VPC Specialty Lending Investments PLC
ANNUAL REPORT
AND AUDITED
FINANCIAL STATEMENTS
For the year ended 31 December 2021
VPC SPECIALTY LENDING
INVESTMENTS PLC
INTRODUCTION
Financial Highlights 1
Introduction to the Company and the Group 5
Investment Objectives 5
STRATEGIC REPORT
Chairman’s Statement 7
Investment Manager’s Report 10
Business Model 19
Performance Management 21
Principal Risks 22
Culture 30
Employees, Human Rights, Social 31
and Community Issues
Board Diversity 31
Environmental, Social, and Governance 31
(ESG) Issues
Streamlined Energy and Carbon 31
Reporting (SECR)
INDEPENDENT AUDITORS’ REPORT
Independent Auditors’ Report 33
FINANCIAL STATEMENTS
Consolidated Statement of 42
Financial Position
Consolidated Statement of 44
Comprehensive Income
Consolidated Statement of 46
Changes in Equity
Consolidated Statement of 48
Cash Flows
Parent Company Statement of 50
Financial Position
Parent Company Statement of 51
Changes in Equity
Parent Company Statement of 53
Cash Flows
Notes to the Consolidated 54
Financial Statements
GOVERNANCE
Board of Directors 105
Directors’ Report 107
Corporate Governance Statement 112
Audit and Valuation Committee Report 123
Directors’ Remuneration Report 126
Statement of Directors’ Responsibilities 131
Regulatory Disclosures 132
SHAREHOLDER INFORMATION
Shareholder Information 134
Definitions of Terms and Alternative 137
Performance Measures
Contact Details of the Advisers 138
CONTENTS
Company Number 9385218
FINANCIAL HIGHLIGHTS
RETURN SUMMARY AS AT 31 DECEMBER 2021
All the terms and alternative performance measures above are defined on page 137.
NAV (Cum Income)
Return
+27.60%
(2020: +11.12%)
Net Asset Value per
Ordinary Share
114.14p
(2020: 95.72p)
Dividends per
Ordinary Share
8.00p
(2020: 8.00p)
Total Shareholder Return
at 31 December 2021
(based on share price)
+27.32%
(2020: +10.87%)
Total Net Return
£73.21 million
(2020: £22.95 million)
Revenue Return
£21.12 million
(2020: £23.90 million)
Discount to NAV
at 31 December 2021
19.22%
(2020: 17.77%)
Ordinary Share Price
at 31 December 2021
92.20p
(2020: 78.70p)
INTRODUCTION
VPC SPECIALTY LENDING INVESTMENTS PLC
1
PERFORMANCE
The table below illustrates the Company’s NAV return and dividend per share from 1 January 2019 to 31 December 2021.
ORDINARY SHARE PERFORMANCE
The table below illustrates the Company’s Ordinary Share performance over the past three years. The Company’s discount to its
Ordinary Share NAV remained relatively consistent when comparing the end of 2021 and 2020 with the discount increasing
slightly to 19.22% from 17.77%. The largest discount during the year was 26.09% while the smallest discount was 9.53%. The
graph below illustrates the movement between the trading price of the Ordinary Shares and the announced NAV adjusted for
dividends declared. Further information on the share price discount management policy can be found on page 21.
Discount
Price
NAV
Price / NAV
(cum income)
Premium / Discount
40.00
50.00
60.00
70.00
80.00
90.00
100.00
110.00
120.00
130.00
Dec-21Sep-21Jun-21Mar-21Dec-20Sep-20Jun-20Mar-20Dec-19Sep-19Jun-19Mar-19Dec-18
–60.00%
–50.00%
–40.00%
–30.00%
–20.00%
–10.00%
0.00%
10.00%
20.00%
30.00%
NAV Return (%)
Dividends (p)
0
10
20
30
40
50
60
70
Dividend
NAV
Dec-21Se
p
-21Jun-21Mar-21Dec-20Se
p
-20Jun-20Mar-20Dec-19Se
p
-19Jun-19Mar-19Dec-18
0
10
20
30
40
50
60
70
INTRODUCTION continued
VPC SPECIALTY LENDING INVESTMENTS PLC
2 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
TOP TEN POSITIONS
The table below provides a summary of the top ten positions of the Group, net of gearing, as at 31 December 2021. The
summary includes a look-through of the Group’s investments in VPC Synthesis, L.P. and VPC Offshore Unleveraged Private Debt
Fund Feeder, L.P. to illustrate the exposure to underlying Portfolio Companies as it is a requirement of the investment policy (set
out on pages 134 and 135) to consider the application of the restrictions in this policy on a look-through basis.
PERCENTAGE
INVESTMENT COUNTRY INVESTMENT TYPE OF NAV
Applied Data Finance, LLC United States Asset Backed Lending 12.14%
Applied Data Finance, LLC provides credit to non-prime and near-prime consumers in select states across the U.S. The company
is headquartered in San Diego, with offices in New York, in addition to an IT and call center support in Chennai, India. Financings
are in the form of instalment loans and range up to $10,000.
Caribbean Financial Group Holdings, L.P. Latin America Asset Backed Lending 10.74%
Caribbean Financial Group Holdings, L.P. is the largest non-bank provider of unsecured consumer instalment 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
amortising simple interest loans with equal monthly payments and rates based on underwriting customers’ ability to pay.
Perch HQ, LLC United States Asset Backed Lending 9.84%
PerchHQ, LLC is a technology-enabled platform that seeks to acquire and operate a diverse portfolio of e-commerce assets on
retail marketplaces. Perch primarily targets Amazon third-party sellers (“TPS”) and e-commerce brands with: (i) leading market
positions in respective product categories; (ii) a defensible “moat” from customer reviews and search engine optimisation; and
(iii) $1-15M in sales and $200K-5M in contribution margin (or “Asset-Level EBITDA”) (on average, ~$2M of Asset-Level EBITDA at
~25% operating margins). The company aims to acquire underlying brands at 2-5x Asset Level EBITDA, and drive value through
post-acquisition brand initiatives including pricing strategy, advertising strategy, cost savings, supply chain efficiencies, and
general Amazon account management optimisation.
Elevate Credit, Inc. United States Asset Backed Lending 7.36%
Elevate Credit, Inc. (“Elevate”) is a lender of unsecured short-term cash advances and instalment 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. instalment loans (Rise), lines of
credit (Elastic) and credit card (Today Card).
Deinde Group, LLC United States Asset Backed Lending 4.86%
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).
VPC SPECIALTY LENDING INVESTMENTS PLC
3
PERCENTAGE
INVESTMENT COUNTRY INVESTMENT TYPE OF NAV
Heyday Technologies, Inc. United States Asset Backed Lending 4.40%
Heyday Technologies, Inc. (“Heyday”) is a tech enabled platform that seeks to acquire and aggregate a diverse portfolio of retail
assets which are sold primarily via e-commerce marketplaces. Heyday primarily targets Amazon Marketplace third-party sellers
(“TPS”). The company aims to acquire underlying brands/seller at 2-5x earnings, and drive value through post-acquisition brand
management initiatives and underlying multiple expansion. Heyday aims to differentiate itself from other TPS aggregators in the
novel ecosystem by investing heavily and early in its technology and analytics capabilities thereby allowing the company to
easily identify and optimise operating improvements within its portfolio at scale.
VPC Impact Acquisition Holdings Sponsor, LLC United States Equity Investment 4.01%
Bakkt Holdings, LLC, the digital asset marketplace founded in 2018, completed a business combination with VPC Impact Acquisition
Holdings, a special purpose acquisition company sponsored by VPC Impact Acquisition Holdings Sponsor, LLC (“VPC Sponsor”), an
affiliate of Victory Park Capital (“VPC”). The combined company operates as Bakkt Holdings, Inc. (“Bakkt”), and Bakkt’s shares of Class
A common stock trade on the New York Stock Exchange under the ticker symbol “BKKT”. Bakkt is a trusted digital asset marketplace
that enables consumers to buy, sell, store and spend digital assets. Bakkt’s retail platform, now available through the recently-released
Bakkt App and to partners through the Bakkt platform, amplifies consumer spending and bolsters loyalty programmes, adding value
for all key stakeholders within the Bakkt payments and digital assets ecosystem.
Razor Group GMBH Germany Asset Backed Lending 3.59%
Razor Group GmbH (“Razor”) is a technology driven consumer goods platform that acquires and operates a diverse portfolio of
branded Amazon third-party seller (“TPS”) assets primarily in Europe. Razor targets brands with €100K – €3.5 million of seller’s
discretionary earnings (“Asset-Level EBITDA”) to be acquired at purchase multiples of 1.5x – 5.0x TTM Asset-Level EBITDA.
West Creek Financial, Inc. United States Asset Backed Lending 2.56%
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.
Dave, Inc. United States Asset Backed Lending 2.31%
Dave, Inc. (“Dave”) is an emerging Neobank and mobile app-based service that links to consumers’ external bank accounts,
monitors spending behaviour, provides budgeting tools and issues warnings about upcoming bills that might push users towards
an overdraft. Dave has over 5.0 million bank connected customers on its platform and recently launched “Dave Banking”, its own
branded, zero fee checking account (1 million+ accounts). On top of its banking services, Dave’s core product allows users to
budget for upcoming expenses before their next paycheck and offers interest-free advances of up to $200.
INTRODUCTION continued
VPC SPECIALTY LENDING INVESTMENTS PLC
4 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
VPC SPECIALTY LENDING INVESTMENTS PLC
5
INTRODUCTION TO THE COMPANY AND THE GROUP
VPC Specialty Lending Investments PLC (the “Company” or “VSL”) provides asset-backed lending solutions to emerging and
established businesses (“Portfolio Companies”) with the goal of building long-term, sustainable income generation. VSL focuses
on providing capital to vital segments of the economy, which for regulatory and structural reasons are underserved by the
traditional banking industry. Among others, these segments include small business lending, working capital products, consumer
finance and real estate. VSL offers shareholders access to a diversified portfolio of opportunistic credit investments originated by
non-bank lenders with a focus on the rapidly developing technology-enabled lending sector.
The Company’s investing activities are undertaken by Victory Park Capital Advisors, LLC (the “Investment Manager” or “VPC”). VPC
is an established private capital manager headquartered in the United States with a global presence. VPC identifies and finances
emerging and established businesses globally and seeks to provide the Company with attractive yields on its portfolio of credit
investments. VPC offers a differentiated private lending approach by financing Portfolio Companies through asset-backed delayed
draw term loans, which is referred to as “Asset Backed Lending,” designed to limit downside risk while providing shareholders
with strong income returns. Through rigorous due diligence and credit monitoring by the Investment Manager, the Company
generates stable income with significant downside protection.
A summary of the principal terms of the Investment Manager’s appointment and a statement relating to their continuing
appointment can be found on page 122. The investment policy can be found beginning on page 134 of this Annual Report.
Founded in 2007 and headquartered in Chicago, VPC is an SEC-registered investment adviser that has been actively involved in
the financial services marketplace since 2010.
This annual report for the year to 31 December 2021 (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 £200 million by
completing a placing and offer for subscription (the “Issue”). The Company raised a further £183 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.
INVESTMENT OBJECTIVES
The Company’s investment objectives are to:
generate an attractive total return for shareholders of consistent distributable income
and capital growth through asset-backed lending;
achieve portfolio diversification to emerging and established businesses across
different industries and geographies with the goal of building long-term, sustainable
value; and
enable shareholders to benefit from equity upside through equity-linked securities
issued in conjunction with asset-backed lending.
STRATEGIC
REPORT
The Strategic Report comprises a review of the Company’s performance for the year ended 31 December 2021, the
Chairman’s Statement, and Strategy and Business Model, including principal and emerging risks and disclosures on
environmental matters, human rights, employee, social and community issues.
The aim of the Strategic Report is to provide shareholders with the ability to assess how the Directors have performed in
their duty to promote the success of the Company in accordance with section 172 of the Companies Act 2006 (the “Act”) by:
analysing development and performance using appropriate Key Performance Indicators (“KPIs”);
providing a fair and balanced review of the Company and Group’s business;
outlining the principal risks and uncertainties affecting the Company and the Group;
describing how the Company manages these risks;
setting out the Company’s environmental, social and ethical policy;
outlining the main trends and factors likely to affect the future development, performance and position of the
Company’s business; and
setting out the direction in which the Company and the Group is heading.
