================== 
 Decrease in amounts payable under agreements 
  to repurchase                                                                       -                  (1,335,644) 
==============================================  ======  ===============================  =========================== 
 (Decrease) increase in note payable                                       (23,502,528)                   64,925,378 
==============================================  ======  ===============================  =========================== 
 Finance costs paid                                                         (7,165,276)                  (5,920,853) 
----------------------------------------------  ------  -------------------------------  --------------------------- 
 Net cash outflow from financing activities                                (74,680,178)                  (4,305,155) 
----------------------------------------------  ------  -------------------------------  --------------------------- 
 
 Net change in cash and cash equivalents                                         79,104                    2,798,675 
==============================================  ======  ===============================  =========================== 
 Exchange gains on cash and cash equivalents                                    205,802                       63,115 
==============================================  ======  ===============================  =========================== 
 Cash and cash equivalents at the beginning 
  of the period                                                               6,131,122                    3,269,332 
----------------------------------------------  ------ 
 Cash and cash equivalents at the end 
  of the period                                  7                            6,416,028                    6,131,122 
----------------------------------------------  ------  -------------------------------  --------------------------- 
 
 
 
 PARENT COMPANY STATEMENT OF FINANCIAL POSITION 
 AS AT 31 DECEMBER 2020 
 
                                                                         31 DECEMBER                    31 DECEMBER 
                                                                                2020                           2019 
                                               NOTES                             GBP                            GBP 
 Assets 
============================================  ======  ==============================  ============================= 
 Cash and cash equivalents                         7                       4,738,217                      3,970,690 
============================================  ======  ==============================  ============================= 
 Cash posted as collateral                         7                       1,140,000                        980,000 
============================================  ======  ==============================  ============================= 
 Derivative financial assets                     3,4                       5,758,880                      3,985,365 
============================================  ======  ==============================  ============================= 
 Interest receivable                                                       3,173,686                      4,663,930 
============================================  ======  ==============================  ============================= 
 Other current assets and prepaid expenses                                   889,148                        667,554 
============================================  ======  ==============================  ============================= 
 Investments in subsidiaries                      17                     250,042,768                    270,730,548 
============================================  ======  ==============================  ============================= 
 Investment assets designated as held 
  at fair value through profit or loss             3                       2,522,366                      4,461,946 
--------------------------------------------  ------  ------------------------------  ----------------------------- 
 Total assets                                                            268,265,065                    289,460,033 
--------------------------------------------  ------  ------------------------------  ----------------------------- 
 Liabilities 
============================================  ======  ==============================  ============================= 
 Performance fee payable                          10                       4,040,085                      7,410,614 
============================================  ======  ==============================  ============================= 
 Management fee payable                           10                          92,241                        143,415 
============================================  ======  ==============================  ============================= 
 Unsettled share buyback payable                                                   -                         52,506 
============================================  ======  ==============================  ============================= 
 Deferred income                                                             253,403                        490,322 
============================================  ======  ==============================  ============================= 
 Other liabilities and accrued expenses                                      790,994                        618,605 
                                              ====== 
 Total liabilities                                                         5,176,723                      8,715,462 
--------------------------------------------  ------  ------------------------------  ----------------------------- 
 Total assets less total liabilities                                     263,088,342                    280,744,571 
--------------------------------------------  ------  ------------------------------  ----------------------------- 
 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                     116,520,960                    136,682,176 
============================================  ======  ==============================  ============================= 
 Capital reserve                                                        (56,620,579)                   (58,901,458) 
============================================  ======  ==============================  ============================= 
 Revenue reserve                                                          21,847,961                     21,623,853 
 Total equity                                                            263,088,342                    280,744,571 
--------------------------------------------  ------  ------------------------------  ----------------------------- 
 
 Net return on ordinary activities 
  after taxation                                                          26,179,731                     28,475,350 
--------------------------------------------  ------  ------------------------------  ----------------------------- 
 
 
 The financial statements on pages 51 to 54 were approved by the Board 
  of Directors on 28 April 2021 and signed on its behalf by: 
 
 Kevin Ingram 
 Chair 
 28 April 2021 
 PARENT COMPANY STATEMENT OF CHANGES IN EQUITY 
 FOR THE YEARED 31 
 DECEMBER 
 2020 
 
                             CALLED-UP                      SHARE                      OTHER 
                                 SHARE                    PREMIUM              DISTRIBUTABLE                   CAPITAL                   REVENUE 
                               CAPITAL                    ACCOUNT                    RESERVE                   RESERVE                   RESERVE                  TOTAL 
                                   GBP                        GBP                        GBP                       GBP                       GBP                    GBP 
 Opening 
  balance at 
  1 January 
  2020                      20,300,000                161,040,000                136,682,176              (58,901,458)                21,623,853            280,744,571 
=============  =======================  =========================  =========================  ========================  ========================  ===================== 
 Amounts paid 
  on 
  repurchase 
  of Ordinary 
  Shares                             -                          -               (20,161,216)                         -                         -           (20,161,216) 
=============  =======================  =========================  =========================  ========================  ========================  ===================== 
 Return on 
  ordinary 
  activities 
  after 
  taxation                           -                          -                          -                 2,280,879                23,898,852             26,179,731 
=============  =======================  =========================  =========================  ========================  ========================  ===================== 
 Dividends 
  declared 
  and paid                           -                          -                          -                         -              (23,674,744)           (23,674,744) 
-------------  -----------------------  -------------------------  -------------------------  ------------------------  ------------------------  --------------------- 
 Closing 
  balance at 
  31 December 
  2020                      20,300,000                161,040,000                116,520,960              (56,620,579)                21,847,961            263,088,342 
-------------  -----------------------  -------------------------  -------------------------  ------------------------  ------------------------  --------------------- 
 
 
 PARENT COMPANY STATEMENT OF CHANGES IN EQUITY 
 FOR THE YEARED 31 DECEMBER 2019 
                             CALLED-UP                      SHARE                      OTHER 
                                 SHARE                    PREMIUM              DISTRIBUTABLE                   CAPITAL                   REVENUE 
                               CAPITAL                    ACCOUNT                    RESERVE                   RESERVE                   RESERVE                  TOTAL 
                                   GBP                        GBP                        GBP                       GBP                       GBP                    GBP 
 Opening 
  balance at 
  1 January 
  2019                      20,300,000                161,040,000                171,731,558              (60,321,814)                21,196,679            313,946,423 
=============  =======================  =========================  =========================  ========================  ========================  ===================== 
 Amounts paid 
  on 
  repurchase 
  of Ordinary 
  Shares                             -                          -               (35,049,382)                         -                         -           (35,049,382) 
=============  =======================  =========================  =========================  ========================  ========================  ===================== 
 Return on 
  ordinary 
  activities 
  after 
  taxation                           -                          -                          -                 1,420,356                27,054,994             28,475,350 
=============  =======================  =========================  =========================  ========================  ========================  ===================== 
 Dividends 
  declared 
  and paid                           -                          -                          -                         -              (26,627,820)           (26,627,820) 
-------------  -----------------------  -------------------------  -------------------------  ------------------------  ------------------------  --------------------- 
 Closing 
  balance at 
  31 December 
  2019                      20,300,000                161,040,000                136,682,176              (58,901,458)                21,623,853            280,744,571 
-------------  -----------------------  -------------------------  -------------------------  ------------------------  ------------------------  --------------------- 
 
 
 PARENT COMPANY STATEMENT OF CASH FLOWS 
 FOR THE YEARED 31 DECEMBER 2020 
 
                                                                          31 DECEMBER                    31 DECEMBER 
                                                                                 2020                           2019 
                                                NOTES                             GBP                            GBP 
 Cash flows from operating activities: 
=============================================  ======  ==============================  ============================= 
 Net return on ordinary activities after 
  taxation                                                                 26,179,731                     28,475,350 
=============================================  ======  ==============================  ============================= 
 Adjustments for: 
=============================================  ======  ==============================  ============================= 
 -- Interest income                                                      (35,842,688)                   (42,779,734) 
=============================================  ======  ==============================  ============================= 
 -- Exchange (gains) losses                                                 (315,612)                      1,946,055 
---------------------------------------------  ------  ------------------------------  ----------------------------- 
 Total                                                                    (9,978,569)                   (12,358,329) 
---------------------------------------------  ------  ------------------------------  ----------------------------- 
 Unrealised loss on investment assets 
  designated as held at fair value through 
  profit or loss                                                              563,327                        459,940 
=============================================  ======  ==============================  ============================= 
 Unrealised (gain) loss on investments 
  in subsidiaries                                                         (2,267,912)                        514,861 
=============================================  ======  ==============================  ============================= 
 Unrealised gain on derivative financial 
  assets                                                                  (1,773,515)                    (2,743,429) 
=============================================  ======  ==============================  ============================= 
 Unrealised loss on derivative financial 
  liabilities                                                                       -                      (471,607) 
=============================================  ======  ==============================  ============================= 
 Increase in other assets and prepaid 
  expenses                                                                  (221,594)                      (221,048) 
=============================================  ======  ==============================  ============================= 
 Decrease in management fee payable                                          (51,174)                        (9,886) 
=============================================  ======  ==============================  ============================= 
 (Decrease) increase in performance fee 
  payable                                                                 (3,370,529)                      5,133,399 
=============================================  ======  ==============================  ============================= 
 Decrease in deferred income                                                (236,919)                       (54,263) 
=============================================  ======  ==============================  ============================= 
 Increase in accrued expenses and other 
  liabilities                                                                 172,389                        128,262 
---------------------------------------------  ------  ------------------------------  ----------------------------- 
 Net cash outflow from operating activities                              (17,164,496)                    (9,622,100) 
---------------------------------------------  ------  ------------------------------  ----------------------------- 
 Cash flows from investing activities: 
=============================================  ======  ==============================  ============================= 
 Interest received                                                         37,332,932                     41,920,330 
=============================================  ======  ==============================  ============================= 
 Purchase of investment assets designated 
  as held at fair value through profit 
  or loss                                                                           -                      (539,406) 
=============================================  ======  ==============================  ============================= 
 Sale of investment assets designated 
  as held at fair value through profit 
  or loss                                                                   1,376,253                     23,540,339 
=============================================  ======  ==============================  ============================= 
 Purchase of investments in subsidiaries                                 (80,568,889)                   (61,442,484) 
=============================================  ======  ==============================  ============================= 
 Sales of investment in subsidiaries                                      103,634,391                     68,521,643 
=============================================  ======  ==============================  ============================= 
 Cash posted as collateral                                                  (160,000)                      1,302,428 
 Net cash inflow from investing activities                                 61,614,687                     73,302,850 
---------------------------------------------  ------  ------------------------------  ----------------------------- 
 Cash flows from financing activities 
=============================================  ======  ==============================  ============================= 
 Treasury Shares repurchased                                             (20,213,722)                   (34,996,876) 
=============================================  ======  ==============================  ============================= 
 Dividends paid                                                          (23,674,744)                   (26,627,820) 
=============================================  ======  ==============================  ============================= 
 Net cash outflow from financing activities                              (43,888,466)                   (61,624,696) 
---------------------------------------------  ------  ------------------------------  ----------------------------- 
 Net change in cash and cash equivalents                                      561,725                      2,056,054 
=============================================  ======  ==============================  ============================= 
 Exchange gains on cash and cash equivalents                                  205,802                        110,573 
=============================================  ======  ==============================  ============================= 
 Cash and cash equivalents as the beginning 
  of the period                                                             3,970,690                      1,804,063 
---------------------------------------------  ------  ------------------------------  ----------------------------- 
 Cash and cash equivalents at the end 
  of the period                                     7                       4,738,217                      3,970,690 
---------------------------------------------  ------  ------------------------------  ----------------------------- 
 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARED 31 DECEMBER 2020

   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 2020, the Parent Company had equity in the form of 382,615,665 Ordinary Shares, 282,647,364 Ordinary Shares in issue and 99,968,301 Ordinary Shares in Treasury (31 December 2019: 382,615,665 Ordinary Shares, 312,302,305 Ordinary Shares in issue and 70,313,360 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.

Northern Trust Hedge Fund Services LLC (the "Administrator") has been appointed as 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 2020. The consolidated financial statements are prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and also international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. The financial statements have been prepared on the historical cost basis except for the modification to a fair value basis for certain financial instruments as specified in the accounting policies below. The financial statements are also in compliance with relevant provisions of the Companies Act 2006.

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 economic disruption caused by the COVID-19 pandemic. 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.

As a part of the continuation vote held at the 2020 AGM, the Directors resolved to apply the following condition ahead of the 2021 AGM:

The Directors will propose an ordinary resolution to approve the continuation of the Parent Company as an investment company at the Parent Company's AGM in 2021 if the Parent Company's NAV (Cum Income) Return (calculated as set out in the Parent Company's annual report and financial statements) for the period from 1 April 2020 to 31 March 2021 is less than 4%. If the resolution is not passed the Directors will, within three months of the date of the resolution, put forward proposals to shareholders to the effect that the Parent Company be wound up, liquidated or unitised.

The Directors do not believe this resolution should automatically trigger the adoption of a basis other than going concern in line with the Association of Investment Companies ("AIC") Statement of Recommended Practice ("SORP") which states that it is more appropriate to prepare financial statements on a going concern basis unless a continuation vote has already been triggered and shareholders have voted against continuation.

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.

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 basis 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

Investments in subsidiaries are carried at cost less impairment. The Parent Company assesses at each balance sheet date whether, as a result of one or more events that occurred after initial recognition, there is objective evidence that investments in subsidiaries are impaired. Investments in subsidiaries are non-monetary items and therefore the costs of investment in currencies other than Pound Sterling are translated to at the rate of exchange ruling on the date the investment is made. The total net asset value shown on the Parent Company Statement of Financial Position is therefore lower than the consolidated net asset value shown for the Group by GBP4,886,897 as at 31 December 2020 (31 December 2019: lower than by GBP10,734,680) as a result of the exchange rate translation.

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 return on ordinary activities after taxation of the Parent Company was GBP26,179,731 (31 December 2019: GBP28,475,350).

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. All operating expenses of the Parent Company are charged to revenue as the current expectation is that the majority of the Group and Parent Company's return will be generated through revenue rather than capital gains on investments.

At 31 December 2020, no management fees (31 December 2019: GBPnil) have been charged to the capital return of the Group. No management or performance fees were charged to capital at the Parent Company. 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 at a given level of delinquency are assessed based on (a) an analysis of loan collateral and credit enhancement (for collateralised balance sheet investments), and (b) historical roll rates on the marketplace loans (marketplace loans). 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 (a) collateral and credit enhancement become diminished or impaired (for collateralised balance sheet investments), or (b) loans progress to more advanced stages of delinquency (marketplace loans) as more payments are missed and are calculated based on historical performance of similar loans within the Group's investment portfolio. As loans progress through the levels of delinquency, the Group applies a greater amount of expected credit loss allowance on the loan balance.

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. For both collateralised balance sheet loans and marketplace loans, if a loan is delinquent for more than 90 days, has four missed payments or considered by management as unlikely to pay their obligations in full without realisation of collateral, the Group reserves at least 85% of the balance of the delinquent loan. 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 (collateralised balance sheet loans) 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 (marketplace loans).

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. 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.

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, two investments were modified per the Group's policy (2019: one investment). The modification of the loans in both the current year and 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. The changes to the interest rates in the loans are reflected in the income earned by the Group.

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. Fair value through profit or loss is determined using the NAV of the fund. 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. 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 or Level 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:

gains/losses on disposal of investments and the related foreign exchange differences;

exchange differences on currency balances;

cost of own shares bought back; and

other capital charges and credits charged to this account in accordance with the accounting policies above.

Capital reserve - arising on investments held includes:

increases and decreases in the valuation of investments held at the year-end;

increases and decreases in the IFRS 9 reserve of investments held at the year-end; and

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. 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 expected life of the financial instrument, what is considered to be a significant increase in credit risk to affect a movement between stages, and the effect of potential future economic scenarios.

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, most commonly in the form of loan or lease receivables, 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 loss rate assumptions for each transaction is established using all available historical loss performance data on the specific asset pool being assessed, supplemented by additional sources as needed.

The significant estimates used on a majority of the Group's investments within these scenarios are:

v Impact on loss rates in a stress scenario - 1.1x to 2.1x (2019: 1.1x to 2.1x);

v Probability of a stress scenario occurring - 100% (2019: 27% to 33%); and

v Range of net losses - 0.0% to 42.3% (2019: 0.0% to 38.9%).

Further detail on these estimates and the methodology applied are set out below.

Base case

To establish the base case model, a representative portfolio is established based on the average portfolio parameters from the actual collateral pool (based on the most recent available reporting date). The expected cash flows are assessed based on these parameters, such as interest rate, term to maturity, amortisation schedule, etc., as well as estimates of prepayments, losses and any other activity which would impact the expected cash flows. Cash flow assumptions, such as prepayment and loss curves are established using a combination of (1) historical performance, (2) management forecasts, (3) proxy data from comparable assets or businesses, and (4) judgement from the Investment Manager's investment professionals based on general research and knowledge. Emphasis is given to the loss curves because, for most asset classes, they have a significantly larger impact on the liquidation outcomes compared to other assumptions such as prepayment rates.

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.

For the Group's legal finance balance sheet investments, we perform a similar analysis as with our financial services balance sheet investments, though in those cases we are assessing the likely return on legal sector investments based on historical data and expert judgement and stressing the return and/or loss expectation on those platforms. In general, those assets by their nature tend to be uncorrelated across both the macro economy as well as across the portfolio(s), which has an impact on the range of outcomes factored into the model.

Stress case

For most of the investments being reviewed, the primary driver of collateral value is the loss rates on the underlying loans or leases, measured by cumulative net loss, which considers the total principal losses between a given point in time and the final repayment on the portfolio. While many of the companies and asset classes being reviewed do not have historical performance data going back to pre-2007, macro-economic data is available which can be used as a proxy for the specific asset classes being analysed. VPC commissioned a study of historical loss rates on various asset classes and segments in the US from 2006-2014 in order to understand the changes in loss rates by segment from the benign credit environment of 2006 through the worst parts of the recession. The following table summarizes the loss stress observed by segment where 0% indicates no change and 100% indicates a doubling of the relevant loss rate.

 
                                   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 installment 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 12 month horizon. Given the rapid progression of COVID-19 around the globe and the ensuing macroeconomic impacts of the crisis, relevant models have assumed a 100% probability of a stress scenario, which is a very conservative approach. This represents a change from the prior year where the probability of a stress scenario occurring was between 27% to 33%. The severity of stress is based on data from the recession in 2008-2009, and continues to be refined with additional information based on the current economic circumstances.

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 balance sheet investments, two of the primary drivers of the impairment analysis are the underlying collateral loss rates and the likelihood of an economic recession in the upcoming 12-month period. Regarding the underlying collateral loss rates, these variables are stressed to 110%-210% as part of the impairment analysis and the impacts of those stresses are reflected in the impairment amounts. Regarding the likelihood of an economic recession in the upcoming 12-month period, as at 31 December 2020 an increase in the likelihood of an economic recession would have no impact on the expected credit losses since the analysis already assumes a 100% likelihood of an economic recession.

For marketplace loan investments, the IFRS 9 reserve provision is estimated using historical performance data about the Group's loans which is regularly updated and reviewed. A 5% increase in relation to the assumed delinquency and loss rates would increase the provision and the impairment charge shown in the Consolidated Statement of Comprehensive Income by less than GBP10,000. A decrease in these assumptions would have an opposite effect. The marketplace loan investments represent 1% of the Group's net asset value. All stress scenarios on the marketplace loan investments were run at a balance sheet date of 31 December 2020.

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. The Group holds 52% interest in Larkdale III, L.P. while the Group's ultimate ownership of the investment held by Larkdale III, L.P. is 34%. The Group has determined it does not have accounting control as the general partner, which is not controlled by the Group, has operating control over the vehicle and acts as an agent for several the Investment Manager's funds. 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.

Accounting standards issued but not yet effective

IFRS 17 'Insurance Contract' 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 IASB's Phase 2 amendments in response to issues arising from the replacement of interest rate benchmarks in a number of jurisdictions are effective for annual periods beginning on or after 1 January 2021. Under these amendments, an immediate gain or loss is not recognised in the income statement where the contractual cash flows of a financial asset or financial liability are amended as a direct consequence of the rate reform and the revised contractual terms are economically equivalent to the previous terms. In addition, hedge accounting is continued for relationships that are directly affected by the reform. These amendments are not expected to have a significant impact on the Group.

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 and not material to the Group

The IASB has issued 'Definition of a Business (Amendments to IFRS 3)' aimed at resolving the difficulties that arise when an entity determines whether it has acquired a business or a group of assets. The amendments are effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2020 and does not have a material impact on the Group's financial statements.

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 2020 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 Partnership 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.

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 2020:

 
                                               Total      Level 1   Level 2       Level 3 
-------------------------------------- 
 Investment assets designated as held 
  at fair value                                  GBP          GBP       GBP           GBP 
--------------------------------------  ------------  -----------  --------  ------------ 
 Investments in funds                      2,522,367            -         -     2,522,367 
======================================  ============  ===========  ========  ============ 
 Equity securities                        48,895,616    2,954,366         -    45,941,250 
 Total                                    51,417,983    2,954,366         -    48,463,617 
--------------------------------------  ------------  -----------  --------  ------------ 
 
 
                                            Total   Level 1      Level 2   Level 3 
------------------------------------ 
 Derivative financial assets                  GBP       GBP          GBP       GBP 
------------------------------------  -----------  --------  -----------  -------- 
 Forward foreign exchange contracts     5,758,880         -    5,758,880         - 
 Total                                  5,758,880         -    5,758,880         - 
------------------------------------  -----------  --------  -----------  -------- 
 

The following table analyses the fair value hierarchy of the Group's assets and liabilities measured at fair value at 31 December 2019:

 
                                                   Total      Level 1   Level 2      Level 3 
-------------------------------------- 
 Investment assets designated as held 
  at fair value                                      GBP          GBP       GBP          GBP 
--------------------------------------  ----------------  -----------  --------  ----------- 
 Investments in funds                          4,461,946            -         -    4,461,946 
======================================  ================  ===========  ========  =========== 
 Equity securities                            38,040,188    3,401,613         -   34,638,575 
 Total                                        42,502,134    3,401,613         -   39,100,521 
--------------------------------------  ----------------  -----------  --------  ----------- 
 
 
                                            Total   Level 1      Level 2                   Level 3 
------------------------------------ 
 Derivative financial assets                  GBP       GBP          GBP                       GBP 
------------------------------------  -----------  --------  -----------  ------------------------ 
 Forward foreign exchange contracts     3,985,365         -    3,985,365                         - 
 Total                                  3,985,365         -    3,985,365                         - 
------------------------------------  -----------  --------  -----------  ------------------------ 
 

The following table analyses the fair value hierarchy of the Parent Company's assets and liabilities measured at fair value at 31 December 2020:

 
                                             Total   Level 1   Level 2     Level 3 
-------------------------------------- 
 Investment assets designated as held 
  at fair value                                GBP       GBP       GBP         GBP 
--------------------------------------  ----------  --------  --------  ---------- 
 Investments in funds                    2,522,366         -         -   2,522,366 
======================================  ==========  ========  ========  ========== 
 Total                                   2,522,366         -         -   2,522,366 
--------------------------------------  ----------  --------  --------  ---------- 
 
 
                                           Total   Level 1     Level 2                   Level 3 
------------------------------------ 
 Derivative financial assets                 GBP       GBP         GBP                       GBP 
------------------------------------  ----------  --------  ----------  ------------------------ 
 Forward foreign exchange contracts    5,758,880         -   5,758,880                         - 
 Total                                 5,758,880         -   5,758,880                         - 
------------------------------------  ----------  --------  ----------  ------------------------ 
 

The following table analyses the fair value hierarchy of the Parent Company's assets and liabilities measured at fair value at 31 December 2019:

 
                                              Total   Level 1   Level 2      Level 3 
-------------------------------------- 
 Investment assets designated as held 
  at fair value                                 GBP       GBP       GBP          GBP 
--------------------------------------  -----------  --------  --------  ----------- 
 Investments in funds                     4,461,946         -         -    4,461,946 
======================================  ===========  ========  ========  =========== 
 Total                                    4,461,946         -         -    4,461,946 
--------------------------------------  -----------  --------  --------  ----------- 
 
 
                                            Total   Level 1      Level 2                   Level 3 
------------------------------------ 
 Derivative financial assets                  GBP       GBP          GBP                       GBP 
------------------------------------  -----------  --------  -----------  ------------------------ 
 Forward foreign exchange contracts     3,985,365         -    3,985,365                         - 
 Total                                  3,985,365         -    3,985,365                         - 
------------------------------------  -----------  --------  -----------  ------------------------ 
 

There were no transfers into and out of Level 3 fair value measurements for either the Parent Company or the Group during the years ended 31 December 2020 and 31 December 2019.