VPC SPECIALTY LENDING INVESTMENTS PLC
7
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2021
CHAIRMAN’S STATEMENT
In my first Chairman’s Statement, I am pleased to report on a year in which the Company made excellent progress and delivered
strong returns to shareholders. This against a backdrop which continues to this day of turbulent economic and geopolitical
events. Throughout, our Investment Manager has remained focused on the successful management of risk, supporting Portfolio
Companies and discovering new investment opportunities.
Whilst elements of our returns in the financial year may be particular to 2021, we believe that the investment case for the
Company remains robust, not only due to the resilient nature of its asset backed investments, but also through its advantageous
market positioning in the fintech universe.
HIGHLIGHTS IN 2021
Total NAV return of 27.60% for the year, the Company’s best ever, surpassing the 2019 and 2020 total NAV returns of
11.34% and 11.12%, respectively;
Total shareholder return of 27.32% for the year;
The Company paid its 16th consecutive quarterly dividend of 2.00p per share for the three-month period to December
2021;
Resilient performance of the asset backed loan investments with the Company receiving all interest payments on time
during the year; and
The Company was named “Investment Company of the Year” (Debt Category) at Investment Week’s annual investment
awards in November 2021.
THE COMPANY’S BUSINESS
For the 12 months to the end of December 2021, the NAV per share of the Company increased by 27.60% (26.42p) on a total
return basis, comprising a NAV per share increase from 95.72p to 114.14p, plus the 8.00p of dividends paid in 2021. During the
year, the share price increased from 78.70p to 92.20p. 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 the total returns during the year and continue to be the long-term dividend
target of the Company.
The Company generated returns from three key sources: the core lending business, equity interests arising from the core lending
business, and special purpose acquisition company (“SPAC”) investments.
The core lending business, which represents 67% of the total portfolio at year-end, has over recent years benefitted from a
secure lending position, ensuring minimal capital losses and a high level of income generation that supports the annual dividend
payment of 8.00p per share. Most of the Company’s asset backed investments are delayed draw, floating rate senior secured
loans that have equity subordination. The asset backed investments are also backed by underlying collateral consisting of
consumer loans, small business loans and other types of collateral.
The equity interests arising from the core lending business allow us to benefit from an element of equity participation without
having to contribute equity risk capital. This has proven to be an extremely valuable aspect of the Company performance in
2021. Over the year to 31 December 2021, this has contributed 11.59p per share to overall returns.
Finally, VPC’s strength in the market has allowed us to participate in the opportunities presented by SPAC sponsorship. VPC has
successfully developed an extensive deal sourcing network in the fintech universe through its existing lending business, and
throughout 2021 SPAC deals have provided a way to capitalise on this network for the benefit of our shareholders. The SPAC
deals that VPC participates in are generally with counterparties it is already familiar with through its lending relationships,
ensuring a greater element of confidence in the SPAC process. That said, the SPAC market as a whole has been particularly
volatile of late, and our holdings have been no exception, with valuations of the Company’s SPAC holdings over the year ranging
from 27.95p to 4.82p per share. The value of the Company’s SPAC holdings have contributed 10.64p per share to overall returns
and had a total value of 12.43p per share at 31 December 2021.
As at 31 December 2021, the Group was fully invested in a diversified portfolio of asset backed and equity investments that
continue to deliver strong risk-adjusted returns. While the macroeconomic backdrop for non-traditional credit has remained
somewhat volatile, VPC’s risk mitigation measures, the resilience of the portfolio and its performance have been encouraging.
THE COMPANY’S SHARES
The Board takes the view that the typical discount to NAV at which our Company’s shares trade is too high and this has obvious
disadvantages to the Company. Shareholders are unable to fully realise the underlying value of their holdings, while the
Company is unable to raise additional equity capital to take advantage of attractive lending opportunities in the market.
As noted in last year’s Annual Report, in 2020 as part of the Continuation vote, the Company will offer an exit opportunity where
the Company will buy back up to 25% of the shares in the Company should they trade at an average discount greater than 5%
over the first quarter of 2023. As things currently stand, that exit opportunity is likely to be offered and all shareholders will be
notified in due course should this continue to be the case. In the meantime, taking action to reduce the discount to NAV is a
priority for the Company, and various steps are being taken towards achieving that goal. In the meantime, the discount ought
to be helped by our strong and consistent investment performance, backed by active risk management, by our ability to
demonstrate that to existing and potential shareholders, and to market the shares actively.
INVESTMENT OPPORTUNITIES
As the Investment Manager details in their report, they are seeing a healthy supply of opportunities in the market. VPC’s
long-standing reputation and relationships with Portfolio Company management teams, industry professionals and experts have
helped to create a differentiated deal pipeline.
Overall, we are very pleased with the Company’s performance, which demonstrates the merit of VPC’s approach to structured
credit lending to technology-enabled businesses combined with a strong culture of risk management. It also demonstrates the
value of acquiring equity stakes that benefit from the continued growth of the Portfolio Companies.
THE COMPANY’S IMPACT
As an investment trust, the Company does not itself have employees, property, factories, and the like, so our ability to positively
impact what we do flows to the greatest extent from our Investment Manager and the opportunities we are invested in. The
Investment Manager aims to operate and invest responsibly, ethically, and fairly and we continue to review our environmental,
social and governance (“ESG”) stance. Decisions taken are made with due consideration to long-term sustainability and impact
on stakeholders. For example, the Directors and Investment Manager are mindful of their carbon footprints if they are required
to travel on Company business.
In addition, the Board and the Investment Manager is committed to ensuring the Company’s culture is in line with its stated
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. All aspects of diversity, including gender diversity, are acknowledged, and
we believe the Company’s activities benefit from a wide range of skills, knowledge, experience, backgrounds, and perspectives.
Through our lending to and investing in innovative and often technology-based businesses, we are able to have a particularly
positive impact on the wider world in which we operate. For example, our lending has helped Sunbit, Inc. to grow its business
helping people with everyday needs like car repairs and opticians. Our investment in Dave, Inc. supports the company’s cash
advance product which helps consumers avoid bank fees with little or no cost to the consumer. These are examples of the
Investment Manager’s commitment to leading by example, taking a progressive approach to responsible investment and playing
its part in building a more sustainable financial system.
OPERATIONAL RESILIENCE
As the world entered its second full year of the COVID-19 pandemic, its effects continue to impact global health, economies, and
social behaviour. Our Investment Manager’s senior leadership has continued to follow guidance from the U.S. Centers for Disease
Control and Prevention (“CDC”). VPC employees have more recently been able to make a successful return to working in the
office, following the procedures outlined in VPC’s Pandemic Response Plan. At the same time, VPC’s technology and resources
ensured that their employees could also work from home where necessary, without any operational disruption, as they largely
did through 2021. As a result, the work of the Company has not been negatively impacted by those factors. The Investment
Manager continues to monitor the latest health developments to determine the most appropriate working policies for
employees. For example, the Pandemic Response Plan continues to be updated on a regular basis by a dedicated internal team
who use government and CDC guidance to define safety policies and procedures, and whilst we hope that this year’s Annual
General Meeting will be able to be held in person, our ability to do so will depend on current conditions.
STRATEGIC REPORT continued
VPC SPECIALTY LENDING INVESTMENTS PLC
8 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
VPC SPECIALTY LENDING INVESTMENTS PLC
9
In terms of portfolio management, the Investment Manager continues to promote a culture of proactive risk management and
controls across the portfolio. Most of the underlying investment exposure is to the U.S. consumer. As such, the impact on the
US economy from the COVID-19 pandemic continues to present additional potential credit risk. The investment teams are in
contact with the Portfolio Companies to ensure they are taking prudent steps to mitigate transmission risk. The Investment
Manager monitors the cash balances of the Company daily and as of the writing of this report, the Company has received all
contractual interest payments and will continue to monitor cash flow closely during the COVID-19 pandemic.
OUTLOOK
Finally, the Board hopes that you, your family, friends and colleagues are and remain healthy. At the time of writing this outlook,
and as 2022 unfolds, there is much to feel apprehensive about. The COVID-19 pandemic is still with us, delaying hopes of a
return to normality. Interest rates are rising sharply as governments withdraw pandemic support programmes and as central
banks battle spiralling inflation. Of even greater concern, the ongoing conflict between Russia and Ukraine is an historic
geopolitical event and a humanitarian tragedy that threatens to have long-term implications for the global economy. More
details on the outlook of the Company can be found on pages 17 and 18 of the Investment Manager's Report.
At uncertain times like these, it is understandable to consider only the negatives. But there is also room for some optimism. As
of the date of this report, the prospects for the Company remain attractive. Our Investment Manager has shown it can carry on
its normal business and continue to deliver risk-adjusted returns through the pandemic to date. It has also demonstrated the
level of its commitment to invest responsibly, both within the Company and as an exemplar to Portfolio Companies. That is
something that the Board and all shareholders can feel justifiably positive about whilst the Investment Manager continues to
work to generate returns on our behalf.
Graeme Proudfoot
Chair
27 April 2022
STRATEGIC REPORT continued
VPC SPECIALTY LENDING INVESTMENTS PLC
10 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
INVESTMENT MANAGER’S REPORT
ABOUT VPC
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 “Asset Backed Lending”. This is 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. VPC offers an institutional-calibre partnership with
a hands-on approach. 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
Founded prior to the global financial crisis in 2007 by Richard Levy and Brendan Carroll
VPC has long-standing experience investing opportunistically amidst volatility and market complexities
Headquartered in Chicago with resources in New York, Los Angeles, Austin, and Miami
Investment Manager of the Company since its IPO in 2015
Company named “Best Performing Debt Fund” in Citywire’s Fourth Annual Investment Trust Awards
Private Credit Solutions
Private credit specialist with a focus on capital preservation across multiple market environments
Lender to both established and emerging businesses across various industries in the U.S. and abroad
Extensive experience lending to companies across the credit spectrum
Developed Risk Management Culture & Process
Deeply embedded risk culture permeates VPC
VPC leverages proprietary risk tools and analytics to drive underwriting and portfolio management decisions
Customised monitoring and reporting process allows for granular analysis across multiple dimensions
Seasoned Investment Team
Senior investment team averages over 20 years of relevant experience
Since inception, VPC has invested approximately USD$9.0 billion across 144+ investments
History of generating strong returns throughout various market cycles
Differentiated restructuring expertise complements strong risk management
VPC SPECIALTY LENDING INVESTMENTS PLC
STRATEGY AND BUSINESS MODEL
Structuring Approach
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 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 the
Company 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. As the Investment Manager of the Company, VPC
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 VPC competes with some of the largest
and most recognised firms in the world when sourcing new investments. However, VPC believes it has created a sustainable
competitive advantage in its investment strategy. VPC’s investment approach has consistently paid off, evident through the
success 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 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.
The Company, alongside VPC’s private funds, also receives the benefit of scale from the arrangement. VPC is 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 the Company continues 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.
TYPICAL STRUCTURING APPROACH
VPC Collateral Coverage
(Going Concern)
VPC Collateral Coverage
(Stressed Liquidation Value)
15%-30% Overcollateralisation
10%-15% Overcollateralisation
First Loss Equity Cushion
First Loss Equity Cushion
Excess Cash Flow (Income)
Excess Cash Flow (Income)
Extra Asset Value (“Boot”
Collateral)
VPC Debt
(Structrured as a % of
Asset Value)
Extra Asset Value (“Boot”
Collateral)
VPC Debt
(Structrured as a % of
Asset Value)
11
STRATEGIC REPORT continued
VPC SPECIALTY LENDING INVESTMENTS PLC
12 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
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. 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
is able to 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. This risk management approach and
focus are key to meeting the Company’s investment objectives, particularly in a potentially more challenging future credit
environment.
LEVERAGING THE VPC PLATFORM
Long-standing relationships with portfolio company management teams,
industry professionals and experts create a differentiated deal pipeline
Relationships are a critical advantage in sourcing deals and securing preferential
capacity in a portfolio company’s development
PROPRIETARY ADVANTAGE
“Boots on the ground” in five major cities provides the VPC with a wide funnel
of investment opportunities
Extensive reach with active engagement of management teams and diligence
opportunities
Robust sourcing and direct origination allow VPC to primarily act as the
sole lender for non-sponsored and non-syndicated investments
DIVERSIFIED CHANNELS
Pipeline built through trusted and often repeat relationships, industry
knowledge and value-added structuring capabilities
Leverages a diverse database to directly target businesses that combine
VPC’s underwriting expertise with its thematic industry subsector views
Potential sourcing avenues include direct relationships with portfolio companies,
venture capital and private equity firms, investment banks, fixed income,
structured product desks, restructuring advisors and traditional lenders
Equity Owner
14%
Intermediary
22%
Direct
64%
VSL CREDIT STRATEGY - SOURCING CHANNELS
(As at December 31, 2021)
VSL continues to have a very active pipeline for attractive
new investment opportunities driven by the Investment
Manager’s strong global sourcing reach
VPC SPECIALTY LENDING INVESTMENTS PLC
Stress Scenario Performance and Wind-down Analysis
The Company’s 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 asset backed investments. This ensures that the Portfolio Companies and their equity investors’
capital would have to be fully impaired before an asset backed 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. VPC prides itself on its structural protections, risk management and
portfolio monitoring, as this is an important area of focus that is constantly evaluated.
Even as the risks brought about by the COVID-19 pandemic begin to recede, risk management, risk controls, and liquidity
management remain key concerns. VPC’s dedicated Risk Management team is committed to working collaboratively with
investment teams to closely monitor the Company’s investment portfolio. Teams have also continued to work proactively with
the Portfolio Companies to ensure they are taking prudent steps to mitigate risk throughout the pandemic.
REVIEW OF 2021 PERFORMANCE
The Company completed the year with a total NAV return of 27.60% and a gross revenue return of 13.03%. This was the
Company’s best year since inception in performance terms, and caps four years of very strong returns. Investors continue to
benefit from the “best of both worlds”, with consistent distributable income achieved through asset-backed lending, combined
with the positive performance of the Company’s equity investments.
Credit investments are structured with first-loss protection as Portfolio Companies generally contribute the equity tranche, which
aligns incentives with equity investors. Equity investments are made up of common stock, preferred stock, warrants and
convertible debt, many of which were acquired in conjunction with making the Company’s asset backed loan investments. While
the world has not yet returned to “normal”, the existing asset backed loan portfolio has continued to perform as expected, and
collateral across asset classes has remained healthy and stable. The post-COVID investments made in 2021 offer attractive
risk-adjusted returns and will continue to provide growth opportunities over the coming years.
VPC’s long-standing reputation and relationships with Portfolio Company management teams, industry professionals and experts
has facilitated a differentiated deal pipeline. Over the course of 2021, the Company had the opportunity to expand its exposure
in special purpose acquisition companies (“SPACs”). SPACs have proven to be an extremely effective way for private companies
to tap into public equity markets, and SPAC sponsors typically receive 20% of the common equity in the SPAC for an investment
of approximately 3% to 4% of the IPO proceeds. VPC’s expertise as an investment manager, and relationships in the financial
technology sector, gave it the opportunity to supplement its core business model by identifying SPAC opportunities within the
sector. As at 31 December 2021, VPC had sponsored attractive deals for four SPACs. The Company has invested 1.43p per share
in SPACs, and as at 31 December 2021 the SPACs represented approximately 12.43p per share, of which 11.00p per share of the
total was unrealised gain.
EMBEDDED
RISK
CULTURE
STRUCTURAL PROTECTIONS
Direct
75.6%
RISK & DATA
ANALYTICS
TOOLS
MARKET
RESILIENT
PORTFOLIO
Senior level leadership and oversight of
risk management
Dedicated risk and operations
professionals work collaboratively with
VPC deal teams but also report to VPC’s
Investment Committee to preserve
independence from deal teams
Active management throughout the life
of an investment
Rigorous portfolio and asset level stress
testing
Traditional risk management is augmented
with advanced proprietary analytics
which have been built with more than
a decade of historical data
Customised monitoring and reporting
process allows for granular analysis
across multiple dimensions
Credit investments are structured with first loss protection as portfolio companies generally contribute the equity tranche, which aligns
incentives with equity investors
Investments are typically structured as delayed draw term loans to an SPV with a corporate guarantee, first lien priority and transparency
that fund over time based on performance of the underlying collateral
Lends against a narrowly defined and dynamic collateral pool, which is intended to reduce the probability of loss
Ability to foreclose on collateral and control the liquidation of assets to protect its investments
13
STRATEGIC REPORT continued
VPC SPECIALTY LENDING INVESTMENTS PLC
14 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
As the world entered its second full year of the COVID-19 pandemic, the VPC Senior Leadership team continued to follow the
updates and guidance from the U.S. Centers for Disease Control and Prevention (“CDC”). VPC employees were able to continue
to work in the office, utilise resources and meet with visitors at their comfort level, provided they followed the procedures
outlined in the corporate Pandemic Response Plan. At the same time, VPC’s robust technology systems and resources enabled
VPC employees to continue to work remotely where necessary, without any operational disruption. In terms of portfolio
management, VPC maintained a culture of proactive risk management and controls across the portfolio. The investment teams
were in constant contact with the Portfolio Companies to proactively ensure prudent steps were being taken to mitigate
transmission risk on a real-time basis.
Overall, VPC is very pleased with the Company’s performance, which demonstrates the merit of VPC’s approach to structured
credit lending to technology-enabled businesses and strong culture of risk management. It also demonstrates the value of
acquiring equity stakes that benefit from the continued growth of the Portfolio Companies, and the strong pipeline of
investment opportunities that result from these relationships, which gives VPC a critical advantage in sourcing deals and securing
preferential capacity in the development of Portfolio Companies. This approach has now attracted a significant following among
retail investors and led to increased industry recognition, including receiving Investment Week’s Annual Investment Company of
the Year (Debt Category) Award in November 2021.
In February 2022, the Company declared its sixteenth consecutive quarterly dividend payment of 2.00p per share for the
three-month period to 31 December 2021. In an era where high levels of income are increasingly hard to maintain, VPC is proud
of the Company’s proven track record of earning consistently high returns for investors, while protecting downside risk via credit
enhancement and deep structuring expertise.
COMPANY PERFORMANCE
Below is a breakout of the Company’s returns, both as a percentage of NAV and pence per share on the weighted average shares
outstanding in 2021.
1 January 2021 to 31 December 2021 Total Return (% of NAV)
1 January 2021 to 31 December 2021 Total Return (pence per share)
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
Asset Backed
Loan Revenue
Returns
Operating
Expenses and
Management
Fees
Performance
Fees
Marketplace
Loan and
Securitisation
Ca
p
ital Returns
Asset Backed
Loan Capital
Returns
Finance CostsEquity Capital
Returns
Total
Return
F/X and Other
Returns
13.03%
–1.70%
27.60%
24.59%
1.74%
0.07%
–1.61%
–2.23%
0.26%
–4.77%
0.00p
5.00p
10.00p
15.00p
20.00p
25.00p
30.00p
35.00p
40.00p
Asset Backed
Loan Revenue
Returns
Operating
Expenses and
Management
Fees
Performance
Fees
Marketplace
Loan and
Securitisation
Ca
p
ital Returns
Asset Backed
Loan Capital
Returns
Finance CostsEquity Capital
Returns
Total
Return
F/X and Other
Returns
12.61p
–1.70%
26.17p
23.80p
1.68p
0.07p
–1.56p
–2.16p
0.29p
–4.62p
VPC SPECIALTY LENDING INVESTMENTS PLC
INVESTMENTS
In order to meet the Company’s investment objectives within the pre-defined portfolio limits, capital was allocated across several
Portfolio Companies with a focus on portfolio level diversification. As at 31 December 2021, the Company’s investments were
diversified across 48 different Portfolio Companies across the U.S., UK, Europe, Australia, Asia and Latin America. As at
31 December 2021, the Company had exposure to 24 Portfolio Companies through asset backed loans and 34 Portfolio
Companies through equity securities or convertible notes.
During the year, the Company’s portfolio of asset backed 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 continued to show strong performance with no signs of
immediate macro weakness. Furthermore, the pipeline of available asset backed investment opportunities remained strong.
Portfolio Composition as at 31 December 2021
The Company continued to implement the strategy of deploying capital across a broad range of Portfolio Companies with
diversity of geographies, borrower types and credit quality. Below are the breakouts of the Company’s portfolio composition as
at 31 December 2021:
Gross Asset Investment Exposure, Investment Exposure
Allocation
1
by Sector
2 by
Geography
2
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, the Company
has a distinct competitive advantage in securing these gearing facilities at attractive rates. During the year, the Look-Through
Gearing Ratio remained relatively consistent. Having started the year at 0.32x it ended the year at 0.34x, as VPC continued to
take a conservative approach to liquidity and risk management with the gearing facilities through the COVID-19 pandemic.
ESG INVESTMENT CONSIDERATIONS
VPC has a long history of commitment to ESG considerations as part of its investment process and firm-wide operations, and
has always aimed to invest in businesses that it can be proud to support. In 2018, VPC launched a partnership with the
International Finance Corporation (“IFC”), the private sector arm of the World Bank, to provide credit to businesses in emerging
markets. Since that initial policy in 2018, the policy and processes around how VPC integrates ESG into its investment strategies
and firm operations have continued to expand in scope and sophistication.
Today, VPC’s ESG policy is considered in the investment decisions made across its organisation. Part of the policy involves clearly
defining what the Company will and will not invest in, as there are certain industries and business practices that are not
supported. Another important piece of the ESG programme involves understanding the risks and potential risks related to ESG,
Preferred
Stock
12%
Debt
67%
Warrant
4%
Cash
1%
Convertible
Debt
6%
Common
Stock
10%
Legal
Finance
4%
eSME
25%
SPAC
6%
Fintech
61%
United
States
73%
Europe
8%
Asia
4%
Latin
A
merica
15%
15
1
Percentages calculated on a look-through basis to the Company’s investee entities and SPVs.
2
Calculations using gross asset exposure and not reduced for gearing. Excludes cash.
STRATEGIC REPORT continued
VPC SPECIALTY LENDING INVESTMENTS PLC
16 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
and enacting processes to identify, mitigate and remediate any issues that do arise. Lastly, and perhaps most importantly, the
ESG policy creates accountability throughout the organisation and across Portfolio Companies.
VPC approaches ESG from a holistic perspective to understand the full range of potential ESG risks for any given investment. For
each investment underwritten, the applicable ESG factors are identified and mapped-out in conjunction with a due diligence
plan to understand the relevant risks and mitigants related to those factors. With fintech investments, the Investment Manager
focuses on the “Social” aspects of ESG, as those typically have the largest overall impact on the business. It looks to invest in
fintech companies that are supporting financial inclusion and have a positive impact on customers and other stakeholders. That
means having products that are transparent and structured in a way that is fair to customers and promotes financial health. It
also means having proper controls and systems in place to safeguard against harmful tactics or business practices.
As VPC has expanded into new investment categories, this frequently means re-evaluating ESG factors and risks in those specific
areas. The past 12 months saw tremendous growth in e-commerce-related businesses, and those investments face unique ESG
questions around acceptable manufacturing practices and supply chains. It is VPC’s responsibility to educate itself about the key
issues relating to any potential investment, and it is important it sets appropriate standards in these areas and discusses those
issues with all relevant partners.
As part of VPC’s standard risk management process, it is very active in monitoring Portfolio Companies across all dimensions,
including ESG. It has frequent touchpoints with Portfolio Companies and receives extensive reporting to identify any potential
issues. It also holds weekly Investment Committee meetings to discuss any potential concerns and how to address or remediate
them. Equally important, VPC regularly engages with Portfolio Companies to understand how they are thinking about
ESG-related issues and to share best practices. Given VPC works with many early stage, high growth companies, it aims to act
as a resource to Portfolio Companies as they grow and develop their ESG practices over time.
In August 2021, VPC announced it had become a signatory of the United Nations-supported Principles for Responsible
Investment (“PRI”), further demonstrating its commitment to integrating ESG considerations into its investment decision making.
PRI is the pre-eminent institution advocating for ESG issues to be at the forefront of investment decision making and VPC is
proud to be a signatory. This demonstrates VPC takes its responsibility to drive positive impact, both within the financial services
industry and in society, very seriously, and that it is committed to responsible investing for the long term.
SUMMARY AND HIGHLIGHTS FOR THE YEAR
The financial and business highlights for the year ended 31 December 2020 are as follows:
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.
February 2021: The Company declared a dividend of 2.00 pence per share for the three-month period to 31 December
2020.
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) (“VPCB”) and VPC Impact Acquisition Holdings
III (NYSE: VPCC) (“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.