The following table presents the movement in Level 3 positions for the year ended 31 December 2020 for the Group:

 
                                                                           INVESTMENTS                         EQUITY 
                                                                              IN FUNDS                     SECURITIES 
                                                                                   GBP                            GBP 
=================================================  ===================================  ============================= 
 Beginning balance, 1 January 2020                                           4,461,946                     34,638,575 
=================================================  ===================================  ============================= 
 Purchases                                                                           -                     16,671,467 
=================================================  ===================================  ============================= 
 Sales                                                                     (1,376,253)                    (7,162,530) 
=================================================  ===================================  ============================= 
 Net change in unrealised foreign exchange gains 
  (losses)                                                                   (624,808)                    (1,010,734) 
=================================================  ===================================  ============================= 
 Net realised gains (losses)                                                         -                    (8,676,617) 
=================================================  ===================================  ============================= 
 Net change in unrealised gains (losses)                                        61,482                     11,481,089 
 Ending balance, 31 December 2020                                            2,522,367                     45,941,250 
=================================================  ===================================  ============================= 
 

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 2019 for the Group:

 
                                                      INVESTMENTS          EQUITY 
                                                         IN FUNDS      SECURITIES 
                                                              GBP             GBP 
=================================================  ==============  ============== 
 Beginning balance, 1 January 2019                     27,922,819      35,167,242 
=================================================  ==============  ============== 
 Purchases                                                539,406      12,410,417 
=================================================  ==============  ============== 
 Sales                                               (23,540,339)    (17,476,005) 
=================================================  ==============  ============== 
 Net change in unrealised foreign exchange gains 
  (losses)                                            (1,325,925)       (479,573) 
=================================================  ==============  ============== 
 Net change in unrealised gains (losses)                  865,985       5,016,494 
 Ending balance, 31 December 2019                       4,461,946      34,638,575 
=================================================  ==============  ============== 
 

The following table presents the movement in Level 3 positions for the period ended 31 December 2020 for the Parent Company:

 
                                                                                    INVESTMENTS 
                                                                                       IN FUNDS 
                                                                                            GBP 
==========================================================  =================================== 
 Beginning balance, 1 January 2020                                                    4,461,946 
==========================================================  =================================== 
 Purchases                                                                                    - 
==========================================================  =================================== 
 Sales                                                                              (1,376,253) 
==========================================================  =================================== 
 Net change in unrealised foreign exchange gains (losses)                             (624,808) 
==========================================================  =================================== 
 Net change in unrealised gains (losses)                                                 61,482 
 Ending balance, 31 December 2020                                                     2,522,366 
==========================================================  =================================== 
 

The following table presents the movement in Level 3 positions for the period ended 31 December 2019 for the Parent Company:

 
                                                               INVESTMENTS 
                                                                  IN FUNDS 
                                                                       GBP 
==========================================================  ============== 
 Beginning balance, 1 January 2019                              27,922,819 
==========================================================  ============== 
 Purchases                                                         539,406 
==========================================================  ============== 
 Sales                                                        (23,540,339) 
==========================================================  ============== 
 Net change in unrealised foreign exchange gains (losses)      (1,325,925) 
==========================================================  ============== 
 Net change in unrealised gains (losses)                           865,985 
 Ending balance, 31 December 2019                                4,461,946 
==========================================================  ============== 
 

Quantitative information regarding the unobservable inputs for Level 3 positions as at 31 December 2020 is given below:

 
                       FAIR VALUE 
                               AT 
                      31 DECEMBER 
                             2020 
 DESCRIPTION                  GBP   VALUATION TECHNIQUE   UNOBSERVABLE INPUT                               RANGE 
===================  ============  ====================  ===============================  ====================== 
 Investments            2,522,367   Net asset value       N/A                                                N/A 
  in funds 
===================  ============  ====================  ===============================  ====================== 
 Equity securities     21,246,252   Market Comparables    Price Per Share from             US$0.11 - EUR2,069.55 
                                                           Recent Transactions 
                                                          Rights and Preferences                   20.0% - 40.0% 
                                                           Discount                                        35.0% 
                                                           Series B Round Discount                          7.8x 
                                                           Price to Earnings (Comparable                    1.6x 
                                                           Median)                                         10.0% 
                                                           Price to Book (Comparable               20.0% - 40.0% 
                                                           Median)                               2.0 - 2.6 years 
                                                           Private Company Discount 
                                                           Black Scholes Analysis 
                                                           - Volatility 
                                                           Black Scholes Analysis 
                                                           - Term 
===================  ============  ====================  ===============================  ====================== 
 Equity securities      9,548,397   Discounted Cash       Discount Rate 
                                     Flows                                                          8.0% - 25.0% 
                                                           Annual FCF Growth Rate                           3.0% 
                                                           Deal Risk Premium                               34.0% 
===================  ============  ====================  ===============================  ====================== 
 Equity securities        763,307   Yield Analysis        Market Yield                                     12.2% 
===================  ============  ====================  ===============================  ====================== 
 Equity securities        369,746   Recoverability        Expected Proceeds Upon 
                                     Analysis              Liquidation                                       N/A 
===================  ============  ====================  ===============================  ====================== 
 Equity securities     14,013,548   Transaction           Price Per Share                     US$0.003 - US$1.60 
                                     Price                 SPAC Deal Price Per Share                    US$10.00 
                                                           N/A                                               N/A 
===================  ============  ====================  ===============================  ====================== 
 

Quantitative information regarding the unobservable inputs for Level 3 positions as at 31 December 2019 is given below:

 
                       FAIR VALUE 
                               AT 
                      31 DECEMBER 
                             2019 
 DESCRIPTION                  GBP   VALUATION TECHNIQUE   UNOBSERVABLE INPUT                               RANGE 
===================  ============  ====================  ===============================  ====================== 
 Investments            4,461,946   Net asset value       N/A                                                N/A 
  in funds 
===================  ============  ====================  ===============================  ====================== 
 Equity securities     21,552,454   Market Comparables    Price Per Share from Recent      US$0.11 - EUR1,156.15 
                                                           Transactions 
                                                          Rights and Preferences                    0.0% - 25.0% 
                                                           Discount 
                                                           Price to Earnings (Comparable                    6.5x 
                                                            Median) 
                                                           Price to Book (Comparable                        1.3x 
                                                            Median) 
                                                           Equity Value to Revenue                          1.7x 
                                                            (Comparable Median) 
                                                           Private Company Discount                        10.0% 
===================  ============  ====================  ===============================  ====================== 
                                    Discounted Cash 
 Equity securities        530,409    Flows                Discount Rate                                    12.0% 
===================  ============  ====================  ===============================  ====================== 
 Equity securities      7,745,449   Yield Analysis        Market Yield                             12.9% - 13.9% 
===================  ============  ====================  ===============================  ====================== 
 Equity securities      2,575,449   Recoverability        Recovery percentage of 
                                     Analysis              underlying loans                        0.0% - 100.0% 
===================  ============  ====================  ===============================  ====================== 
 Equity securities      2,235,164   Transaction Price     Price Per Share                      US$0.05 - US$0.36 
                                                           N/A                                               N/A 
===================  ============  ====================  ===============================  ====================== 
 

The investments in funds consist of investments in Larkdale III, 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 price per share from recent transactions of the equity securities valued based on market comparables increased / decreased by 5% it would have resulted in an increase / decrease to the total value of those equity securities of GBP1,129,892 (31 December 2019: GBP719,955) which would affect the Net gain / (loss) on investments within the capital return column of the Consolidated Statement of Comprehensive Income.

If the rights and preferences discount of the equity securities valued based on market comparables increased / decreased by 5% it would have resulted in an increase / decrease to the total value of those equity securities of GBP354,127 (31 December 2019: GBP658,595) which 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 GBP4,846,362 (31 December 2019: GBP3,831,250) 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 2020 but for which fair value is disclosed:

 
                        CARRYING             FAIR MARKET 
                           VALUE                   VALUE 
                             GBP                     GBP 
========  ======================  ====================== 
 Assets 
========  ======================  ====================== 
 Loans               293,123,379             293,123,379 
========  ======================  ====================== 
 Total               293,123,379             293,123,379 
========  ======================  ====================== 
 

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 2019 but for which fair value is disclosed:

 
                        CARRYING             FAIR MARKET 
                           VALUE                   VALUE 
                             GBP                     GBP 
========  ======================  ====================== 
 Assets 
========  ======================  ====================== 
 Loans               352,910,880             352,921,109 
========  ======================  ====================== 
 Total               352,910,880             352,921,109 
========  ======================  ====================== 
 

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 2020 and 2019, 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.

As at 31 December 2020, 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:

 
                       PURCHASE                 PURCHASE                                     FAIR VALUE 
 SETTLEMENT DATE       CURRENCY                   AMOUNT   SALE CURRENCY   SALE AMOUNT              GBP 
==================  ===========  =======================  ==============  ============  =============== 
 22 January 2021            GBP               57,581,855             USD    78,700,000        1,832,031 
==================  ===========  =======================  ==============  ============  =============== 
 10 February 2021           GBP                2,194,988             USD     3,000,000           29,483 
==================  ===========  =======================  ==============  ============  =============== 
 10 February 2021           GBP                4,389,976             USD     6,000,000           11,655 
==================  ===========  =======================  ==============  ============  =============== 
 10 February 2021           GBP                  363,026             AUD       643,900          (9,702) 
==================  ===========  =======================  ==============  ============  =============== 
 12 February 2021           GBP               54,874,703             USD    75,000,000          267,416 
==================  ===========  =======================  ==============  ============  =============== 
 12 February 2021           GBP                1,083,960             EUR     1,200,000           11,208 
==================  ===========  =======================  ==============  ============  =============== 
 12 February 2021           GBP              124,382,660             USD   170,000,000        3,616,789 
==================  ===========  =======================  ==============  ============  =============== 
 Unrealised gains on forward foreign exchange 
  contracts                                                                                   5,758,880 
========================================================  ==============  ============  =============== 
 

As at 31 December 2019, 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:

 
                                               PURCHASE                                 FAIR VALUE 
 SETTLEMENT DATE       PURCHASE CURRENCY         AMOUNT   SALE CURRENCY   SALE AMOUNT          GBP 
===================  ===================  =============  ==============  ============  =========== 
 24 January 2020                     GBP    100,385,225             USD   132,900,000    2,061,778 
===================  ===================  =============  ==============  ============  =========== 
 24 January 2020                     GBP      3,021,376             USD     4,000,000       74,697 
===================  ===================  =============  ==============  ============  =========== 
 21 February 2020                    GBP     86,713,498             USD   114,800,000      912,808 
===================  ===================  =============  ==============  ============  =========== 
 21 February 2020                    GBP     67,980,965             USD    90,000,000      925,714 
===================  ===================  =============  ==============  ============  =========== 
 21 February 2020                    GBP      4,084,320             EUR     4,800,000       10,368 
===================  ===================  =============  ==============  ============  =========== 
 Unrealised gains on forward foreign 
  exchange contracts                                                                     3,985,365 
========================================  =============  ==============  ============  =========== 
 

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 2020 for both the Parent Company and the Group:

 
 
 
                                                                                     RELATED AMOUNTS 
                                                                                     NOT ELIGBIBLE TO 
                                                                                    BE SET-OFF IN THE 
                                                                                  STATEMENT OF FINANCIAL 
                                                                                         POSITION 
                                                                               -------------------------- 
                                            GROSS AMOUNTS 
                                             OF FINANCIAL         NET AMOUNTS 
                                              LIABILITIES       OF RECOGNISED 
                        GROSS AMOUNTS       TO BE SET-OFF    ASSETS PRESENTED 
                        OF RECOGNISED    IN THE STATEMENT    IN THE STATEMENT 
                            FINANCIAL        OF FINANCIAL        OF FINANCIAL      FINANCIAL   COLLATERAL 
                               ASSETS            POSITION            POSITION    INSTRUMENTS     RECEIVED   NET AMOUNT 
 AS AT 31 DECEMBER 
  2020                            GBP                 GBP                 GBP            GBP          GBP          GBP 
====================  ===============  ==================  ==================  =============  ===========  =========== 
 Bannockburn Global         3,657,926             (9,702)           3,648,224              -            -    3,648,224 
====================  ===============  ==================  ==================  =============  ===========  =========== 
 Goldman Sachs                278,624                   -             278,624              -            -      278,624 
====================  ===============  ==================  ==================  =============  ===========  =========== 
 Morgan Stanley             1,832,032                   -           1,832,032              -            -    1,832,032 
--------------------  ---------------  ------------------  ------------------  -------------  -----------  ----------- 
 Total                      5,768,582             (9,702)           5,758,880              -            -    5,758,880 
--------------------  ---------------  ------------------  ------------------  -------------  -----------  ----------- 
 
 
 
 
                                                                                     RELATED AMOUNTS 
                                                                                     NOT ELIGBIBLE TO 
                                                                                    BE SET-OFF IN THE 
                                                                                  STATEMENT OF FINANCIAL 
                                                                                         POSITION 
                                                                               -------------------------- 
                                            GROSS AMOUNTS         NET AMOUNTS 
                                             OF FINANCIAL       OF RECOGNISED 
                                                ASSETS TO         LIABILITIES 
                        GROSS AMOUNTS          BE SET-OFF           PRESENTED 
                        OF RECOGNISED    IN THE STATEMENT    IN THE STATEMENT 
                            FINANCIAL        OF FINANCIAL        OF FINANCIAL      FINANCIAL   COLLATERAL 
                          LIABILITIES            POSITION            POSITION    INSTRUMENTS     RECEIVED   NET AMOUNT 
 AS AT 31 DECEMBER 
  2020                            GBP                 GBP                 GBP            GBP          GBP          GBP 
====================  ===============  ==================  ==================  =============  ===========  =========== 
 Bannockburn Global             9,702             (9,702)                   -              -            -            - 
====================  ===============  ==================  ==================  =============  ===========  =========== 
 Goldman Sachs                      -                   -                   -              -            -            - 
====================  ===============  ==================  ==================  =============  ===========  =========== 
 Morgan Stanley                     -                   -                   -              -            -            - 
 Total                          9,702             (9,702)                   -              -            -            - 
--------------------  ---------------  ------------------  ------------------  -------------  -----------  ----------- 
 

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 2019 for both the Parent Company and the Group:

 
 
 
                                                                                     RELATED AMOUNTS 
                                                                                     NOT ELIGBIBLE TO 
                                                                                    BE SET-OFF IN THE 
                                                                                  STATEMENT OF FINANCIAL 
                                                                                         POSITION 
                                                                               -------------------------- 
                                            GROSS AMOUNTS 
                                             OF FINANCIAL         NET AMOUNTS 
                                              LIABILITIES       OF RECOGNISED 
                        GROSS AMOUNTS       TO BE SET-OFF    ASSETS PRESENTED 
                        OF RECOGNISED    IN THE STATEMENT    IN THE STATEMENT 
                            FINANCIAL        OF FINANCIAL        OF FINANCIAL      FINANCIAL   COLLATERAL 
                               ASSETS            POSITION            POSITION    INSTRUMENTS     RECEIVED   NET AMOUNT 
 AS AT 31 DECEMBER 
  2019                            GBP                 GBP                 GBP            GBP          GBP          GBP 
====================  ===============  ==================  ==================  =============  ===========  =========== 
 Bannockburn Global           925,715                   -             925,715              -            -      925,715 
====================  ===============  ==================  ==================  =============  ===========  =========== 
 Goldman Sachs                923,176                   -             923,176              -            -      923,176 
====================  ===============  ==================  ==================  =============  ===========  =========== 
 Morgan Stanley             2,136,474                   -           2,136,474              -            -    2,136,474 
--------------------  ---------------  ------------------  ------------------  -------------  -----------  ----------- 
 Total                      3,985,365                   -           3,985,365              -            -    3,985,365 
--------------------  ---------------  ------------------  ------------------  -------------  -----------  ----------- 
 
   5.   INCOME AND GAINS ON INVESTMENTS AND LOANS 

Interest income in the amount of GBP35,454,974 (31 December 2019: GBP43,342,988) has been allocated to revenue and GBP524,984 (31 December 2019: GBP504,443) has been allocated to capital in line with the Group's policy as set out in Note 2.

 
                                                      31 DECEMBER   31 DECEMBER 
                                                             2020          2019 
                                                              GBP           GBP 
===================================================  ============  ============ 
 Other Income 
===================================================  ============  ============ 
 Distributable income from investments in funds           609,083     1,282,988 
===================================================  ============  ============ 
 Interest income from investment assets designated 
  as held at fair value through profit or loss          4,791,537     1,257,378 
===================================================  ============  ============ 
 Other income                                             399,147       775,578 
---------------------------------------------------  ------------  ------------ 
 Total                                                  5,799,767     3,315,944 
---------------------------------------------------  ------------  ------------ 
 
 
 
                                                31 DECEMBER   31 DECEMBER 
                                                       2020          2019 
                                                        GBP           GBP 
=============================================  ============  ============ 
 Net gains (losses) on investments 
=============================================  ============  ============ 
 Realised (loss) gain on sale of investments    (9,159,855)     1,451,642 
=============================================  ============  ============ 
 Unrealised gains on investment in funds             61,482       865,985 
=============================================  ============  ============ 
 Unrealised gains on equity securities           10,944,335     3,418,476 
---------------------------------------------  ------------  ------------ 
 Total                                            1,845,962     5,736,103 
---------------------------------------------  ------------  ------------ 
 
   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 2020, 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 2020 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. Interest rates continue to be reduced as a direct result of the impact of COVID-19 over the last year. 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 2020, if interest rates had increased by 1%, with all other variables held constant, the change in twelve months of future cash flows on the current investment portfolio, including both interest income and expense, would have been GBP461,430 (31 December 2019: GBP1,851,992). If interest rates had decreased by 1%, with all other variables held constant, the change in twelve months of future cash flows on the current investment portfolio, including both interest income and expense, would be GBP(224,586) (31 December 2019: GBP(1,506,361).

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.

The use of the London Inter-Bank Offered Rate ("LIBOR") is expected to be phased out by the end of 2021. There remains uncertainty regarding the future use of LIBOR and the nature of any replacement reference rate. Actions by regulators have resulted in the establishment of alternative reference rates to LIBOR and markets are slowly developing in response to these new rates.

The potential effect of a discontinuation of LIBOR on the Company's investments will have little to no impact to the Company, based on the expectation that reference rates will be evaluated and replaced timely for investments with a variable rate component. Further, a review of the Company's underlying investments indicates little to no exposure to LIBOR at the portfolio company level. Accordingly, it is difficult to predict the full impact of the transition away from LIBOR until new reference rates and fallbacks are commercially accepted.

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 2020 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.

The coronavirus (COVID-19) pandemic could be a significant driver for potential exchange rate volatility and the devaluation of Sterling. The Group's policy is to hedge exchange rate risk where appropriate, which could lead to the potential of large cash margin calls. The Group's gearing facility with Pacific Western Bank was put in place to mitigate this risk.

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 2020. 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.

 
                                                            FORWARD           NET 
                              ASSETS     LIABILITIES      CONTRACTS      EXPOSURE 
                         31 DECEMBER     31 DECEMBER    31 DECEMBER   31 DECEMBER 
                                2020            2020           2020          2020 
                                 GBP             GBP            GBP           GBP 
====================   =============  ==============  =============  ============ 
 Euro                      1,302,950               -      1,083,960       218,990 
=====================  =============  ==============  =============  ============ 
 US Dollar               331,021,454    (86,087,183)    243,424,181     1,510,090 
=====================  =============  ==============  =============  ============ 
 Swiss Francs              4,899,168               -              -     4,899,168 
=====================  =============  ==============  =============  ============ 
 Australian Dollars          543,622               -        363,026       180,596 
=====================  =============  ==============  =============  ============ 
 

If the GBP exchange rate simultaneously increased/decreased by 10% against the above currencies, the impact on profit would be an increase/decrease of GBP680,884. 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.

The below table presents the net exposure to foreign currency at 31 December 2019. 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.

 
                                                       FORWARD           NET 
                        ASSETS      LIABILITIES      CONTRACTS      EXPOSURE 
                   31 DECEMBER      31 DECEMBER    31 DECEMBER   31 DECEMBER 
                          2019             2019           2019          2019 
                           GBP              GBP            GBP           GBP 
==============   =============  ===============  =============  ============ 
 Euro                4,221,379                -      4,067,088       154,291 
===============  =============  ===============  =============  ============ 
 US Dollar         369,616,416    (111,667,069)    258,101,065     (151,718) 
===============  =============  ===============  =============  ============ 
 Swiss Francs        2,557,925                -              -     2,557,925 
===============  =============  ===============  =============  ============ 
 

The table below presents the net exposure to foreign currency at 31 December 2020. 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.

 
                                                          FORWARD           NET 
                              ASSETS   LIABILITIES      CONTRACTS      EXPOSURE 
                         31 DECEMBER   31 DECEMBER    31 DECEMBER   31 DECEMBER 
                                2020          2020           2020          2020 
                                 GBP           GBP            GBP           GBP 
====================   =============  ============  =============  ============ 
 Euro                      1,302,950             -      1,083,960       218,990 
=====================  =============  ============  =============  ============ 
 US Dollar               244,914,933             -    243,424,181     1,490,752 
=====================  =============  ============  =============  ============ 
 Swiss Francs              4,899,168             -              -     4,899,168 
=====================  =============  ============  =============  ============ 
 Australian Dollars          543,622             -        363,026       180,596 
=====================  =============  ============  =============  ============ 
 

If the GBP exchange rate simultaneously increased/decreased by 10% against the above currencies, the impact on profit would be an increase/decrease of GBP678,951. 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 2019. 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.

 
                                                    FORWARD           NET 
                        ASSETS   LIABILITIES      CONTRACTS      EXPOSURE 
                   31 DECEMBER   31 DECEMBER    31 DECEMBER   31 DECEMBER 
                          2019          2019           2019          2019 
                           GBP           GBP            GBP           GBP 
==============   =============  ============  =============  ============ 
 Euro                4,221,379             -      4,067,088       154,291 
===============  =============  ============  =============  ============ 
 US Dollar         257,888,407             -    258,101,065     (212,658) 
===============  =============  ============  =============  ============ 
 Swiss Francs        2,557,925             -              -     2,557,925 
===============  =============  ============  =============  ============ 
 

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 2020:

 
                                       WITHIN ONE   ONE TO FIVE   OVER FIVE 
                                             YEAR         YEARS       YEARS          TOTAL 
                                              GBP           GBP         GBP            GBP 
===================================  ============  ============  ==========  ============= 
 Assets 
===================================  ============  ============  ==========  ============= 
 Loans                                 44,436,582   246,668,944   2,017,853    293,123,379 
===================================  ============  ============  ==========  ============= 
 Cash and cash equivalents              6,416,028             -           -      6,416,028 
===================================  ============  ============  ==========  ============= 
 Cash posted as collateral              1,140,000             -           -      1,140,000 
===================================  ============  ============  ==========  ============= 
 Interest receivable                    3,613,047             -           -      3,613,047 
===================================  ============  ============  ==========  ============= 
 Dividend receivable                        3,812             -           -          3,812 
===================================  ============  ============  ==========  ============= 
 Other assets and prepaid expenses        889,148             -           -        889,148 
                                                                 ========== 
 Total                                 56,498,617   246,668,944   2,017,853    305,185,414 
===================================  ============  ============  ==========  ============= 
 
 
                                   WITHIN ONE   ONE TO FIVE   OVER FIVE 
                                         YEAR         YEARS       YEARS         TOTAL 
                                          GBP           GBP         GBP           GBP 
===============================  ============  ============  ==========  ============ 
 Liabilities 
===============================  ============  ============  ==========  ============ 
 Notes payable                     10,109,810    75,977,373           -    86,087,183 
===============================  ============  ============  ==========  ============ 
 Management fee payable                92,241             -           -        92,241 
===============================  ============  ============  ==========  ============ 
 Performance fee payable            4,040,085             -           -     4,040,085 
===============================  ============  ============  ==========  ============ 
 Deferred income                      253,403             -           -       253,403 
===============================  ============  ============  ==========  ============ 
 Other liabilities and accrued 
  expenses                          1,332,920             -           -     1,332,920 
===============================  ============  ============  ==========  ============ 
 Total                             15,828,459    75,977,373           -    91,805,832 
===============================  ============  ============  ==========  ============ 
 

The following tables show the contractual maturity of the financial assets and financial liabilities of the Group as at 31 December 2019:

 
                                       WITHIN ONE   ONE TO FIVE   OVER FIVE 
                                             YEAR         YEARS       YEARS         TOTAL 
                                              GBP           GBP         GBP           GBP 
===================================  ============  ============  ==========  ============ 
 Assets 
===================================  ============  ============  ==========  ============ 
 Loans                                 18,053,762   334,857,118           -   352,910,880 
===================================  ============  ============  ==========  ============ 
 Cash and cash equivalents              6,131,122             -           -     6,131,122 
===================================  ============  ============  ==========  ============ 
 Cash posted as collateral                980,000             -           -       980,000 
===================================  ============  ============  ==========  ============ 
 Interest receivable                    5,230,350             -           -     5,230,350 
===================================  ============  ============  ==========  ============ 
 Dividend receivable                       19,372             -           -        19,372 
===================================  ============  ============  ==========  ============ 
 Other assets and prepaid expenses        894,157             -           -       894,157 
                                                                 ========== 
 Total                                 31,308,763   334,857,118           -   366,165,881 
===================================  ============  ============  ==========  ============ 
 
 
                                    WITHIN ONE    ONE TO FIVE   OVER FIVE 
                                          YEAR          YEARS       YEARS          TOTAL 
                                           GBP            GBP         GBP            GBP 
=================================  ===========  =============  ==========  ============= 
 Liabilities 
=================================  ===========  =============  ==========  ============= 
 Notes payable                               -    111,667,069           -    111,667,069 
=================================  ===========  =============  ==========  ============= 
 Management fee payable                143,415              -           -        143,415 
=================================  ===========  =============  ==========  ============= 
 Performance fee payable             7,410,614              -           -      7,410,614 
=================================  ===========  =============  ==========  ============= 
 Unsettled share buyback payable        52,506              -           -         52,506 
=================================  ===========  =============  ==========  ============= 
 Deferred income                       490,322              -           -        490,322 
=================================  ===========  =============  ==========  ============= 
 Other liabilities and accrued 
  expenses                           1,349,263              -           -      1,349,263 
=================================  ===========  =============  ==========  ============= 
 Total                               9,446,120    111,667,069           -    121,113,189 
=================================  ===========  =============  ==========  ============= 
 

The Investment Manager manages the Group's liquidity risk by investing primarily in a diverse portfolio of assets. At 31 December 2020, the Group had investments in 43 Portfolio Companies (31 December 2019: 35 Portfolio Companies). At 31 December 2020, 15% of the loans had a stated maturity date of less than a year (31 December 2019: 5%).

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 to obligations to settle margin calls arising from foreign exchange hedging.

As at 31 December 2020, GBP48.6 million (GBP53.7 million as at 31 December 2019) 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 2020 and do not project cash flows until maturity of the investment liabilities. The Group's Pacific Western Bank gearing facility has a stated maturity date of 30 November 2022. In accordance with IFRS 7 paragraph 39, the Group has projected cash interest payments of GBP2,967,057 which is calculated using the amount outstanding and interest rate as at 31 December 2020 and does not factor in any future paydowns, draws or changes in interest and foreign exchange rates before the maturity date on 30 November 2022. Subsequent to the reporting date, the Pacific Western Bank gearing facility was replaced with a new facility with Massachusetts Mutual Life Insurance Company ("MassMutual"). Refer to Note 20.