April 2021: The Company fully exited its asset backed investments in ATA KS Holdings, LLC and reinvested in three new
asset backed and equity investments in Razor Group GmbH (“Razor”), Moonshot Holdings LLC (“Moonshot”), and
CHEQ Limited CAN (“Beforepay”).
May 2021: The Company declared its 13th consecutive dividend of 2.00p per share for the three-month period to 31 March
2021.
May 2021: The Company invested in three new asset backed investments in Pattern Brands, Inc (“Pattern”), Factory 14 S.a.r.l.
(“Factory 14”) and Holland Law Firm (“Holland”).
June 2021: VPCC entered into a definitive agreement to combine with Dave. The business combination, which remains
subject to VPCC shareholder and customary regulatory approvals, is expected to close in the third or fourth quarter of
2021.
July 2021: The Company invested in one new asset backed investment, TALA Mobile, S.A.P.I. DE C.V. (“Tala”).
August 2021: The Company declared its 14th consecutive dividend of 2.00p per share for the three-month period to
30 June 2021.
August 2021: VPCB announced it had entered into a definitive agreement to combine with FinAccel Pte. Ltd.
VPC SPECIALTY LENDING INVESTMENTS PLC
August 2021: VPC announced it had become a signatory of the United Nations-supported Principles for Responsible
Investment (“PRI”), demonstrating its commitment to integrating ESG considerations into investment decision making.
October 2021: Bakkt Holdings, LLC, announced it had completed the previously announced business combination with
VCP Impact Acquisition Holdings, a special acquisition company sponsored by VPC Impact Acquisition Holders Sponsor, LLC
(VPC Sponsor”), an affiliate of VPC. The combined company now operates as Bakkt Holdings, Inc. (“Bakkt”) (NTSE: BKKT).
November 2021: The Company declared its 15th consecutive of 2.00p per share for the three-month period to
30 September 2021.
November 2021: The Company receives Investment Week’s Annual Investment Company of the Year Award (Debt
Category)
December 2021: L&F Acquisition Corp (NYSE: LNGA) (“LNFA”) a special purpose acquisition company sponsored by JAR
Sponsor, LLC (“VPC Sponsor”), an affiliate of VPC, announced it had entered into a definitive agreement to combine with
ZeroFox, an enterprise software-as-a-service leader in external cybersecurity.
SUBSEQUENT EVENTS
Since the year ended 31 December 2021:
January 2022: VPCC and Dave, Inc. announced that the business combination closed following approval by the VPCC
stockholders.
February 2022: The Company declared its 16th consecutive dividend of 2.00p per share for the three-month period to
31 December 2021.
March 2022: The Company noted that on 14 March 2022, VPC Impact Acquisition Holdings II (NASDAQ: VPCB) (“VPCB”), a
special purpose acquisition company sponsored by VPC Impact Acquisition Holdings Sponsor II, LLC (“VPC Sponsor”), an
affiliate of Victory Park Capital (“VPC”), and FinAccel, the parent company of Kredivo, the leading AI-enabled digital
consumer credit platform in Southeast Asia, announced the mutual termination of their previously announced business
combination agreement. VPCB was to consider future options, including seeking an alternative business combination. The
parties agreed that, in the event that VPCB was liquidated, Kredivo would issue a warrant with a nominal exercise price to
VPCB, providing VPCB with the ability to acquire a stake equal to 3.5% of the fully diluted equity securities of Kredivo.
OUTLOOK
In 2021, the Company completed its best-ever year in performance terms, and investors benefited from a fully-covered annual
dividend of 8.00p per share and double-digit total NAV returns. VPC found significant opportunity to earn attractive risk-adjusted
returns through its extensive sourcing relationships around the globe, largely focusing on emerging sectors of the digital
economy, where pricing margins were not yet compressed but risk could be properly underwritten. The Company will continue
to cautiously deploy capital and, at this point, the portfolio is well-positioned to withstand future challenges. In addition, the
Investment Manager remains optimistic about future capital gains through the Company’s equity portfolio, strong pipeline of
potential new investments, and through SPAC sponsorship.
At the time of writing, the global economic outlook remains uncertain. The COVID-19 pandemic continues to present significant
risks, and as government support and monetary stimulus begins to taper off, a period of extended volatility seems likely. High
inflation and persistent supply shortages are also having a negative impact. In addition, the invasion of Ukraine by Russia has
led to increased market volatility and widespread sanctions on Russian assets and individuals, contributing to a spiking oil price
and concern over long-term energy valuations. In its role as Investment Manager, VPC continues to monitor all risks very closely,
to ensure the portfolio can perform regardless of the economic environment, by offering capital protection and income
generation throughout various market cycles.
As these uncertainties are navigated, the Investment Manager will continue to exercise caution. It structures and underwrites
investments with a focus on downside protection, in addition to stress-testing collateral across various scenarios. For example,
while the Company’s investment portfolio primarily consists of floating-rate credit facilities with interest rate floors, a rising
interest rate environment has the potential to affect the investments, the profitability of the Portfolio Companies (and that of
underlying borrowers), potentially leading to lower returns or changes in repayments or default rates of the underlying
borrowers.
From a purely macroeconomic standpoint, the Investment Manager believes the main advantages of the current portfolio
includes the floating rate, shorter duration and fully amortised underlying collateral. Specifically, the weighted average duration
of the Company’s underlying collateral as at 31 December 2021 was less than one year. VPC believes duration is a misunderstood
risk that could present significant challenges during a rising interest rate environment, particularly for those investors currently
locked into long-duration fixed-rate credit.
17
STRATEGIC REPORT continued
VPC SPECIALTY LENDING INVESTMENTS PLC
18 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
While VPC often discusses the underlying credit performance of the Company’s asset backed investments, it is also important to
emphasise the additional layers of protection beyond direct asset security. Due to the structured nature of the Company’s asset
backed investments, including (in most cases) corporate guarantees and significant first-loss protection, the investments are
generally not affected by changes in credit performance until a platform defaults and all corporate resources (separate from the
borrowing base of loan collateral) are exhausted. In addition to monitoring the credit performance, VPC monitors the overall
corporate performance of Portfolio Companies, including attending board meetings as an observer and having weekly update
calls with Portfolio Company management.
VPC remains focused 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. It believes in the
long-term value of providing capital to these sectors, and will continue to look for and identify other trends that can create
opportunities for additional investments in the future.
Victory Park Capital Advisors, LLC
Investment Manager
27 April 2022
BUSINESS MODEL
COMPANY STATUS
The Company is registered as a public limited company under the Companies Act 2006 and is an investment company under
Section 833 of the Companies Act 2006. It is a member of the Association of Investment Companies (“AIC”).
The Company was incorporated on 12 January 2015 and commenced its operations on 17 March 2015.
The Company has been approved as an investment trust under Sections 1158/1159 of the Corporation Tax Act 2010. The
Directors are of the opinion, under advice, that the Company continues to conduct its affairs as an Approved Investment Trust
under the Investment Trust (Approved Company) (Tax) Regulations 2011.
Under the Investment Management Agreement (“IMA”) dated 26 February 2015 between the Company and the Investment
Manager, the Investment Manager is appointed to act as investment manager and Alternative Investment Fund Manager (“AIFM”)
of the Company with responsibility for portfolio management and risk management of the Company’s investments.
PURPOSE
The Company’s defined purpose is to deliver 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.
VPC SPECIALTY LENDING INVESTMENTS PLC
19
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.
STRATEGIC REPORT continued
VPC SPECIALTY LENDING INVESTMENTS PLC
20 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
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 10.
DIVIDEND 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 March 2022, which related to the three-month period ended 31 December 2021, the
Company has distributed 100% (2020: 97%) of its distributable income earned during the year ended 31 December 2021.
GEARING RATIO
As at 31 December 2021, the look-through gearing ratio was 0.34x (2020: 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 (2020: 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 106.
During the trading period, the Ordinary Shares moved in a discount range of 9.53% to 26.09%. The Company closed the year at
a discount of 19.22% (2020: 17.77%) to NAV. During the year, the Company repurchased a total of 4,370,972 shares at an average
price of 85.61 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 2021 was 1.79%, compared to 1.86% for
2020. 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.
VPC SPECIALTY LENDING INVESTMENTS PLC
21
PRINCIPAL RISKS
The Company is exposed to risks that are monitored and actively managed to meet its investment objectives. These include
market risks related to interest rates, currencies and general availability of financing as well as credit and liquidity risks given the
nature of the instruments in which the Company invests. In addition, the underlying Portfolio Companies are exposed to
operational and regulatory risks as this part of the financial services sector remains relatively nascent.
The Directors are ultimately responsible for identifying and controlling risks. Day-to-day management of the risks arising from
the financial instruments held by the Group has been delegated to the Investment Manager of the Company.
The Investment Manager regularly reviews the investment portfolio and industry developments to make sure that any events
impacting the Group are identified and considered. This also ensures that any risks affecting the investment portfolio are
identified and mitigated to the fullest extent possible.
The Board is responsible for the Company’s system of risk management and internal control and for reviewing its effectiveness.
The Board has adopted a detailed matrix of principal risks affecting the Company’s business as an investment trust and has
established associated policies and processes designed to manage and, where possible, mitigate those risks. The matrix is
monitored by the Audit and Valuation Committee quarterly.
This system assists the Board in determining the nature and extent of the risks it is willing to take in achieving its strategic
objectives. Both the principal and emerging risks and the monitoring system are subject to a robust assessment at least annually.
The last review by the Board took place in February 2022.
Although the Board believes that it has a robust framework of internal controls in place, it can provide only reasonable, and not
absolute, assurance against material financial misstatement or loss and is designed to manage, not eliminate, risk.
Below is a summary of the principal and emerging risks and uncertainties faced by the Company and the Group, which have
remained unchanged throughout the year, and actions taken by the Board and, where appropriate, its Committees, to manage
and mitigate these risks and uncertainties. Principal risks include liquidity risk, credit risk, financing risk, portfolio company risk,
regulatory risk and market risk. Business continuity risk, climate risk, and geopolitical risk are all considered to be emerging risks.
The non-financial risks comprise of regulatory risk, business continuity risk and geopolitical risk and the financial risks comprise
of liquidity risk, credit risk, financing risk, market risk and portfolio company risk. These are set out below:
RISK MITIGATION
The Investment Manager manages the Group’s liquidity risk by
investing primarily in a diverse portfolio of assets. As at
31 December 2021, 10% of the loans had a stated maturity
date of less than a year.
In general, the weighted average maturity profile of the
Group’s assets was lower than or equal to the term of the
Group’s corresponding debt facilities which thereby reduced
liquidity risk. Refer to Note 6 of the financial statements for the
maturity profile of the Group’s assets and liabilities.
The Board and the Investment Manager review the investment
portfolio to ensure it is in line with the investment policy,
including restrictions, as outlined on pages 134 and 135. The
Board reviews cash flow forecasts to ensure the group can
meet its liabilities as they fall due.
The Group continuously monitors fluctuations in currency rates.
The Group performs stress tests and liquidity projections to
determine how much cash should be held back to meet
potential future obligations to settle margin calls arising from
foreign exchange hedging.
The gearing facility has helped the Group reduce cash drag
associated with the currency hedging portfolio, while also
allowing the Group to meet its liabilities as they fall due.
LIQUIDITY RISK
Liquidity risk is defined as the risk that the Group may not be
able to settle or meet its obligations on time or at a
reasonable price.
The Group may invest in the listed or unlisted equity of any
Portfolio Company. Investments in unlisted equity, by their
nature, involve a higher degree of valuation and performance
uncertainties and liquidity risks than investments in listed
securities and therefore may be more difficult to realise.
In the event of adverse economic conditions in which it would
be preferable for the Group to sell certain of its assets, the
Group may not be able to sell a sufficient proportion of its
portfolio as a result of liquidity constraints. In such
circumstances, the overall returns to the Group from its
investments may be adversely affected.
The Group is also exposed to liquidity risk with respect to the
requirement to pay margin cash to collateralise forward
foreign exchange contracts used for currency hedging
purposes.
STRATEGIC REPORT continued
VPC SPECIALTY LENDING INVESTMENTS PLC
22 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
RISK MITIGATION
LIQUIDITY RISK continued
The Investment Manager monitors the cash balances of the
Group daily to ensure that all ongoing expenses can be paid as
they come due. During 2021, the Group has received all
contractual interest payments and continues to monitor cash
flow closely during the COVID-19 pandemic.