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 Balance Sheet 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, which provides downside protection versus marketplace loans. The Group's balance sheet 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 pages 25 and 26 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 and geography:

 
                                                                                        TOTAL 
                        UNSECURED          SECURED     UNSECURED       SECURED    31 DECEMBER 
 INTERNAL GRADE     UNITED STATES    UNITED STATES         OTHER         OTHER           2020 
================  ===============  ===============  ============  ============  ============= 
 Stage 1 
================  ===============  ===============  ============  ============  ============= 
 A - 1                 74,236,825                -    11,314,738             -     85,551,563 
================  ===============  ===============  ============  ============  ============= 
 A - 2                 87,553,399       54,231,359    51,911,693        39,332    193,735,783 
================  ===============  ===============  ============  ============  ============= 
 B                      6,351,182                -             -       117,371      6,468,553 
================  ===============  ===============  ============  ============  ============= 
 C                              -                -     3,675,243         8,326      3,683,569 
  Total               168,141,406       54,231,359    66,901,674       165,029    289,439,468 
================  ===============  ===============  ============  ============  ============= 
 Stage 2 
================  ===============  ===============  ============  ============  ============= 
 A - 1                          -                -             -             -              - 
================  ===============  ===============  ============  ============  ============= 
 A - 2                          -                -             -         6,163          6,163 
================  ===============  ===============  ============  ============  ============= 
 B                              -                -             -        20,251         20,251 
================  ===============  ===============  ============  ============  ============= 
 C                              -                -             -             -              - 
  Total                         -                -             -        26,414         26,414 
================  ===============  ===============  ============  ============  ============= 
 Stage 3 
================  ===============  ===============  ============  ============  ============= 
 A - 1                          -                -             -             -              - 
================  ===============  ===============  ============  ============  ============= 
 A - 2                          -                -             -        11,537         11,537 
================  ===============  ===============  ============  ============  ============= 
 B                              -           83,773             -        86,622        170,395 
================  ===============  ===============  ============  ============  ============= 
 C                              -                -             -    11,964,724     11,964,724 
  Total                         -           83,773             -    12,062,883     12,146,656 
================  ===============  ===============  ============  ============  ============= 
 
                                                                                        TOTAL 
                        UNSECURED          SECURED     UNSECURED       SECURED    31 DECEMBER 
 INTERNAL GRADE     UNITED STATES    UNITED STATES         OTHER         OTHER           2019 
================  ===============  ===============  ============  ============  ============= 
 Stage 1 
================  ===============  ===============  ============  ============  ============= 
 A - 1                 95,688,465                -     8,415,297             -    104,103,762 
================  ===============  ===============  ============  ============  ============= 
 A - 2                121,182,632       28,765,877    73,104,331       306,490    223,359,330 
================  ===============  ===============  ============  ============  ============= 
 B                      6,137,116                -             -     1,050,761      7,187,877 
================  ===============  ===============  ============  ============  ============= 
 C                         31,140                -             -       134,880        166,020 
  Total               223,039,353       28,765,877    81,519,628     1,492,131    334,816,989 
================  ===============  ===============  ============  ============  ============= 
 Stage 2 
================  ===============  ===============  ============  ============  ============= 
 A - 1                          -                -             -             -              - 
================  ===============  ===============  ============  ============  ============= 
 A - 2                        700                -             -             -            700 
================  ===============  ===============  ============  ============  ============= 
 B                          6,898                -    11,595,317    15,368,441     26,970,656 
================  ===============  ===============  ============  ============  ============= 
 C                              -                -             -        45,064         45,064 
  Total                     7,598                -    11,595,317    15,413,505     27,016,420 
================  ===============  ===============  ============  ============  ============= 
 Stage 3 
================  ===============  ===============  ============  ============  ============= 
 A - 1                          -                -             -             -              - 
================  ===============  ===============  ============  ============  ============= 
 A - 2                          -                -             -       115,709        115,709 
================  ===============  ===============  ============  ============  ============= 
 B                              -          254,732             -       278,643        533,375 
================  ===============  ===============  ============  ============  ============= 
 C                              -                -             -        59,999         59,999 
  Total                         -          254,732             -       454,351        709,083 
================  ===============  ===============  ============  ============  ============= 
 
 INTERNAL GRADE    DEFINITION 
================  ===============  ===============  ============  ============  ============= 
                   Balance sheet loans structured with credit enhancement and 
 A - 1              strong operating liquidity positions 
                   High credit quality borrowers or balance sheet loans structured 
 A - 2              with credit enhancement 
 B                 High credit quality borrowers with some indicators 
                    of credit risk or balance sheet loans with limited 
                    structural credit enhancement 
                   Borrowers with elevated levels of 
 C                  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 Balance Sheet Model and to any Debt Instruments held by another investment fund in which the Group invests:

No single consumer loan acquired by the Group shall exceed 0.25% of its Gross Assets.

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.

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 
 
                            GROUP         GROUP                PARENT COMPANY                PARENT COMPANY 
                      31 DECEMBER   31 DECEMBER                   31 DECEMBER                   31 DECEMBER 
                             2020          2019                          2020                          2019 
                              GBP           GBP                           GBP                           GBP 
===================  ============  ============  ============================  ============================ 
 Cash held at bank      6,416,028     6,131,122                     4,738,217                     3,970,690 
 Total                  6,416,028     6,131,122                     4,738,217                     3,970,690 
===================  ============  ============  ============================  ============================ 
 

The Parent Company has posted cash of GBP1,140,000 of collateral as at 31 December 2019 (31 December 2019: GBP980,000) with Goldman Sachs and cash of GBPnil (31 December 2019: GBPnil) with Morgan Stanley in relation to the outstanding derivatives.

Below are the credit ratings of the banks where the Parent Company and Group hold cash as at 31 December 2020 from Moody's:

 
 Bank                   Rating 
=====================  ======= 
 Northern Trust             A2 
=====================  ======= 
 Goldman Sachs              A2 
=====================  ======= 
 Morgan Stanley             A1 
=====================  ======= 
 US Bank                    A1 
=====================  ======= 
 Pacific Western Bank       A2 
=====================  ======= 
 Wells Fargo                A2 
---------------------  ------- 
 
   8.   NOTES PAYABLE 

The Group entered into contractual obligations with third parties 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.

The table below provides details of the outstanding debt of the Group at 31 December 2020:

 
                                                OUTSTANDING 
                                     INTEREST     PRINCIPAL 
 31 DECEMBER 2020                        RATE           GBP      MATURITY 
=========================  ==================  ============  ============ 
                                                 37,534,297   30 November 
 Credit Facility 11-2018     4.25% + 1M LIBOR                        2022 
=========================  ==================  ============  ============ 
 Total                                           37,534,297 
=============================================  ============  ============ 
 

The table below provides details of the outstanding debt of the Group at 31 December 2019:

 
                                                OUTSTANDING 
                                     INTEREST     PRINCIPAL 
 31 DECEMBER 2019                        RATE           GBP      MATURITY 
=========================  ==================  ============  ============ 
                                                 58,010,424   30 November 
 Credit Facility 11-2018     4.25% + 1M LIBOR                        2022 
=========================  ==================  ============  ============ 
 Total                                           58,010,424 
=============================================  ============  ============ 
 

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 2020:

 
                                     OUTSTANDING 
                                       PRINCIPAL 
 31 DECEMBER 2020                            GBP       MATURITY 
---------------------------------   ------------  ------------- 
 First-Out Participation 06-2015      10,109,810   13 June 2021 
=================================   ============  ============= 
 First-Out Participation 03-2017      20,446,931      1 January 
                                                           2024 
=================================   ============  ============= 
                                      17,996,145      1 January 
 First-Out Participation 04-2019                           2024 
=================================   ============  ============= 
 Total                                48,552,886 
==================================  ============  ============= 
 

The table below provides details of the outstanding first-out participation liabilities of the Group at 31 December 2019:

 
                                     OUTSTANDING 
                                       PRINCIPAL 
 31 DECEMBER 2019                            GBP       MATURITY 
---------------------------------   ------------  ------------- 
 First-Out Participation 06-2015      10,437,029   13 June 2021 
=================================   ============  ============= 
 First-Out Participation 03-2017      22,173,162      1 January 
                                                           2024 
=================================   ============  ============= 
                                      21,046,454      1 January 
 First-Out Participation 04-2019                           2024 
=================================   ============  ============= 
 Total                                53,656,645 
==================================  ============  ============= 
 

The table below provides the movement of the notes payable and securities sold under agreements to repurchase for the year ended 31 December 2020 for the Group.

 
 
                                                            NOTES 
                                                          PAYABLE 
                                                              GBP 
===============================================     ============= 
 Beginning balance, 1 January 
  2020                                                111,667,069 
================================================    ============= 
     Purchases                                         40,758,337 
==================================================  ============= 
     Sales                                           (64,260,865) 
==================================================  ============= 
     Net change in unrealised foreign exchange 
      gains (losses)                                  (2,077,358) 
=================================================   ============= 
 Ending balance, 31 December 
  2020                                                 86,087,183 
================================================    ============= 
 

The table below provides the movement of the notes payable and securities sold under agreements to repurchase for the year ended 31 December 2019 for the Group.

 
                                                                     SECURITIES SOLD 
                                                                    UNDER AGREEMENTS                         NOTES 
                                                                       TO REPURCHASE                       PAYABLE 
                                                                                 GBP                           GBP 
==============================================    ==================================  ============================ 
 Beginning balance, 1 January 
  2019                                                                     1,341,981                    51,329,831 
===============================================   ==================================  ============================ 
     Purchases                                                                     -                   152,218,925 
================================================  ==================================  ============================ 
     Sales                                                               (1,335,644)                  (87,293,547) 
================================================  ==================================  ============================ 
     Net change in unrealised foreign exchange 
      gains (losses)                                                         (6,337)                   (4,588,140) 
================================================  ==================================  ============================ 
 Ending balance, 31 December 
  2019                                                                             -                   111,667,069 
===============================================   ==================================  ============================ 
 
   9.   IMPAIRMENT OF FINANCIAL ASSETS AT AMORTISED COST 

The table below provides details of the investments at amortised cost held by the Group for the year ended 31 December 2020 under IFRS 9:

 
                        COST BEFORE                      LOANS       CARRYING 
                                ECL          ECL   WRITTEN-OFF          VALUE 
                                GBP          GBP           GBP            GBP 
====================  =============  ===========  ============  ============= 
 Loans at amortised 
  cost                  303,128,410    8,489,159     1,515,872    293,123,379 
 Total                  303,128,410    8,489,159     1,515,872    293,123,379 
====================  =============  ===========  ============  ============= 
 

The table below provides details of the investments at amortised cost held by the Group for the year ended 31 December 2019 under IFRS 9:

 
                      COST BEFORE                                                                  LOANS      CARRYING 
                              ECL                                ECL                         WRITTEN-OFF         VALUE 
                              GBP                                GBP                                 GBP           GBP 
===================  ============  =================================  ==================================  ============ 
 Loans at amortised 
  cost                362,966,569                          9,631,612                             424,077   352,910,880 
 Total                362,966,569                          9,631,612                             424,077   352,910,880 
===================  ============  =================================  ==================================  ============ 
 

The Parent Company does not hold any loans.

Credit impairment losses

The credit impairment losses of the Group as at 31 December 2020 comprises of the following under IFRS 9:

 
                                                   CREDIT IMPAIRMENT 
                                                              LOSSES 
                                                    31 DECEMBER 2020 
                                                                 GBP 
================================================  ================== 
 Loans written off                                         1,515,872 
================================================  ================== 
 Change in expected credit losses                        (1,142,453) 
================================================  ================== 
 Currency translation on expected credit losses            (260,869) 
================================================  ================== 
 Credit impairment losses                                    112,550 
================================================  ================== 
 

The impairment charge of the Group as at 31 December 2019 comprises of the following under IFRS 9:

 
                                                                             CREDIT IMPAIRMENT 
                                                                                        LOSSES 
                                                                              31 DECEMBER 2019 
                                                                                           GBP 
================================================  ============================================ 
 Loans written off                                                                     424,077 
================================================  ============================================ 
 Change in expected credit losses                                                    2,372,182 
================================================  ============================================ 
 Currency translation on expected credit losses                                      (393,963) 
================================================  ============================================ 
 Credit impairment losses                                                            2,402,296 
================================================  ============================================ 
 

Impairment of loans written off

Impairment charges of loans written off of GBP1,515,872 (31 December 2019: GBP424,077) 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.

Provision for expected credit losses

As at 31 December 2020, the Group has created a reserve provision on the outstanding principal of the Group's loans of GBP8,489,159 (31 December 2019: GBP9,631,612), 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 expected credit losses comprised the following during 2020:

 
                                                   31 DECEMBER 2020 
                                                                GBP 
================================================  ================= 
 Beginning balance 1 January 2020                         9,631,612 
================================================  ================= 
 Change in expected credit losses or equivalent         (1,142,453) 
================================================  ================= 
 Ending balance 31 December 2020                          8,489,159 
================================================  ================= 
 

The expected credit losses comprised the following during 2019:

 
                                                                              31 DECEMBER 2019 
                                                                                           GBP 
================================================  ============================================ 
 Beginning balance 1 January 2019                                                    7,259,430 
================================================  ============================================ 
 Change in expected credit losses or equivalent                                      2,372,182 
================================================  ============================================ 
 Ending balance 31 December 2019                                                     9,631,612 
================================================  ============================================ 
 

Below is a breakout of the provision for expected credit losses by stage of the ECL model as at 31 December 2020:

 
                                                                                 31 DECEMBER 
                       UNSECURED          SECURED       UNSECURED    SECURED            2020 
                     UNITED STATES     UNITED STATES      OTHER        OTHER             GBP 
                   ================  ================  ==========  ===========  ============ 
 Stage 1                          -                 -           -       61,040        61,040 
=================  ================  ================  ==========  ===========  ============ 
 Stage 2                          -                 -     500,000       24,804       524,804 
=================  ================  ================  ==========  ===========  ============ 
 Stage 3                          -                 -           -    7,903,315     7,903,315 
 Expected credit 
  losses                          -                 -     500,000    7,989,159     8,489,159 
=================  ================  ================  ==========  ===========  ============ 
 

Below is a breakout of the provision for expected credit losses by stage of the ECL model as at 31 December 2019:

 
                                                                               31 DECEMBER 
                      UNSECURED         SECURED       UNSECURED    SECURED            2019 
                     UNITED STATES    UNITED STATES     OTHER        OTHER             GBP 
                   ===============  ===============  ==========  ===========  ============ 
 Stage 1                    11,778                -           -      209,334       221,112 
=================  ===============  ===============  ==========  ===========  ============ 
 Stage 2                     7,598                -     821,497    8,127,054     8,956,149 
=================  ===============  ===============  ==========  ===========  ============ 
 Stage 3                         -                -           -      454,351       454,351 
 Expected credit 
  losses                    19,376                -     821,497    8,790,739     9,631,612 
=================  ===============  ===============  ==========  ===========  ============ 
 

Below is a breakout of the carrying value of loans by stage of the ECL model as at 31 December 2020. There were no material movements between stages or any changes to ECL due to originations or modifications during 2020. All write-offs during the year were on assets that were considered Stage 3:

 
                                                                                     31 DECEMBER 
                         UNSECURED         SECURED        UNSECURED     SECURED             2020 
                        UNITED STATES    UNITED STATES      OTHER         OTHER              GBP 
                      ===============  ===============  ============  ===========  ============= 
 Stage 1                  168,141,406       54,231,359    63,226,430      103,989    285,703,184 
====================  ===============  ===============  ============  ===========  ============= 
 Stage 2                            -                -     3,175,244        1,610      3,176,854 
====================  ===============  ===============  ============  ===========  ============= 
 Stage 3                            -           83,773             -    4,159,568      4,243,341 
 Loans at amortised 
  cost                    168,141,406       54,315,132    66,401,674    4,265,167    293,123,379 
====================  ===============  ===============  ============  ===========  ============= 
 

Below is a breakout of the carrying value of loans by stage of the ECL model as at 31 December 2019. There were no material movements between stages during 2019:

 
                                                                                                           31 DECEMBER 
                        UNSECURED         SECURED        UNSECURED                 SECURED                        2019 
                       UNITED STATES    UNITED STATES      OTHER                    OTHER                          GBP 
                     ===============  ===============  ============  ==================================  ============= 
 Stage 1                 223,027,575       28,765,877    81,519,628                           1,282,797    334,595,877 
===================  ===============  ===============  ============  ==================================  ============= 
 Stage 2                           -                -    10,773,820                           7,286,451     18,060,271 
===================  ===============  ===============  ============  ==================================  ============= 
 Stage 3                           -          254,732             -                                   -        254,732 
 Loans at amortised 
  cost                   223,027,575       29,020,609    92,293,448                           8,569,248    352,910,880 
===================  ===============  ===============  ============  ==================================  ============= 
 

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 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. The management fee expense for the year is GBP3,394,740 (31 December 2019: GBP3,604,121), of which GBP92,241 (31 December 2019: GBP143,415) was payable as at 31 December 2020.

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 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).The performance fee expense for the year is GBP4,040,085 (31 December 2019: GBP7,411,745), of which GBP4,040,085 was payable as at 31 December 2020 (31 December 2019: GBP7,410,614).

Administration

The Group has entered into an administration agreement with Northern Trust Hedge Fund Services LLC. 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 2020, the remuneration for work carried out by PricewaterhouseCoopers LLP, the statutory auditors, was as follows:

 
                                                              31 DECEMBER   31 DECEMBER 
                                                                     2020          2019 
                                                                      GBP           GBP 
===========================================================  ============  ============ 
 Fees charged by PricewaterhouseCoopers LLP: 
===========================================================  ============  ============ 
          the audit of the Parent Company and Consolidated 
           Financial Statements; and                              245,000       175,000 
===========================================================  ============  ============ 
          the audit of the Company's subsidiaries.                 13,000        20,000 
-----------------------------------------------------------  ------------  ------------ 
 

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 2020:

 
                                                     REVENUE                      CAPITAL                        TOTAL 
===============================  ===========================  ===========================  =========================== 
 Net return on ordinary 
  activities before 
  taxation                                        23,898,852                    (944,173)                   22,954,679 
===============================  ===========================  ===========================  =========================== 
 Tax at the standard UK 
  corporation tax 
  rate of 19.00%                                   4,540,782                    (179,393)                    4,361,389 
===============================  ===========================  ===========================  =========================== 
 Effects of: 
===============================  ===========================  ===========================  =========================== 
 Non-taxable income                              (4,540,782)                            -                  (4,540,782) 
===============================  ===========================  ===========================  =========================== 
 Capital items exempt from 
  corporation 
  tax                                                      -                      179,393                      179,393 
===============================  ===========================  ===========================  =========================== 
 Total tax charge                                          -                            -                            - 
===============================  ===========================  ===========================  =========================== 
 

The following table presents the tax chargeable on the Group for the period ended 31 December 2019:

 
                                                     REVENUE                      CAPITAL                        TOTAL 
===============================  ===========================  ===========================  =========================== 
 Net return on ordinary 
  activities before 
  taxation                                        27,054,994                  (1,411,818)                   25,643,176 
===============================  ===========================  ===========================  =========================== 
 Tax at the standard UK 
  corporation tax 
  rate of 19.00%                                   5,140,449                    (268,245)                    4,872,204 
===============================  ===========================  ===========================  =========================== 
 Effects of: 
===============================  ===========================  ===========================  =========================== 
 Non-taxable income                              (5,140,449)                            -                  (5,140,449) 
===============================  ===========================  ===========================  =========================== 
 Capital items exempt from 
  corporation 
  tax                                                      -                      268,245                      268,245 
===============================  ===========================  ===========================  =========================== 
 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              AS AT 
                                            31 DECEMBER 2020   31 DECEMBER 2019 
                                                         GBP                GBP 
-----------------------------------------  -----------------  ----------------- 
 Net assets attributable to Shareholders 
  of the Parent Company                          270,537,108        291,479,251 
=========================================  =================  ================= 
 Ordinary Shares in issue (excluding 
  Treasury Shares)                               282,647,364        312,302,305 
=========================================  =================  ================= 
 Net asset value per Ordinary Share                    95.72             93.33p 
=========================================  =================  ================= 
 

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.

 
                                           31 DECEMBER 2020   31 DECEMBER 2019 
                                                        GBP                GBP 
----------------------------------------  -----------------  ----------------- 
 Profit for the year                             22,879,629         25,463,975 
========================================  =================  ================= 
 Average number of Ordinary Shares in 
  issue during the year                         295,430,078        333,677,105 
========================================  =================  ================= 
 Earnings per Share (basic and diluted)               7.74p              7.63p 
========================================  =================  ================= 
 

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 2020. All shares issued are fully paid with none not fully paid:

 
                      NOMINAL 
                        VALUE        NUMBER 
                          GBP     OF SHARES 
=================    ========  ============ 
 Ordinary Shares         0.01   282,647,364 
 

Set out below is the issued share capital of the Company as at 31 December 2019. All shares issued are fully paid with none not fully paid:

 
                      NOMINAL 
                        VALUE        NUMBER 
                          GBP     OF SHARES 
=================    ========  ============ 
 Ordinary Shares         0.01   312,302,305 
 

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 2020:

 
                                       SHARES IN                      SHARES IN 
                                        ISSUE AT                       ISSUE AT 
                                             THE                            THE 
 FOR THE YEAR FROM 1 JANUARY 2020      BEGINNING          SHARES OF 
                                              OF 
 TO 31 DECEMBER 2020                  THE PERIOD     REPURCHASED     THE PERIOD 
==================================  ============  ==============  ============= 
 Ordinary Shares                     312,302,305    (29,654,941)    282,647,364 
==================================  ============  ==============  ============= 
 

The table below shows the movement in shares through 31 December 2019:

 
                                       SHARES IN                      SHARES IN 
                                        ISSUE AT                       ISSUE AT 
                                             THE                            THE 
 FOR THE YEAR FROM 1 JANUARY 2019      BEGINNING          SHARES OF 
                                              OF 
 TO 31 DECEMBER 2019                  THE PERIOD     REPURCHASED     THE PERIOD 
==================================  ============  ==============  ============= 
 Ordinary Shares                     360,110,883    (47,808,578)    312,302,305 
==================================  ============  ==============  ============= 
 

Share buyback programme

All Ordinary Shares bought back through the share buyback programme are held in treasury as at 31 December 2020. Details of the programme are as follows:

 
                        ORDINARY     AVERAGE      LOWEST     HIGHEST         TOTAL 
                          SHARES   PRICE PER   PRICE PER   PRICE PER      TREASURY 
 DATE OF PURCHASE      PURCHASED       SHARE       SHARE       SHARE        SHARES 
==================  ============  ==========  ==========  ==========  ============ 
 January 2020          1,824,187      80.52p      78.64p      81.00p    72,137,547 
==================  ============  ==========  ==========  ==========  ============ 
 February 2020         1,153,000      81.30p      78.10p      82.29p    73,290,547 
==================  ============  ==========  ==========  ==========  ============ 
 March 2020            3,513,837      62.26p      54.97p      80.00p    76,804,384 
==================  ============  ==========  ==========  ==========  ============ 
 April 2020                    -       0.00p       0.00p       0.00p    76,804,384 
==================  ============  ==========  ==========  ==========  ============ 
 May 2020              4,259,700      61.57p      58.44p      62.83p    81,064,084 
==================  ============  ==========  ==========  ==========  ============ 
 June 2020            11,515,569      69.18p      66.60p      71.50p    92,579,653 
==================  ============  ==========  ==========  ==========  ============ 
 July 2020             3,636,867      65.19p      63.03p      67.00p    96,216,520 
==================  ============  ==========  ==========  ==========  ============ 
 August 2020           1,000,000      64.60p      63.00p      65.00p    97,216,520 
==================  ============  ==========  ==========  ==========  ============ 
 September 2020        1,547,589      64.02p      62.80p      65.38p    98,764,109 
==================  ============  ==========  ==========  ==========  ============ 
 October 2020                  -       0.00p       0.00p       0.00p    98,764,109 
==================  ============  ==========  ==========  ==========  ============ 
 November 2020           725,000      65.98p      65.92p      66.00p    99,489,109 
==================  ============  ==========  ==========  ==========  ============ 
 December 2020           479,192      73.26p      73.05p      73.55p    99,968,301 
==================  ============  ==========  ==========  ==========  ============ 
 

Details of the share buyback program during the year ended 31 December 2019 as follows:

 
                        ORDINARY     AVERAGE      LOWEST     HIGHEST         TOTAL 
                          SHARES   PRICE PER   PRICE PER   PRICE PER      TREASURY 
 DATE OF PURCHASE      PURCHASED       SHARE       SHARE       SHARE        SHARES 
==================  ============  ==========  ==========  ==========  ============ 
 January 2019          3,122,218      76.96p      76.80p      77.00p    25,627,000 
==================  ============  ==========  ==========  ==========  ============ 
 February 2019         1,375,000      77.43p      77.25p      77.50p    27,002,000 
==================  ============  ==========  ==========  ==========  ============ 
 March 2019            5,825,000      74.39p      72.80p      77.00p    32,827,000 
==================  ============  ==========  ==========  ==========  ============ 
 April 2019            9,549,811      71.53p      71.50p      72.00p    42,376,811 
==================  ============  ==========  ==========  ==========  ============ 
 May 2019                      -           -           -           -    42,376,811 
==================  ============  ==========  ==========  ==========  ============ 
 June 2019            15,009,212      68.35p      66.80p      72.00p    57,386,023 
==================  ============  ==========  ==========  ==========  ============ 
 July 2019               825,583      74.66p      72.60p      76.80p    58,211,606 
==================  ============  ==========  ==========  ==========  ============ 
 August 2019           1,397,269      76.49p      74.90p      78.00p    59,608,875 
==================  ============  ==========  ==========  ==========  ============ 
 September 2019        1,823,404      79.15p      75.75p      80.39p    61,432,279 
==================  ============  ==========  ==========  ==========  ============ 
 October 2019          6,100,000      76.26p      75.20p      79.40p    67,532,279 
==================  ============  ==========  ==========  ==========  ============ 
 November 2019         1,470,169      77.14p      75.98p      78.08p    69,002,448 
==================  ============  ==========  ==========  ==========  ============ 
 December 2019         1,310,912      76.38p      75.88p      77.53p    70,313,360 
==================  ============  ==========  ==========  ==========  ============ 
 

Other distributable reserve

During 2020, the Company declared and paid dividends of GBPNil (2019: 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 GBP20,161,216 (2019: GBP35,049,382). The closing balance in the other distributable reserve has been reduced to GBP116,520,960 (31 December 2019: GBP136,682,176).

15. DIVIDS PER SHARE

The following table summarises the amounts recognised as distributions to equity shareholders in the period:

 
                                                     31 DECEMBER   31 DECEMBER 
                                                            2020          2019 
                                                             GBP           GBP 
==================================================  ============  ============ 
 2018 interim dividend of 2.00 pence per Ordinary 
  Share paid on 4 April 2019                                         7,077,273 
==================================================  ============  ============ 
 2019 interim dividend of 2.00 pence per Ordinary 
  Share paid on 27 June 2019                                         6,804,777 
==================================================  ============  ============ 
 2019 interim dividend of 2.00 pence per Ordinary 
  Share paid on 19 September 2019                                    6,463,506 
                                                    ============ 
 2019 interim dividend of 2.00 pence per Ordinary 
  Share paid on 19 December 2019                                     6,282,264 
==================================================  ============  ============ 
 2019 interim dividend of 2.00 pence per Ordinary 
  Share paid on 2 April 2020                           6,184,004 
==================================================  ============  ============ 
 2020 interim dividend of 2.00 pence per Ordinary 
  Share paid on 11 June 2020                           6,116,226 
==================================================  ============  ============ 
 2020 interim dividend of 2.00 pence per Ordinary 
  Share paid on 17 September 2020                      5,711,983 
==================================================  ============  ============ 
 2020 interim dividend of 2.00 pence per Ordinary 
  Share paid on 17 December 2020                       5,662,531 
==================================================  ============  ============ 
 Total                                                23,674,744    26,627,820 
==================================================  ============  ============ 
 

An interim dividend of 2.00 pence per Ordinary Share, equaling GBP5,638,178, was declared by the Board on 25 February 2021 in respect of the period to 31 December 2020, was paid to shareholders on 1 April 2021. 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. The Parent Company allocated GBP187,204 of the 2020 interim dividend paid on 11 June 2020 to a 2019 final dividend.