There is inherent credit risk in the Group’s investments in credit
assets. However, this is typically mitigated by the significant
first loss protection provided by the Portfolio Company under
the Asset Backed Lending Model and the excess spread
generated by the underlying assets.
The Investment Manager performs a robust analysis during the
underwriting process for all new investments of the Group and
monitors the eligibility of the collateral at least monthly of the
current assets in the Group’s portfolio. This process also
includes due diligence performed by a third-party reviewer
during the underwriting process and subsequent reviews at
least once per year for the Group’s Portfolio Companies.
The Group will invest across several Portfolio Companies, asset
classes, geographies (primarily US, UK, Europe, Australia, Asia
and Latin America) and credit bands to ensure diversification
and to seek to mitigate concentration risks.
The Investment Manager did not see new payment defaults
during the year and the Group has received all contractual
payments through the date of this report.
The Board and the Investment Manager review the investment
portfolio to ensure it is in line with the investment policy,
including restrictions, as outlined on pages 134 and 135. The
Investment Manager monitors performance and underwriting
on an ongoing basis.
This risk is mitigated by limiting borrowings to ring-fenced
SPVs without recourse to the Group and employing gearing in
a disciplined manner.
The Group has maintained a level of gearing throughout the
year significantly below the limit stipulated in the Prospectus as
the Group is primarily invested in the Asset Backed Lending
Model.
During the year, the Group replaced the current gearing
provider with a new provider. The current facility was
negotiated at attractive 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 US$130 million to
US$200 million and a six-year maturity.
The Board and the Investment Manager review the investment
portfolio to ensure it is in line with the investment policy,
including investment restrictions, as outlined on pages 134
and 135.
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.
FINANCING RISK
F
inancing risk is the risk that, whilst the use of borrowings by
the Group should enhance the net asset value of an
investment when the value of an investment’s underlying
assets is rising, it will, however, have the opposite effect when
the underlying asset value is falling. In addition, if an
investment’s income falls for whatever reason, the use of
borrowings will increase the impact of such a fall on the net
revenue of the Group’s investment and accordingly will have
an adverse effect on the ability of the investment to make
distributions to the Group.
The Group uses gearing to enhance returns generated by the
underlying credit assets and is exposed to the availability of
financing at acceptable terms as well as interest rate expenses
and other related costs.
VPC SPECIALTY LENDING INVESTMENTS PLC
23
RISK MITIGATION
The Group has a diversified investment portfolio which
significantly reduces the exposure to individual asset price risk.
Detailed portfolio valuations and exposure analysis are
prepared monthly and form the basis for the on-going risk
management and investment decisions. In addition, regular
scenario analysis is undertaken to assess likely downside risks
and sensitivity to broad market changes, as well as assessing
the underlying correlations amongst the separate asset classes.
Exposure to interest rate risk is limited as the underlying credit
assets are typically fully amortising with a maximum maturity
of five years. Furthermore, generally the Group’s Credit Facilities
include a floating interest rate component to the Portfolio
Companies to account for an increase in interest rate risk and
they also have a set floor in the instance that interest rates
were to drop.
The Group mitigates its exposure to currency risk by hedging
exposure between Pound Sterling and any other currencies in
which a significant portion of the Group’s assets may be
denominated.
The Board reviews the price, interest rate and currency risk
with the Investment Manager to ensure that exposure to these
risks are appropriately mitigated.
The Investment Manager continues to monitor the potential
impact of a discontinuation of LIBOR rates on the Company’s
investments, based on the expectation that reference rates will
be evaluated and replaced timely for investments with a
variable rate component. Accordingly, it is difficult to predict
the full impact of the transition until new reference rates and
fallbacks are commercially accepted.
VPC has negotiated a significant number of proprietary capital
deployment agreements with its existing asset backed lending
partners each of which typically ensures the ability to deploy
capital on attractive terms for several years.
In addition, VPC is one of the largest investors in the specialty
lending sector and therefore enjoys timely information and
good access to emerging Portfolio Company opportunities. VPC
has a team of investment and operational professionals which
ensures that deployment opportunities with new and existing
Portfolio Companies can be executed rapidly while minimising
operational risk.
VPC’s pipeline of deployment opportunities remains strong
with both existing and new asset backed lending Portfolio
Companies.
MARKET RISK
Market risk is the risk of loss arising from movements in
observable market variables such as foreign exchange rates,
equity prices and interest rates. The Group is exposed to
market risk primarily through its Financial Instruments.
The Group is exposed to price risk arising from the
investments held by the Group for which prices in the future
are uncertain. The investments in funds are exposed to market
price risk. Refer to Note 3 in the Financial Statements for
further details on the sensitivity of the Group’s Level 3
investments to price risk.
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows or the fair values of
financial instruments.
Currency risk is the risk that the value of net assets will
fluctuate due to changes in foreign exchange rates. Relevant
risk variables are generally movements in the exchange rates
of non-functional currencies in which the Group holds
financial assets and liabilities.
The Group is exposed to risks related to the reference rate
reform and replacement of benchmark interest rates such as
GBP LIBOR and other interbank offered rates. There remains
some uncertainty around the timing and precise nature of
these changes.
PORTFOLIO COMPANY RISK
T
he current market in which the Group participates is
competitive and rapidly changing. There is a risk that the
Group will not be able to deploy its capital, re-invest capital
and interest of the proceeds of any future capital raisings, in a
timely or efficient manner given the increased demand for
suitable investments.
The Group may face increasing competition for access to
investments as the alternative finance industry continues to
evolve. The Group may face competition from other
institutional lenders such as fund vehicles and commercial
banks that are substantially larger and have considerably
greater financial, technical and marketing resources than the
Group. Other institutional sources of capital may enter the
market in the UK, US and other geographies.
STRATEGIC REPORT continued
VPC SPECIALTY LENDING INVESTMENTS PLC
24 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
RISK MITIGATION
The Company provides debt capital to Portfolio Companies,
which typically must comply with various state and national
level regulations. This includes some operating under interim
permission and some now regulated from the FCA in the UK as
well as consumer lending and collections licenses in some
US states. This risk is limited via detailed upfront due diligence
of Portfolio Companies’ regulatory environments performed by
the Investment Manager on behalf of the Board. All decisions
taken are made with due consideration to the long-term
sustainability and impact on stakeholders.
The Company has procedures to monitor the status of its
compliance with the relevant requirements to maintain its
Investment Trust status, including receiving and reviewing
information and reporting from the Company Secretary and
other service providers as appropriate.
The Investment Manager reviews its business continuity plans
and operational resilience strategies on an ongoing basis and
will take all reasonable 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.
The Investment Manager has not seen any disruptions to
business during 2021 and into the beginning of 2022.
The Investment Manager has performed an initial high-level
materiality assessment of climate risk across its investment
portfolio and is developing a comprehensive action plan for
both the Company and Group. No material impact on the
financial statements has been identified from the risks arising
from climate change through the work performed by the
Investment Manager from this initial assessment.
The Investment Manager is reviewing the core disclosure
elements of the TCFD reporting framework. As an investment
trust, the Company is not required to provide information in
compliance with TCFD.
The Investment Manager has a dedicated risk committee
comprised of senior leadership and key principals. This
committee works with each individual portfolio investment
team to develop a coordinated risk response across the entire
portfolio. The Investment Manager also increased the frequency
of portfolio company data collection and reporting. Additional
information on the Investment Manager’s Pandemic Response
plan can be found on pages 13 and 14.
Discussion on the Group’s risk management and internal controls is on page 124.
REGULATORY RISK
As an investment trust, the Company’s operations are subject
to wide ranging regulations. The financial services sector
continues to experience significant regulatory change at
national and international levels. Failure to act in accordance
with these regulations could cause fines, censure or other
losses including taxation or reputational loss.
The Association of Investment Companies (AIC) is becoming
increasingly focused on ensuring ESG measures are
implemented within investment companies.
In order to continue to qualify as an investment trust, the
Company must comply with the requirements of Section 1158
of the Corporation Tax Act 2010.
BUSINESS CONTINUITY RISK
A
s a result of the COVID-19 pandemic, there has been
increased focus from financial services regulators around the
world on the contingency plans of regulated financial firms.
CLIMATE RISK
T
he world is facing unprecedented challenges in the face of
climate change and growing inequality. The FSB Task Force on
Climate-related Financial Disclosures (TCFD) has developed
climate-related financial risk disclosures for companies to
provide information to investors, lenders, insurers, and other
stakeholders.
GEOPOLITICAL RISK
T
he Group is subject to risks associated with unforeseen
geopolitical events, including war, terrorist attacks, natural
disasters, and ongoing pandemics, which could create
economic, financial, and business disruptions.
VPC SPECIALTY LENDING INVESTMENTS PLC
25
As of the writing of this report, neither the Group nor Investment Manager have any direct exposure to Russia or Ukraine in the
portfolio, and the Investment Manager has not seen any impact on the Group’s collateral or investments. That being said, the
Group and Investment Manager recognise that this conflict can lead to prolonged volatility in the global capital markets, other
macro implications on the world economy, and heightened risks generally. The Investment Manager will continue to monitor all
of our portfolio companies closely and consider these developments as we look to invest additional capital.
DIRECTORS’ DUTIES
Overview
The Directors’ overarching duty is to act in good faith and in a way that is most likely to promote the success of the Company
as set out in Section 172 of the Companies Act 2006. The Company also considers the principles and guidance of the AIC and
in doing so, directors take into consideration the interests of the various stakeholders of the Company. All decisions made by
the Directors are taken with a long-term view and with the intention of minimising the potential harmful impact on communities
and the environment. The Company seeks to maintain its reputation for high standards of business conduct and fair treatment
between the members of the Company.
Fulfilling this duty naturally supports the Company in achieving its Investment Objective and helps to ensure that all decisions
are made in a responsible and sustainable way. In accordance with the requirements of the Companies (Miscellaneous Reporting)
Regulations 2018, the Company explains how the Directors have discharged their duty under Section 172 below.
To ensure that the Directors are aware of, and understand, their duties they are provided with the pertinent information when
they first join the Board as well as receiving regular and ongoing updates and training on the relevant matters. They also have
continued access to the advice and services of the Company Secretary, and when deemed necessary, the Directors can seek
independent professional advice. The schedule of Matters Reserved for the Board, as well as the Terms of Reference of its
Committees are reviewed on an annual basis and further describe Directors’ responsibilities and obligations and include any
statutory and regulatory duties. The Audit and Valuation Committee has responsibility for the ongoing review of the Company’s
risk management systems and internal controls and, to the extent that they are applicable, risks related to the matters set out
in Section 172 are included in the Company’s risk register and are subject to periodic and regular reviews and monitoring. All
Terms of Reference are located on the Company website.
Decision-making
The importance of stakeholder considerations, particularly in the context of decision-making, is taken into account at every Board
meeting. All discussions involve careful considerations of the longer-term consequences of any decisions and their implications for
stakeholders.
STRATEGIC REPORT continued
VPC SPECIALTY LENDING INVESTMENTS PLC
26 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
Stakeholders
The Board seeks to understand the needs and priorities of the Company’s stakeholders and these are taken into account during
all its discussions and as part of its decision-making. During the period under review, the Board has continued to discuss and
monitor which parties should be considered as stakeholders of the Company. Following thorough review, it was concluded that,
as the Company is an externally managed investment company and does not have any employees or customers, its key
stakeholders continue to comprise its Shareholders, Investment Manager, portfolio companies and service providers. The section
below discusses why these stakeholders are considered of importance to the Company and the actions taken to ensure that their
interests are taken into account.
IMPORTANCE BOARD ENGAGEMENT
The Company has over 105 shareholders, including institutional
investors. The Board is committed to maintaining open
channels of communication and to engage with shareholders
in a manner which they find most meaningful, in order to gain
an understanding of the views of shareholders. These include:
Annual General Meeting – The Company welcomes
and encourages attendance and participation from
shareholders at the AGM, either in person when able to
or virtually. Shareholders have the opportunity to meet
the Directors and Investment Manager and to address
questions to them directly. Each year, the Investment
Manager attends the AGM and provides a presentation
on the Company’s performance and the future outlook.