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 2020, GBP179,563 (31 December 2019: GBP173,326) was paid to the Directors and GBP0 (31 December 2019: GBP0) was owed for services performed.

As at 31 December 2020 and 31 December 2019, the Directors' interests in the Parent Company's Shares were as follows:

 
                                                              31 DECEMBER                    31 DECEMBER 
                                                                     2020                           2019 
=======================  =================  =============================  ============================= 
 Kevin Ingram             Ordinary Shares                          64,968                         64,968 
=======================  =================  =============================  ============================= 
 Mark Katzenellenbogen    Ordinary Shares                         215,000                        140,000 
=======================  =================  =============================  ============================= 
 Richard Levy             Ordinary Shares                              NA                      1,300,000 
=======================  =================  =============================  ============================= 
 Elizabeth Passey         Ordinary Shares                          10,000                         10,000 
=======================  =================  =============================  ============================= 
 Clive Peggram            Ordinary Shares                         333,240                        258,240 
=======================  =================  =============================  ============================= 
 Graeme Proudfoot         Ordinary Shares                          50,000                             NA 
=======================  =================  =============================  ============================= 
 

Investment management fees for the year ended 31 December 2020 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 2020, 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 2020, the Investment Manager has purchased 3,705,991 (31 December 2019: 2,886,335) Ordinary Shares.

As at 31 December 2020, Partners and Principals of the Investment Manager held 510,000 (31 December 2019: 2,195,000) 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 2020 the Group owned 26% of VPC Offshore Unleveraged Private Debt Fund Feeder, L.P. (31 December 2019: 26%) and the value of the Group's investment in VPC Offshore Unleveraged Private Debt Fund Feeder, L.P. was GBP2,454,004 (31 December 2019: GBP3,841,798). The Group received income of GBP609,083 from VPC Offshore Unleveraged Private Debt Fund Feeder, L.P., which is reflected in Income on the Consolidated Statement of Comprehensive Income.

The Group has invested in Larkdale III, L.P. The Investment Manager of the Parent Company also acts as manager to Larkdale III, L.P. As at 31 December 2020, the Group owned 52% of Larkdale III, L.P. (31 December 2019: 52%) and the value of the Group's investment in Larkdale III, L.P. was GBP68,362 (31 December 2019: GBP620,148). The Group did not receive any income from Larkdale III, L.P. during the year.

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 2020, GBP44,240 was due to the Investment Manager (31 December 2019: GBP65,683) and is included in the Accrued expenses and other liabilities balance on the Consolidated Statement of Financial Position.

17. SUBSIDIARIES

 
                                                                                        PERCENTAGE     PERCENTAGE 
                                                                                         OWNERSHIP      OWNERSHIP 
                                                                                             AS AT          AS AT 
                               PRINCIPAL          COUNTRY OF        NATURE             31 DECEMBER    31 DECEMBER 
 NAME                           ACTIVITY           INCORPORATION     OF INVESTMENT            2020           2019 
============================  =================  ================  ================  =============  ============= 
 VPC Specialty Lending         Investment         USA               Limited           Sole limited   Sole limited 
  Investments Intermediate,     vehicle                              partner               partner        partner 
  L.P.                                                               interest 
============================  =================  ================  ================  =============  ============= 
 VPC Specialty Lending         General partner    USA               Membership         Sole member    Sole member 
  Investments Intermediate                                           interest 
  GP, LLC 
============================  =================  ================  ================  =============  ============= 
 LIAB, L.P.                    Investment         UK                Limited                    N/A   Sole limited 
                                vehicle                              partner                              partner 
                                                                     interest 
============================  =================  ================  ================  =============  ============= 
 LIAB GP, LLC                  General partner    UK                Membership                 N/A    Sole member 
                                                                     interest 
============================  =================  ================  ================  =============  ============= 
 Fore London, L.P.             Investment         UK                Limited           Sole limited   Sole limited 
                                vehicle                              partner               partner        partner 
                                                                     interest 
============================  =================  ================  ================  =============  ============= 
 Fore London GP,               General partner    UK                Membership         Sole member    Sole member 
  LLC                                                                interest 
============================  =================  ================  ================  =============  ============= 
                                                                    Limited 
                               Investment                            partner 
 SVTW, L.P.                     vehicle           USA                interest                  N/A            99% 
============================  =================  ================  ================  =============  ============= 
                                                                    Membership 
 SVTW GP, LLC                  General partner    USA                interest                  N/A            99% 
============================  =================  ================  ================  =============  ============= 
                                                                    Limited 
 Duxbury Court I,              Investment                            partner 
  L.P.                          vehicle           USA                interest                  95%            95% 
============================  =================  ================  ================  =============  ============= 
 Duxbury Court I                                                    Membership 
  GP, LLC                      General partner    USA                interest                  95%            95% 
============================  =================  ================  ================  =============  ============= 
                                                                    Limited 
                               Investment                            partner 
 Drexel I, L.P.                 vehicle           USA                interest                  52%            52% 
============================  =================  ================  ================  =============  ============= 
                                                                    Membership 
 Drexel I GP, LLC              General partner    USA                interest                  52%            52% 
============================  =================  ================  ================  =============  ============= 
                                                                    Limited 
                               Investment                            partner 
 Larkdale I, L.P.               vehicle           USA                interest                  N/A            61% 
============================  =================  ================  ================  =============  ============= 
                                                                    Membership 
 Larkdale I GP, LLC            General partner    USA                interest                  N/A            61% 
============================  =================  ================  ================  =============  ============= 
 

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     150 North Riverside Plaza, Suite 5200, 
  Intermediate, L.P.                    Chicago, IL 60606 
====================================  =========================================== 
 VPC Specialty Lending Investments     150 North Riverside Plaza, Suite 
  Intermediate GP, LLC                  5200, Chicago, IL 60606 
====================================  ========================================= 
 Fore London, L.P.                     6th Floor, 65 Gresham Street, London, 
                                        EC2V 7NQ United Kingdom 
==================================    =========================================== 
 Fore London GP, LLC                   150 North Riverside Plaza, Suite 
                                        5200, Chicago, IL 60606 
==================================    ========================================= 
 Duxbury Court I, L.P.                 150 North Riverside Plaza, Suite 5200, 
                                        Chicago, IL 60606 
==================================    =========================================== 
 Duxbury Court I GP,                   150 North Riverside Plaza, Suite 
  LLC                                   5200, Chicago, IL 60606 
==================================    ========================================= 
 Drexel I, L.P.                        150 North Riverside Plaza, Suite 5200, 
                                        Chicago, IL 60606 
==================================    =========================================== 
 Drexel I GP, LLC                      150 North Riverside Plaza, Suite 
                                        5200, Chicago, IL 60606 
==================================    ========================================= 
 

The table below illustrates the movement of the investment in subsidiaries of the Parent Company in 2020:

 
                                                                  INVESTMENTS 
                                                              IN SUBSIDIARIES 
                                                                          GBP 
=============================================  ============================== 
 Beginning balance, 1 January 2020                                270,730,548 
=============================================  ============================== 
 Purchases                                                         80,568,889 
=============================================  ============================== 
 Sales                                                          (103,634,392) 
=============================================  ============================== 
 Appreciation of investments in subsidiaries                        2,377,722 
 Ending balance, 31 December 2020                                 250,042,768 
=============================================  ============================== 
 

The table below illustrates the movement of the investment in subsidiaries of the Parent Company in 2019:

 
                                                                   INVESTMENTS 
                                                               IN SUBSIDIARIES 
                                                                           GBP 
=============================================  =============================== 
 Beginning balance, 1 January 2019                                 280,381,196 
=============================================  =============================== 
 Purchases                                                          61,442,484 
=============================================  =============================== 
 Sales                                                            (68,521,643) 
=============================================  =============================== 
 Depreciation of investments in subsidiaries                       (2,571,489) 
 Ending balance, 31 December 2019                                  270,730,548 
=============================================  =============================== 
 

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 at 31 December 2020 represents the portion of the NAV of the controlled subsidiaries attributable to the other investors. As at 31 December 2020, the portion of the NAV attributable to non-controlling interests investments totaled GBP19,337 (31 December 2019: GBP60,940). 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 during 2020:

 
                                                                    PROFIT OR LOSS OF 
                                                                 SUBSIDIARY ALLOCATED            ACCUMULATED 
                                                                   TO NON-CONTROLLING        NON-CONTROLLING 
                                                                 INTERESTS DURING THE           INTERESTS IN 
                                                                      PERIODED 31          SUBSIDIARY AS 
                                                                             DECEMBER         AT 31 DECEMBER 
                                                                                 2020                   2020 
==================== 
                                                 PROPORTION OF 
                                                     OWNERSHIP 
                                              INTERSTS HELD BY 
                                               NON-CONTROLLING 
                       PRINCIPAL                     INTERESTS 
                       PLACE                 AS AT 31 DECEMBER 
 NAME OF SUBSIDIARY    OF BUSINESS                        2020                    GBP                    GBP 
====================  ==================  ==================== 
Drexel I, 
 L.P.                 USA                                  47%                 51,213                  5,699 
Duxbury Court 
 I, L.P.              USA                                   5%                  3,321                 13,638 
Larkdale I, 
 L.P.                 USA                                  39%                 20,554                      - 
SVTW, L.P.            USA                                   1%                   (38)                      - 
 Totals                                                                        75,050                 19,337 
 
                                                               SUMMARISED FINANCIAL INFORMATION FOR SUBSIDIARY 
                                                                                              31 DECEMBER 2020 
NAME OF SUBSIDIARY                                                                                         GBP 
                                              Distributions to 
                                               non-controlling 
Drexel I, L.P.                                       interests                                          49,333 
                                              Profit/(loss) of 
                                                subsidiary for 
                                               period ended 31 
                                                 December 2020                                         103,596 
                                               Assets as at 31 
                                                 December 2020                                          35,200 
                                          Liabilities as at 31 
                                                 December 2020                                          22,965 
Duxbury Court                                 Distributions to                                               - 
 I, L.P.                                       non-controlling 
                                                     interests 
                                              Profit/(loss) of 
                                                subsidiary for 
                                               period ended 31 
                                                 December 2020                                          60,888 
                                               Assets as at 31 
                                                 December 2020                                         471,560 
                                          Liabilities as at 31 
                                                 December 2020                                          18,285 
                                              Distributions to 
Larkdale I,                                    non-controlling 
 L.P.                                                interests                                          72,605 
                                              Profit/(loss) of 
                                                subsidiary for 
                                               period ended 31 
                                                 December 2020                                          83,800 
                                               Assets as at 31                                               - 
                                                 December 2020 
                                          Liabilities as at 31                                               - 
                                                 December 2020 
                                              Distributions to 
                                               non-controlling 
SVTW, L.P.                                           interests                                           1,970 
                                              Profit/(loss) of 
                                                subsidiary for 
                                               period ended 31 
                                                 December 2020                                        (11,191) 
                                               Assets as at 31                                               - 
                                                 December 2020 
                                          Liabilities as at 31                                               - 
                                                 December 2020 
 
 

The following entities have been consolidated which have material non-controlling interests during 2019:

 
                                                                    PROFIT OR LOSS OF 
                                                                 SUBSIDIARY ALLOCATED            ACCUMULATED 
                                                                   TO NON-CONTROLLING        NON-CONTROLLING 
                                                                 INTERESTS DURING THE           INTERESTS IN 
                                                                      PERIODED 31          SUBSIDIARY AS 
                                                                             DECEMBER         AT 31 DECEMBER 
                                                                                 2019                   2019 
==================== 
                                                 PROPORTION OF 
                                                     OWNERSHIP 
                                              INTERSTS HELD BY 
                                               NON-CONTROLLING 
                       PRINCIPAL                     INTERESTS 
                       PLACE                 AS AT 31 DECEMBER 
 NAME OF SUBSIDIARY    OF BUSINESS                        2019                    GBP                    GBP 
====================  ==================  ==================== 
Drexel I, 
 L.P.                 USA                                  47%                 94,728                  7,046 
Duxbury Court 
 I, L.P.              USA                                   5%                (8,482)                 10,819 
Larkdale I, 
 L.P.                 USA                                  39%                 92,841                 41,005 
SVTW, L.P.            USA                                   1%                    114                  2,070 
 Totals                                                                       179,201                 60,940 
 