The Company values any feedback and questions it may
receive from shareholders ahead of and during the AGM,
and will take action or make changes as and when
appropriate. Shareholders would be given the
opportunity to have another continuation vote at the
AGM in 2023 if the NAV return is less than 24% for the
three-year period to 31 March 2023 and an exit
opportunity for up to 25% of the shares in issue
immediately following the Company’s AGM in 2023 if
the discount to NAV at which the shares trade over the
3-month period ending on 31 March 2023 is greater
than 5%;
Publications – The Annual Report and Half-Year results
are made available on the Company’s website and the
Annual Report is circulated to shareholders. These
reports provide shareholders with a clear understanding
of the Company’s portfolio and financial position. This
information is supplemented by a monthly factsheet and
quarterly reports which are available on the website and
the publication of which is announced via the stock
exchange. Feedback and/or questions the Company
receives from the shareholders help the Company evolve
its reporting, aiming to render the reports and updates
transparent and understandable;
SHAREHOLDERS
Continued shareholder support and engagement are critical
to the existence of the business and the delivery of the
long-term strategy of the Company.
VPC SPECIALTY LENDING INVESTMENTS PLC
27
IMPORTANCE BOARD ENGAGEMENT
SHAREHOLDERS continued
Shareholder meetings – Unlike trading companies,
shareholder meetings often take the form of meeting
with the Investment Manager rather than members of
the Board. Shareholders are able to meet with the
Investment Manager throughout the year and the
Investment Manager provides information on the
Company. Feedback from all meetings between the
Investment Manager and shareholders is shared with the
Board. The Chair, the Chair of the Audit and Valuation
Committee and other members of the Board are
available to meet with shareholders to understand their
views on governance and the Company’s performance
where they wish to do so. With assistance from the
Investment Manager, the Chair seeks meetings with
shareholders who might wish to meet with him;
Shareholder concerns – In the event shareholders wish
to raise issues or concerns with the Directors, they are
welcome to do so at any time by writing to the Chair at
the registered office. Other members of the Board are
also available to shareholders if they have concerns that
have not been addressed through the normal channels;
and
Investor Relations updates – At every Board meeting,
the Directors receive updates from the Company’s
brokers on the share trading activity, share price
performance and any shareholders’ feedback, as well as
an update from the Investment Manager on any
publications. To gain a deeper understanding of the
views of its shareholders and potential investors, the
Investment Manager also meets regularly with
shareholders. Any pertinent feedback is taken into
account when Directors discuss the share capital, any
possible fundraisings or the dividend policy and
actioned as and when appropriate. The willingness of
the shareholders, including the partners and staff of the
Investment Manager, to maintain their holdings over the
long-term period is another way for the Board to gauge
how the Company is meeting its objectives and
suggests a presence of a healthy corporate culture.
STRATEGIC REPORT continued
VPC SPECIALTY LENDING INVESTMENTS PLC
28 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
VPC SPECIALTY LENDING INVESTMENTS PLC
29
IMPORTANCE BOARD ENGAGEMENT
Maintaining a close and constructive working relationship with
the Investment Manager is crucial as the Board and the
Investment Manager both aim to continue to achieve
consistent, long-term returns in line with its investment
objective. Important components in the collaboration with the
Investment Manager, representative of the Company’s culture
are:
Encouraging open discussion with the Investment
Manager, to ensure continuous feedback and innovative
thinking;
Recognising that the interests of shareholders and the
Investment Manager are for the most part well aligned,
adopting a tone of constructive challenge, balanced
with robust negotiation of the Investment Manager’s
terms of engagement if those interests should not be
fully united;
Encouraging the Investment Manager to meet with
stakeholders to ensure that salient matters are
thoroughly discussed and, overall, ensure adequate
communication channels; and
Willingness to make the Board Members’ experience
available to support the Investment Manager in the
sound long-term development of its business and
resources, recognising that the long-term health of the
Investment Manager is in the interests of shareholders in
the Company.
The relationship with our Investment Manager is fundamental to
ensuring the Company meets its purpose. Day to day
engagement with Portfolio Companies is undertaken by the
Investment Manager. Details of how the Investment Manager
carries out portfolio management, as well as information of the
differentiated investment proposition and the proprietary
sourcing and structuring of investments can be found in the
Strategic Report on pages 11 and 12. The Board receives updates
at each scheduled Board meeting from the Investment Manager
on specific investments including regular valuation reports and
detailed portfolio and returns analyses. The Investment
Manager’s engagement with Portfolio Companies incorporates
recurring due diligence reviews and on-site visits to supplement
regular reporting and management discussion cycles.
Portfolio Companies
The Company invests directly and/or indirectly into available
opportunities, including investments in funds managed by the
Investment Manager. Capital is allocated across different
Portfolio Companies to meet the Company’s investment
objectives within the pre-defined portfolio limits and with a
focus on portfolio level diversification.
OTHER STAKEHOLDERS
The Investment Manager
Holding the C
ompany’s shares offers investors a liquid
investment vehicle through which they can obtain exposure to
VPC’s diversified portfolio of investment opportunities in the
specialty lending market. The Investment Manager’s
performance is critical for the Company to successfully deliver
its investment strategy and meet its objective to provide
shareholders with consistent long-term returns.
STRATEGIC REPORT continued
VPC SPECIALTY LENDING INVESTMENTS PLC
30 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
IMPORTANCE BOARD ENGAGEMENT
The Board maintains regular contact with its key external
providers and receives regular reporting from them, both
through the Board and Committee meetings, as well as outside
of the regular meeting cycle. Their advice, as well as their needs
and views are routinely taken into account. The Board, through
the Management Engagement Committee, formally assesses
their performance, fees and continuing appointment annually to
ensure that the key service providers continue to function at an
acceptable level and are appropriately remunerated to deliver
the expected level of service. The Audit and Valuation
Committee reviews and evaluates the financial reporting control
environments in place for each service provider.
The Board recognises that the views, questions from, and
recommendations of many proxy adviser agencies provide a
valuable feedback mechanism and play a part in highlighting
evolving shareholders’ expectations and concerns. When
deemed relevant, the Company will engage with proxy advisers
regarding resolutions that will be proposed to the Company’s
shareholders at AGMs and, based on feedback received,
incorporate appropriate changes to future Annual Reports and
Financial Statements to enhance disclosures.
The Company regularly considers how it meets various
regulatory and statutory obligations and follows voluntary and
best-practice guidance, and how any governance decisions it
makes can have an impact on its stakeholders, both in the
shorter and in the longer-term.
The above mechanisms for engaging with stakeholders are kept under review by the Directors and are discussed on a regular
basis at Board meetings to ensure that they remain effective.
CULTURE
The Directors agree that establishing and maintaining a healthy corporate culture among the Board and in its interaction with
the Investment Manager, shareholders and other stakeholders will support the delivery on its purpose, values, and strategy. The
Board is encouraged to lead by example and exemplify the Company’s culture of openness, debate and integrity through
ongoing dialogue and engagement with its service providers, principally the Investment Manager.
The Board strives to ensure that its culture is in line with the Company’s purpose, values, and strategy. The Company has several
policies and procedures in place to assist with maintaining a culture of good governance, including those relating to diversity,
Directors’ conflicts of interest and Directors’ dealings in the Company’s shares. The Board assesses and monitors compliance with
these policies as well as the general culture of the Board through Board meetings and during the annual evaluation process
which is undertaken by each Director (for more information see the performance evaluation section on page 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 to ensure there is an alignment in the
long-term objectives. The Investment Manager and other service providers appointment are reviewed annually to ensure these
objectives are met.
The Administrator, the Company Secretary, the
Registrar, the Custodians and the Brokers
In order to function as an investment trust with a premium
listing on the London Stock Exchange, the Company relies on
a diverse range of reputable advisors for support in meeting
all relevant obligations.
Institutional investors and proxy advisors
T
he evolving practice and support (or lack thereof) of proxy
adviser agencies are important to the Directors, as the
Company aims to build a good reputation and maintain high
standards of corporate governance, which contribute to the
long-term sustainable success of the Company.
Regulators
T
he Company can only operate with the approval of its
regulators who have a legitimate interest in how the Company
operates in the market and treats its shareholders.
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 Kevin Ingram, the Board of Directors of the Company comprised of
fourmale Directors and one female Director. As at the date of this report the Board composition remains unchanged. The Board
acknowledges the benefits of diversity, including gender diversity, and remains committed to ensuring that the Company’s
Directors bring a wide range of skills, knowledge, experience, backgrounds and perspectives. Further details of the Company’s
diversity policy are set out on page 119.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) ISSUES
The Company has no employees, property or activities other than investments, so its direct environmental impact is minimal.
Incarrying out its activities, and in its relationships, the Company aims to conduct itself responsibly, ethically and fairly. Directors
are mindful of their own carbon footprints if they are required to travel on Company business.
The Board is comprised entirely of non-executive Directors and the day-to-day management of the Company’s business is
delegated to the Investment Manager. The Investment Manager aims to be a responsible investor and believes it is important to
invest in companies that act responsibly in respect of environmental, ethical and social issues.
The Company has no internal operations and therefore no greenhouse gas emissions to report, nor does it have responsibility
for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations
2013, including those within its underlying investment portfolio. However, the AIC is encouraging all member companies to
demonstrate how they are factoring ESG issues into their business practices. The company continues to monitor the guidance
published by the AIC and works towards the drafting of its ESG policy. The business remains conscious of its business decisions
and the Board, supported by its service providers and Investment Manager consider the long-term impact of all decisions and
challenge appropriately.
STREAMLINED ENERGY AND CARBON REPORTING (SECR)
The Company has no employees or property, and it does not combust any fuel or operate any facility thus is taking the
exemption. It does not, therefore, have any greenhouse gas emissions to report from its operations, nor does it have
responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors’ Report)
Regulations 2013, including those within its underlying investment portfolio. Additionally, there are no annual emissions from
the purchase of electricity, heat, steam or cooling by the Company for its own use.
APPROVAL
This Strategic Report has been approved by the Board of Directors and signed on its behalf by:
Graeme Proudfoot
Chair
27 April 2022
VPC SPECIALTY LENDING INVESTMENTS PLC
31
INDEPENDENT
AUDITORS’ REPORT
VPC SPECIALTY LENDING INVESTMENTS PLC
33
INDEPENDENT AUDITORS’ REPORT
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF VPC
SPECIALTY LENDING INVESTMENTS PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
Opinion
In our opinion, VPC Specialty Lending Investments PLC’s group financial statements and company financial statements (the
“financial statements”):
give a true and fair view of the state of the group’s and of the company’s affairs as at 31 December 2021 and of the group’s
profit and the group’s and company’s cash flows for the year then ended;
have been properly prepared in accordance with UK-adopted international accounting standards; and
have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report, which comprise: the Consolidated and Parent
Company Statements of Financial Position as at 31 December 2021; the Consolidated Statement of Comprehensive Income, the
Consolidated and Parent Company Statements of Cash Flows, and the Consolidated and Parent Company Statements of Changes
in Equity for the year then ended; and the notes to the financial statements, which include a description of the significant
accounting policies.
Our opinion is consistent with our reporting to the Audit and Valuation Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements
section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not
provided.
We have provided no non-audit services to the company or its controlled undertakings in the period under audit.
Our audit approach
Overview
Audit scope
The scope of our audit and the nature, timing and extent of audit procedures performed were determined based on our risk
assessment, taking into account changes from the prior year, the financial significance of subsidiaries and other qualitative factors.
We executed the planned approach and concluded based on the results of our testing, ensuring that sufficient audit evidence had
been obtained to support our opinion.
Key audit matters
Valuation of investment assets designated as held at fair value through profit or loss (group and company).
Valuation of loans at amortised cost less expected credit losses (group).
Materiality
Overall group materiality: £3,100,000 (2020: £2,705,000) based on 1% of Net Asset Value.
Overall company materiality: £3,100,000 (2020: £2,656,000) based on 1% of Net Asset Value.
Performance materiality: £2,300,000 (2020: £2,028,750) (group) and £2,300,000 (2020: £1,992,000) (company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial
statements.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement (whether or
not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we
make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Consideration of the impact of COVID-19 (group and parent), which was a key audit matter last year, is no longer included
because of the overall risk and uncertainty around COVID-19 has reduced as the potential impacts have become better
understood. Our consideration of the impact of Covid-19 is adequately captured by our other key audit matters. Otherwise, the
key audit matters below are consistent with last year.
KEY AUDIT MATTER HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER
We understood and evaluated the design of controls over
estimating the fair value of unlisted equity investments.