                                                               SUMMARISED FINANCIAL INFORMATION FOR SUBSIDIARY 
                                                                                              31 DECEMBER 2019 
NAME OF SUBSIDIARY                                                                                         GBP 
                                              Distributions to 
                                               non-controlling 
Drexel I, L.P.                                       interests                                         140,477 
                                              Profit/(loss) of 
                                                subsidiary for 
                                               period ended 31 
                                                 December 2019                                         196,191 
                                               Assets as at 31 
                                                 December 2019                                          55,933 
                                          Liabilities as at 31 
                                                 December 2019                                          40,782 
                                              Distributions to 
Duxbury Court                                  non-controlling 
 I, L.P.                                             interests                                           3,467 
                                              Profit/(loss) of 
                                                subsidiary for 
                                               period ended 31 
                                                 December 2019                                       (162,884) 
                                               Assets as at 31 
                                                 December 2019                                         419,715 
                                          Liabilities as at 31 
                                                 December 2019                                          14,628 
                                              Distributions to 
Larkdale I,                                    non-controlling 
 L.P.                                                interests                                         204,776 
                                              Profit/(loss) of 
                                                subsidiary for 
                                               period ended 31 
                                                 December 2019                                         229,066 
                                               Assets as at 31 
                                                 December 2019                                         137,852 
                                          Liabilities as at 31 
                                                 December 2019                                          33,537 
                                              Distributions to 
                                               non-controlling 
SVTW, L.P.                                           interests                                             621 
                                              Profit/(loss) of 
                                                subsidiary for 
                                               period ended 31 
                                                 December 2019                                          33,690 
                                               Assets as at 31 
                                                 December 2019                                         236,729 
                                          Liabilities as at 31 
                                                 December 2019                                          27,638 
 
 

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 
                                                                              FAIR VALUE                  EXPOSURE 
                                                                             OF INTEREST                   TO LOSS 
                                             PROPORTION                            AS AT                     AS AT 
                PRINCIPAL                     OF OWNERSHIP                   31 DECEMBER               31 DECEMBER 
NAME OF         PLACE           PRINCIPAL     INTERESTS     BASIS OF                2020                      2020 
ASSOCIATE       OF BUSINESS      ACTIVITY     HELD           VALUATION               GBP                       GBP 
                                                            Designated 
VPC Offshore                                                as held at 
 Unleveraged                                                fair value 
 Private Debt                                               through profit 
 Fund           Cayman          Investment                  or loss - 
 Feeder, L.P.    Islands         fund        26%            using NAV          2,454,004                 2,454,004 
                                                            Designated 
                                                            as held at 
                                                            fair value 
                                                            through profit 
Larkdale III,                   Investment                  or loss - 
 L.P.           USA              vehicle     52%*           using NAV             68,362                    68,362 
 
 
                                                                    SUMMARISED FINANCIAL INFORMATION FOR ASSOCIATE 
NAME OF                                                                                           31 DECEMBER 2020 
ASSOCIATE                                                                                                      GBP 
VPC Offshore     Profit/(loss) of associate for period ended 
 Unleveraged      31 December 2020                                                                         345,196 
Private Debt 
 Fund 
 Feeder, L.P.    Assets as at 31 December 2020                                                           7,049,729 
                 Liabilities at 31 December 2020                                                         1,356,552 
Larkdale III,    Profit/(loss) of associate for period ended 
 L.P.             31 December 2020                                                                          12,207 
                 Assets as at 31 December 2020                                                             190,860 
                 Liabilities at 31 December 2020                                                            58,441 
 
 

*The Group holds 52% interest in Larkdale III, L.P. while the Group's ultimate ownership of the investment held by Larkdale III, L.P. is 34%. The Group has determined it does not have accounting control as the general partner has operating control over the vehicle and acts as an agent for a number of the Investment Manager's funds.

 
                                                                                                           MAXIMUM 
                                                                              FAIR VALUE                  EXPOSURE 
                                                                             OF INTEREST                   TO LOSS 
                                             PROPORTION                            AS AT                     AS AT 
                PRINCIPAL                     OF OWNERSHIP                   31 DECEMBER               31 DECEMBER 
NAME OF         PLACE           PRINCIPAL     INTERESTS     BASIS OF                2019                      2019 
ASSOCIATE       OF BUSINESS      ACTIVITY     HELD           VALUATION               GBP                       GBP 
                                                            Designated 
VPC Offshore                                                as held at 
 Unleveraged                                                fair value 
 Private Debt                                               through profit 
 Fund           Cayman          Investment                  or loss - 
 Feeder, L.P.    Islands         fund        26%            using NAV          3,841,798                 3,841,798 
                                                            Designated 
                                                            as held at 
                                                            fair value 
                                                            through profit 
Larkdale III,                   Investment                  or loss - 
 L.P.           USA              vehicle     52%*           using NAV            620,148                   620,148 
 
 
                                                                    SUMMARISED FINANCIAL INFORMATION FOR ASSOCIATE 
NAME OF                                                                                           31 DECEMBER 2019 
ASSOCIATE                                                                                                      GBP 
VPC Offshore     Profit/(loss) of associate for period ended 
 Unleveraged      31 December 2019                                                                       3,866,479 
Private Debt 
 Fund 
 Feeder, L.P.    Assets as at 31 December 2019                                                          10,927,772 
                 Liabilities at 31 December 2019                                                         1,351,385 
Larkdale III,    Profit/(loss) of associate for period ended 
 L.P.             31 December 2019                                                                       (420,886) 
                 Assets as at 31 December 2019                                                           1,265,619 
                 Liabilities at 31 December 2019                                                            64,386 
 
 

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.

*The Group holds 52% interest in Larkdale III, L.P. while the Group's ultimate ownership of the investment held by Larkdale III, L.P. is 34%. The Group has determined it does not have accounting control as the general partner has operating control over the vehicle and acts as an agent for a number of the Investment Manager's funds.

20. SUBSEQUENT EVENTS AFTER THE REPORTING PERIOD

The Company declared a dividend of 2.00 pence per Ordinary Share, equaling GBP5,638,178, for the three-month period ended 31 December 2020 and paid the dividend on 1 April 2021.

On 1 March 2021, the Company closed on a USD$130 million gearing facility with MassMutual. At the closing, the Company drew USD$80 million which was used to repay the Company's previous gearing facility with Pacific Western Bank and the first-out participation facility on Avant, held with Axos Bank. The negotiated terms of the MassMutual facility include a three-year revolving period, an interest rate lower than that of the previous facility, and an option to upsize the facility from $130 million to $200 million and a six-year maturity.

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 28 April 2021.

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 and economic disruption caused by the COVID-19 pandemic. 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.

As a part of the continuation vote held at the 2020 AGM, the Directors resolved to apply the following condition ahead of the 2021 AGM:

v The Directors will propose an ordinary resolution to approve the continuation of the Parent Company as an investment company at the Parent Company's AGM in 2021 if the Parent Company's NAV (Cum Income) Return (calculated as set out in the Parent Company's annual report and financial statements) for the period from 1 April 2020 to 31 March 2021 is less than 4%. If the resolution is not passed the Directors will, within three months of the date of the resolution, put forward proposals to shareholders to the effect that the Parent Company be wound up, liquidated or unitised.

The Directors do not believe this resolution should automatically trigger the adoption of a basis other than going concern in line with the Association of Investment Companies ("AIC") Statement of Recommended Practice ("SORP") which states that it is more appropriate to prepare financial statements on a going concern basis unless a continuation vote has already been triggered and shareholders have voted against continuation.

The Directors considered a number of factors in reaching a conclusion, including that the total NAV (Cum Income) Return from 1 April 2020 to 31 December 2020 was 14.43% and additionally the estimated return from 1 April 2020 to 31 March 2021 was 24.08%. Based on this assessment the Directors concluded that an ordinary resolution to approve the continuation of the Company would not be proposed at the 2021 AGM.

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. 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 balance sheet loan investments held by the Group have a weighted average maturity of approximately three years which allows 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 2023 was modelled under scenarios addressing the three conditions below.

v (i) The Board will propose an ordinary resolution to approve the continuation of the Company as an investment company at the Company's AGM in 2021 if the Company's NAV (Cum Income) Return (calculated as set out in the Company's annual report and financial statements) for the period from 1 April 2020 to 31 March 2021 is less than 4%. If the resolution is not passed the Directors will, within three months of the date of the resolution, put forward proposals to shareholders to the effect that the Company be wound up, liquidated or unitised;

v (ii) The Board will offer shareholders an exit opportunity for up to 100% of the Ordinary Shares in issue immediately following the Company's AGM in 2023 if the Company's NAV (Cum Income) Return (calculated as set out in the Company's annual report and financial statements) for the period from 1 April 2020 to 31 March 2023 is less than 24%; and

v (iii) If the average discount to NAV at which the shares trade over the three-month period ending on 31 March 2023 is greater than 5%, the Board will offer shareholders an exit opportunity for up to 25% of the Ordinary Shares in issue immediately following the Company's AGM in 2023. For the avoidance of doubt, this exit opportunity will not be offered in the event the 100% exit opportunity in condition (ii) has been triggered.

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, including the impacts to the Group's financing facilities and were satisfied with the result of this analysis.

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 15 to 18, 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.

Based on the Group's processes for monitoring operating costs, the Investment Manager's compliance with the investment objective, asset allocation, the portfolio risk profile, liquidity risk and financial controls, and assuming stressed market conditions the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to 31 December 2023.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

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 financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and company financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.

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 international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union have been followed for the group financial statements and international accounting standards in conformity with the requirements of the Companies Act 2006 have been followed for the company financial statements, 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 also 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 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 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 the Directors' Report confirm that, to the best of their knowledge:

v the group financial statements, which have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the group;

v the company financial statements, which have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006, give a true and fair view of the assets, liabilities, financial position and profit of the company; and

v the 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:

Kevin Ingram

Chair

28 April 2021

SHAREHOLDER INFORMATION

INVESTMENT OBJECTIVE

The Company's investment objective is to generate an attractive total return for shareholders consisting of distributable income and capital growth through investments in financial services opportunities. 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.

INVESTMENT POLICY

The Company seeks to achieve its investment objective 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 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 Balance Sheet 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.

SECURITISATION

The Company may use securitisation typically only for loans purchased directly from portfolio companies through the Marketplace Model in order to improve overall profitability by: (i) lowering the cost of financing; (ii) further diversifying its portfolio using the same amount of equity capital; and (iii) to lowering the credit risk to the Company.

In order to securitise certain assets, a bankruptcy remote SPV would be established, solely for the purpose of holding the underlying assets and issuing asset-backed securities ("ABS") secured only on these assets within the SPV. Each SPV would be portfolio company specific and would be owned by the Company, in whole or in part alongside Other VPC Funds or investors. Each SPV used for securitisation will be ring-fenced from one another and will not involve cross-collateralisation. The SPV will then aim to raise debt financing in the capital markets by issuing ABS that are secured only on assets within the SPV. The SPV will also enter into service agreements with the relevant portfolio companies to ensure continued collection of payments, pursuance of delinquent borrowers (end consumers) and otherwise interaction with borrowers in much the same manner as if the securitisation had not occurred.

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             312,302,305 
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 2021       Annual General Meeting 
June 2021       Payment of interim dividend to 31 
                 March 2021 
30 June 2021    Half-year End 
September 2021  Announcement of half-yearly results 
September 2021  Payment of interim dividend to 30 
                 June 2021 
December 2021   Payment of interim dividend to 30 
                 September 2021 
31 December     Year End 
 2021 
 

DIVIDS

The following table summarises the amounts recognised as distributions to equity shareholders relating to 2020:

 
                                                                            GBP 
2020 interim dividend of 2.00 pence per Ordinary Share 
 paid on 11 June 2020                                                 6,116,226 
2020 interim dividend of 2.00 pence per Ordinary Share 
 paid on 17 September 2020                                            5,711,983 
2020 interim dividend of 2.00 pence per Ordinary Share 
 paid on 17 December 2020                                             5,662,531 
2020 interim dividend of 2.00 pence per Ordinary Share 
 paid on 1 April 2021                                                 5,638,178 
Total                                                                23,128,918 
 

DEFINITIONS OF TERMS AND 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 our 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 (Cum Income) - Calculated as the dividends declared during 2020 divided by the average Net Asset Value (Cum Income) of the Company for the year.

Gross Returns - Represents 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).

Market Capitalisation - Month-end closing share price multiplied by the number of shares outstanding at month end.

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.

 
                               2020 Calculation  Inception to Date 
                                                    Calculation 
(A) Closing NAV (Cum Income) 
 per share                          95.72p            95.72p 
(B) Opening NAV (Cum Income) 
 per share                          93.33p            98.00p 
(C) Dividends declared 
 and paid                           8.00p             39.59p 
D = (A - B + C) / B                 11.12%            38.07% 
 

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.

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 2020 to 31 December 2019 plus the dividends declared in 2020 divided by the traded share price as at 31 December 2019.

Trailing Twelve Month Dividend Yield - Calculated as the total dividends declared over the last twelve months as at 31 December 2020 divided by the 31 December 2020 closing share price.

   CONT A CT   D E T A I LS   O F   TH E   A D VISE RS 
 
Directors                              Clive Peggram 
                                        Elizabeth Passey 
                                        Kevin Ingram 
                                        Mark Katzenellenbogen 
                                        Graeme Proudfoot 
                                        Oliver Grundy 
                                        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                          Northern Trust Hedge Fund Services LLC 
                                        50 South LaSalle Street 
                                        Chicago 
                                        IL 60603 
                                        United States 
Registrar                              Link Asset Services 
                                        Central Square 
                                        29 Wellington Street 
                                        Leeds 
                                        LS1 4DL 
                                        United Kingdom 
Custodians                             Merrill Lynch, Pierce, Fenner & Smith 
                                        Incorporated 
                                        101 California Street 
                                        San Francisco 
                                        CA 94111 
                                        United States 
 
                                        Millennium Trust Company 
                                        2001 Spring Road 
                                        Oak Brook 
                                        IL 60523 
                                        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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April 29, 2021 02:00 ET (06:00 GMT)

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