We understood and evaluated the valuation methodology
applied, by reference to accounting standards and industry
practice, and tested the techniques used to determine the fair
value of equity investment assets designated as held at fair value
through profit or loss. We performed substantive testing over the
following, with the assistance of our valuation experts:
On a sample basis, we corroborated the accuracy and
reasonableness of inputs and assumptions used in
valuations, including comparison to recent transaction
prices, underlying investment company financial information
and other market performance information.
On a sample basis, we determined a reasonable range for
individual assumptions to arrive at a range of acceptable
valuations and we compared the group’s valuations to our
independently derived valuation range.
We further considered whether the judgements made in selecting
the significant assumptions would give rise to indicators of
possible bias.
We evaluated and tested the disclosures over equity investments
made in the financial statements.
We found that the fair value of investments designated as held at
fair value through profit or loss were consistent with the group’s
accounting policies and supported by the audit evidence we
obtained.
Valuation of investment assets designated as held
at fair value through profit or loss (group and
company)
Refer to the Audit and Valuation Committee Report
‘Significant issues considered by the Audit and Valuation
Committee’; Note 2 Significant Accounting Policies
‘Financial assets and financial liabilities’ and ‘Critical
accounting estimates - valuation of unquoted investments’;
and Note 3 ‘Fair value measurement’.
The investment assets held by the Group include equity
positions that are traded on active markets with quoted
prices of £12.0 million (company: nil), which are classified
as level 1 per the IFRS 13 fair value hierarchy; investments
in funds of £12.5 million (company £12.5million) classified
as level 3, and equity positions that require the use of
inputs which are not readily observable in the market of
£117.3 million (company: nil), classified as level 2 or
level 3.
Determining unobservable inputs in fair value
measurement of unlisted equity investments involves
judgement and is subject to a high degree of estimation
uncertainty such that changes to estimates, assumptions
and/or the judgements made can result, either on an
individual investment or in aggregate, in a material change
to the valuation.
VPC SPECIALTY LENDING INVESTMENTS PLC
34 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
INDEPENDENT AUDITORS’ REPORT
continued
VPC SPECIALTY LENDING INVESTMENTS PLC
35
KEY AUDIT MATTER HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER
We understood and evaluated the design of controls over the
estimation of ECLs over loans at amortised cost.
We understood and evaluated the ECL methodology applied, by
reference to accounting standards and industry practice, and
tested the techniques used in estimating the ECL. We performed
substantive testing over the following, with the assistance of our
credit specialists:
We tested the compliance of the ECL methodologies applied
by the group with the requirements of IFRS 9, taking into
account our understanding of the portfolio.
We assessed the appropriateness of the significant
assumptions and methodologies used for models on a
sample basis, including the selection of macroeconomic
scenarios, probabilities assigned to the scenarios and the
severity of the downside macroeconomic scenarios. Our
analysis included assessing the ‘breakeven’ loss rates, the
impact of a change in severity of the scenarios and the
impact of applying alternative independent data and
assumptions, where relevant.
On a sample basis, we tested the appropriateness of
cumulative loss rates relative to historical experience.
On a sample basis, we tested the integrity of the data used
in the models to supporting documentation and tested the
accuracy of the ECL calculations applied in the models.
We tested the appropriateness and application of qualitative
and quantitative criteria used to assess significant increases
in credit risk and staging of loans at amortised cost
including consideration of the controls over portfolio
company and loan covenant monitoring.
We further considered whether the judgements made in selecting
the significant assumptions would give rise to indicators of
possible bias.
We evaluated and tested the disclosures over loans at amortised
cost less ECL made in the financial statements.
We found that the calculations and assumptions used to estimate
the ECL on loans at amortised cost were supported by the audit
evidence we obtained.
Valuation of loans at amortised cost less
expected credit losses (group)
Refer to the Audit and Valuation Committee Report
‘Significant issues considered by the Audit and Valuation
Committee’; Note 2 Significant Accounting Policies
‘Financial assets and financial liabilities' and ‘Critical
accounting estimates - measurement of the expected credit
loss allowance’; and Note 9 ‘Impairment of financial assets
at amortised cost’.
Loans reported at amortised cost amounted to
£279.3 million for the group as at 31 December 2021
(company: nil). The amount is net of the expected credit
loss (“ECL”) allowance of £12.5million. The determination of
ECL is subject to a high degree of estimation uncertainty
such that changes to key inputs to the estimates made can
result, either on an individual loan or in aggregate, in a
material change to the valuation.
In the context of the current economic outlook, considerable
uncertainty remains around the measurement of ECL,
including, the extent and pace of recovery from COVID-19.
The significant inputs and assumptions that we focused on
in our audit included those with greater levels of
judgement and for which variations had the most
significant impact on ECL. These were the following :
The application of portfolio company cumulative loss
rates to portfolio exposures; and
The application of forward looking economic
assumptions used in the models, including the
Investment Managers’ assumptions and judgements
relating to a global downside scenario based on 2008
financial crisis data and the revenue and contribution
margin growth rates applied to portfolio exposures.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the group and the company, the accounting processes and controls,
and the industry in which they operate.
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial
statements. We performed a risk assessment, giving consideration to relevant external and internal factors, including COVID-19,
climate change, economic risks and the group’s strategy. We also considered our knowledge and experience obtained in the
prior year audits. In particular, we looked at where the Directors made subjective judgements, for example in respect of
significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain.
In establishing the overall approach to the audit, we scoped using the balances included in the financial statements
consolidation pack. We determined the type of work that needed to be performed over the company and subsidiaries (the
‘components’) by us or auditors from PricewaterhouseCoopers LLP Chicago, USA (‘PwC US’) operating under our instruction.
Our interactions with the PwC US auditors included regular communication throughout the audit, including the issuance of
instructions, a review of working papers and formal clearance meetings.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent
of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of
misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality.
The range of materiality allocated across components was between £2,900,000 and £3,100,000.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of
our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in
determining sample sizes. Our performance materiality was 75% (2020: 75%%) of overall materiality, amounting to £2,300,000
(2020: £2,028,750) for the group financial statements and £2,300,000 (2020: £1,992,000) for the company financial statements.
In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment
and aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range
was appropriate.
We agreed with the Audit and Valuation Committee that we would report to them misstatements identified during our audit
above £155,000 (group audit) (2020: £135,250) and £155,000 (company audit) (2020: £132,800) as well as misstatements below
those amounts that, in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the group’s and the company’s ability to continue to adopt the going concern
basis of accounting included:
Performing a risk assessment to identify factors that could impact the going concern basis of accounting, including the
impact of external factors including COVID-19 and climate change risks.
Financial statements – group Financial statements – company
Overall materiality £3,100,000 (2020: £2,705,000). £3,100,000 (2020: £2,656,000).
How we determined it
1% of Net Asset Value
Rationale for benchmark applied
1% of Net Asset Value
We have applied this benchmark, a
generally accepted auditing practice for
Investment Trust audits, in the absence
of indicators that an alternative
benchmark would be appropriate and
because we believe this provides an
appropriate basis for our audit.
We have applied this benchmark, a generally
accepted auditing practice for Investment Trust
audits, in the absence of indicators that an
alternative benchmark would be appropriate
and because we believe this provides an
appropriate basis for our audit.
VPC SPECIALTY LENDING INVESTMENTS PLC
36 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
INDEPENDENT AUDITORS’ REPORT
continued
VPC SPECIALTY LENDING INVESTMENTS PLC
37
Understanding and evaluating the group’s financial forecasts and stress testing of those forecasts, including the severity
of the stress scenarios that were used.
Consideration of the Directors’ resolution to 1) offer shareholders an exit opportunity for up to 100% of the Ordinary
Shares in issue immediately following the Company’s Annual General Meeting (AGM) in 2023 if the company’s NAV (Cum
Income) Return for the period from 1 April 2020 to 31 March 2023 is less than 24%; and 2) 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.
Reading and evaluating the adequacy of the disclosures made in the financial statements in relation to going concern.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the group’s and the company’s ability to continue as a going concern
for a period of at least 12 months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group’s and
the company’s ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material
to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors
considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections
of this report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’
report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover
the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated
in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial
statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based
on these responsibilities.
With respect to the Strategic report and Directors’ Report, we also considered whether the disclosures required by the
UK Companies Act 2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions
and matters as described below.
Strategic report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and
Directors’ Report for the year ended 31 December 2021 is consistent with the financial statements and has been prepared in
accordance with applicable legal requirements.
In light of the knowledge and understanding of the group and company and their environment obtained in the course of the
audit, we did not identify any material misstatements in the Strategic report and Directors’ Report.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006.
Corporate governance statement
The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part
of the corporate governance statement relating to the company’s compliance with the provisions of the UK Corporate
Governance Code specified for our review. Our additional responsibilities with respect to the corporate governance statement as
other information are described in the Reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate
governance statement is materially consistent with the financial statements and our knowledge obtained during the audit, and
we have nothing material to add or draw attention to in relation to:
The directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;
The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging
risks and an explanation of how these are being managed or mitigated;
The directors’ statement in the financial statements about whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them, and their identification of any material uncertainties to the group’s and
company’s ability to continue to do so over a period of at least 12 months from the date of approval of the financial
statements;
The directors’ explanation as to their assessment of the group’s and company’s prospects, the period this assessment
covers and why the period is appropriate; and
The directors’ statement as to whether they have a reasonable expectation that the company will be able to continue in
operation and meet its liabilities as they fall due over the period of its assessment, including any related disclosures
drawing attention to any necessary qualifications or assumptions.
Our review of the directors’ statement regarding the longer-term viability of the group was substantially less in scope than an
audit and only consisted of making inquiries and considering the directors’ process supporting their statement; checking that
the statement is in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the
statement is consistent with the financial statements and our knowledge and understanding of the group and company and
their environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the
corporate governance statement is materially consistent with the financial statements and our knowledge obtained during the
audit:
The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and
provides the information necessary for the members to assess the group’s and company’s position, performance, business
model and strategy;
The section of the Annual Report that describes the review of effectiveness of risk management and internal control
systems; and
The section of the Annual Report describing the work of the Audit and Valuation Committee.
We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the company’s
compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified under the
Listing Rules for review by the auditors.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ responsibilities in respect of the financial statements, the directors are
responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied
that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or the company or to cease operations, or have no realistic
alternative but to do so.
VPC SPECIALTY LENDING INVESTMENTS PLC
38 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
INDEPENDENT AUDITORS’ REPORT
continued
VPC SPECIALTY LENDING INVESTMENTS PLC
39
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the group and industry, we identified the principal risks of non-compliance with laws and
regulations related to UK Listing Rules and UK tax legislation, and we considered the extent to which non-compliance might
have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on
the financial statements such as the Companies Act 2006. We evaluated management’s incentives and opportunities for
fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal
risks were related to posting inappropriate journal entries to increase income and bias in accounting estimates. Audit procedures
performed by the engagement team included:
Discussions with the Investment Manager and the Audit and Valuation Committee, including consideration of known or
suspected instances of non-compliance with laws and regulation;
Reviewing relevant meeting minutes including those of the Board and the Audit and Valuation Committee;
Assessment of the Company’s compliance with the requirements of Section 1158 of the Corporation Tax Act 2010;
Challenging assumptions and judgements made by the Directors in their significant accounting estimates and judgements,
in particular in relation to the valuation of investment assets designated as held at fair value through profit or loss and
valuation of loans at amortised cost less expected credit losses; and
Identifying and testing journal entries meeting specific fraud criteria, including those posted with certain descriptions or
certain unusual amounts, posted to certain account combinations, backdated journals or posted by unexpected users.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of
non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial
statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one
resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or
through collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete
populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we
will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
OTHER REQUIRED REPORTING
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
we have not obtained all the information and explanations we require for our audit; or
adequate accounting records have not been kept by the company, or returns adequate for our audit have not been
received from branches not visited by us; or
certain disclosures of directors’ remuneration specified by law are not made; or
the company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit and Valuation Committee, we were appointed by the members on 24 July 2015 to
audit the financial statements for the year ended 31 December 2015 and subsequent financial periods. The period of total
uninterrupted engagement is seven years, covering the years ended 31 December 2015 to 31 December 2021.
OTHER MATTER
In due course, as required by the Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.1.14R, these financial
statements will form part of the ESEF-prepared annual financial report filed on the National Storage Mechanism of the Financial
Conduct Authority in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditors’ report provides no
assurance over whether the annual financial report will be prepared using the single electronic format specified in the ESEF RTS.
Claire Sandford (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
27 April 2022
VPC SPECIALTY LENDING INVESTMENTS PLC
40 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
INDEPENDENT AUDITORS’ REPORT
continued
FINANCIAL
STATEMENTS
42 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
VPC SPECIALTY LENDING INVESTMENTS PLC
42
See Notes to the consolidated financial statements
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2021
31 DECEMBER 31 DECEMBER
2021 2020
NOTES £ £
Assets
Cash and cash equivalents 7 6,300,572 6,416,028
Cash posted as collateral 7 4,133,588 1,140,000
Derivative financial assets 3,4 2,069,698 5,758,880
Interest receivable 4,708,481 3,613,047
Dividend and distribution receivable 3,996 3,812
Other assets and prepaid expenses 2,877,815 889,148
Loans at amortised cost 3,9 279,339,002 293,123,379
Investment assets designated as held at fair value through profit or loss 3 141,797,222 51,417,983
Total assets 441,230,374 362,362,277
Liabilities
Management fee payable 10 155,399 92,241
Performance fee payable 10 12,913,280 4,040,085
Derivative financial liabilities 3,4 1,508,675 –
Deferred income 174,603 253,403
Other liabilities and accrued expenses 1,550,415 1,332,920
Notes payable 8 107,267,260 86,087,183
Total liabilities 123,569,632 91,805,832
Total assets less total liabilities 317,660,742 270,556,445
Company number: 9385218
43
VPC SPECIALTY LENDING INVESTMENTS PLC
43
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2021
31 DECEMBER 31 DECEMBER
2021 2020
NOTES £ £
Capital and reserves
Called-up share capital 20,300,000 20,300,000
Share premium account 161,040,000 161,040,000
Other distributable reserve 14 112,779,146 116,520,960
Capital reserve 1,667,026 (50,393,578 )
Revenue reserve 20,615,367 21,847,960
Currency translation reserve 1,213,245 1,221,766
Total equity attributable to shareholders of the Parent Company 317,614,784 270,537,108
Non-controlling interests 18 45,958 19,337
Total equity 317,660,742 270,556,445
Net Asset Value per Ordinary Share 12 114.14 p 95.72 p
The financial statements on pages 42 to 49 were approved by the Board of Directors on 27 April 2022 and signed on its behalf
by:
Graeme Proudfoot
Chair
27 April 2022
See Notes to the consolidated financial statements
44 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
FINANCIAL STATEMENTS continued
VPC SPECIALTY LENDING INVESTMENTS PLC
44
See Notes to the consolidated financial statements
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2021
REVENUE CAPITAL TOTAL
NOTES£££
Revenue
Net gain (loss) on investments 5 – 67,114,995 67,114,995
Foreign exchange gain (loss) – (2,049,374 ) (2,049,374 )
Interest income 5 33,158,150 – 33,158,150
Other income 5 4,419,620 – 4,419,620
Total return 37,577,770 65,065,621 102,643,391
Expenses
Management fee 10 3,802,097 – 3,802,097
Performance fee 10 3,733,910 9,179,370 12,913,280
Credit impairment losses 9 – 3,636,142 3,636,142
Other expenses 10 3,212,166 159,909 3,372,075
Total operating expenses 10,748,173 12,975,421 23,723,594
Finance costs 5,706,429 – 5,706,429
Net return on ordinary activities before taxation 21,123,168 52,090,200 73,213,368
Taxation on ordinary activities 11– – –
Net return on ordinary activities after taxation 21,123,168 52,090,200 73,213,368
Attributable to:
Equity shareholders 21,123,168 52,060,604 73,183,772
Non-controlling interests 18 – 29,596 29,596
Return per Ordinary Share (basic and diluted) 13 7.55 18.62 26.17
Other comprehensive income
Currency translation differences – (11,496 ) (11,496 )
Total comprehensive income 21,123,168 52,078,704 73,201,872
Attributable to:
Equity shareholders 21,123,168 52,052,083 73,175,251
Non-controlling interests 18 – 26,621 26,621
The total column of this statement represents the Group’s statement of comprehensive income, prepared in accordance with
UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to
companies reporting under those standards. The supplementary revenue and capital columns are both prepared under guidance
published by the Association of Investment Companies (“AIC”). All items in the above Statement derive from continuing
operations. Amounts in Other comprehensive income may be reclassified to profit or loss in future periods.
45
VPC SPECIALTY LENDING INVESTMENTS PLC
45
See Notes to the consolidated financial statements
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2020
REVENUE CAPITAL TOTAL
NOTES£££
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 8.08 p (0.34 p) 7.74 p
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
UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to
companies reporting under those standards. The supplementary revenue and capital columns are both prepared under guidance
published by the Association of Investment Companies (“AIC”). All items in the above Statement derive from continuing
operations. Amounts in Other comprehensive income may be reclassified to profit or loss in future periods.
46 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
FINANCIAL STATEMENTS continued
VPC SPECIALTY LENDING INVESTMENTS PLC
46
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2021
TOTAL
CALLED UP SHARE OTHER CURRENCY SHARE- NON-
SHARE PREMIUM DISTRIBUTABLE CAPITAL REVENUE TRANSLATION HOLDERS’ CONTROLLING TOTAL
CAPITAL ACCOUNT RESERVE RESERVE RESERVE RESERVE EQUITY INTERESTS EQUITY
£££££££££
Opening balance at
1 January 2021 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
Amounts paid on buyback of
Ordinary Shares – – (3,741,814 )– – – (3,741,814 ) – (3,741,814 )
Contributions by non-controlling
interests – – – – – – – – –
Distributions to non-controlling
interests – – – – – – – – –
Return on ordinary activities
after taxation – – – 52,060,604 21,123,168 – 73,183,772 29,596 73,213,368
Dividends declared and paid – – – – (22,355,761 ) – (22,355,761 ) – (22,355,761 )
Other comprehensive income
Currency translation differences – – – – – (8,521 ) (8,521 ) (2,975 ) (11,496 )
Closing balance at
31 December 2021 20,300,000 161,040,000 112,779,146 1,667,026 20,615,367 1,213,245 317,614,784 45,958 317,660,742
The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies (“AIC”).
See Notes to the consolidated financial statements
47
VPC SPECIALTY LENDING INVESTMENTS PLC
47
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2020
TOTAL
CALLED UP SHARE OTHER CURRENCY SHARE- NON-
SHARE PREMIUM DISTRIBUTABLE CAPITAL REVENUE TRANSLATION HOLDERS’ CONTROLLING TOTAL
CAPITAL ACCOUNT RESERVE RESERVE RESERVE RESERVE EQUITY INTERESTS EQUITY
£££££££££
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”).
See Notes to the consolidated financial statements
48 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
FINANCIAL STATEMENTS continued
VPC SPECIALTY LENDING INVESTMENTS PLC
48
See Notes to the consolidated financial statements
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2021
31 DECEMBER 31 DECEMBER
2021 2020
NOTES £ £
Cash flows from operating activities:
Total comprehensive income 73,201,872 22,976,122
Adjustments for:
– Interest income (33,158,150 ) (35,979,958 )
– Dividend and distribution income 5 (4,419,620 ) (5,799,767 )
– Finance costs 5,706,429 7,607,524
– Exchange losses 2,049,374 2,970,304
Total 43,379,905 (8,225,775 )
Gain on investment assets designated as held at fair value
through profit or loss (67,354,436 ) (1,845,962 )
(Gain) loss on derivative financial instruments (6,131,547 ) (1,402,050 )
Decrease (increase) in other assets and prepaid expenses (1,988,667 ) 5,009
Increase (decrease) in management fee payable 8,873,195 (51,174 )
Increase (decrease) in performance fee payable 63,158 (3,370,529 )
Decrease in deferred income (78,800 ) (236,919 )
Increase (decrease) in accrued expenses and other liabilities 250,148 (458,591 )
Interest received 32,062,716 37,597,261
Purchase of loans (129,180,445 ) (105,292,885 )
Redemption or sale of loans 145,742,133 160,405,704
Impairment of loans 3,636,142 112,550
Net cash (outflow) inflow from operating activities 29,273,502 77,236,639
Cash flows from investing activities:
Investment income received 4,419,436 5,815,327
Purchase of investment assets designated as held at fair value
through profit or loss (51,430,977 ) (16,671,467 )
Sale of investment assets designated as held at fair value
through profit or loss 30,929,189 8,538,783
(Decrease) increase of cash posted as collateral (2,993,588 ) (160,000 )
Net cash inflow (outflow) from investing activities (19,075,940 ) (2,477,357 )
49
VPC SPECIALTY LENDING INVESTMENTS PLC
Company Number: 9385218
49
See Notes to the consolidated financial statements
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2021
31 DECEMBER 31 DECEMBER
2021 2020
NOTES £ £
Cash flows from financing activities:
Dividends distributed (22,355,761 ) (23,674,744 )
Treasury shares repurchased (3,741,814 ) (20,213,722 )
Distributions to non-controlling interests – (123,908 )
(Decrease) increase in note payable 21,180,077 (23,502,528 )
Finance costs paid (5,739,082 ) (7,165,276 )
Net cash outflow from financing activities (10,656,580 ) (74,680,178 )
Net change in cash and cash equivalents (459,018 ) 79,104
Exchange gains on cash and cash equivalents 343,562 205,802
Cash and cash equivalents at the beginning of the period 6,416,028 6,131,122
Cash and cash equivalents at the end of the period 7 6,300,572 6,416,028
50 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
FINANCIAL STATEMENTS continued
VPC SPECIALTY LENDING INVESTMENTS PLC
50
PARENT COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2021
RESTATED
31 DECEMBER 31 DECEMBER
2021 2020
NOTES £ £
Assets
Cash and cash equivalents 7 4,301,574 4,738,217
Cash posted as collateral 7 4,133,588 1,140,000
Derivative financial assets 3,4 2,069,698 5,758,880
Interest receivable 4,298,886 3,173,686
Other current assets and prepaid expenses 2,881,811 889,148
Investments in subsidiaries 17 303,174,979 257,491,532
Investment assets designated as held at fair value through profit or loss 3 12,531,090 2,522,366
Total assets 333,391,626 275,713,829
Liabilities
Management fee payable 10 155,399 92,241
Performance fee payable 10 12,913,280 4,040,085
Derivative financial liabilities 3,4 1,508,675 –
Deferred income 174,603 253,403
Other liabilities and accrued expenses 1,024,885 790,992
Total liabilities 15,776,842 5,176,721
Total assets less total liabilities 317,614,784 270,537,108
Equity attributable to Shareholders of the Company
Called-up share capital 14 20,300,000 20,300,000
Share premium account 14 161,040,000 161,040,000
Other distributable reserve 14 112,779,146 116,520,960
Capital reserve 2,880,271 (49,171,812)
Revenue reserve 20,615,367 21,847,960
Total equity 317,614,784 270,537,108
Net return on ordinary activities after taxation 73,175,251 22,893,817
The financial statements on pages 50 to 53 were approved by the Board of Directors on 27 April 2022 and signed on its behalf
by:
Graeme Proudfoot
Chair
27 April 2022
Company number: 9385218
51
VPC SPECIALTY LENDING INVESTMENTS PLC
51
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2021
CALLED-UP SHARE OTHER
SHARE PREMIUM DISTRIBUTABLE CAPITAL REVENUE
CAPITAL ACCOUNT RESERVE RESERVE RESERVE TOTAL
££££££
Opening balance at 1 January 2021 20,300,000 161,040,000 116,520,960 (49,171,812) 21,847,960 270,537,108
Amounts paid on repurchase of Ordinary Shares – – (3,741,814) – – (3,741,814)
Return on ordinary activities after taxation – – – 52,052,083 21,123,168 73,175,251
Dividends declared and paid ––––(22,355,761) (22,355,761)
Closing balance at 31 December 2021 20,300,000 161,040,000 112,779,146 2,880,271 20,615,367 317,614,784
See Notes to the consolidated financial statements
52 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
VPC SPECIALTY LENDING INVESTMENTS PLC
52
FINANCIAL STATEMENTS continued
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2020 RESTATED
CALLED-UP SHARE OTHER
SHARE PREMIUM DISTRIBUTABLE CAPITAL REVENUE
CAPITAL ACCOUNT RESERVE RESERVE RESERVE TOTAL
££££££
Opening balance at 1 January 2020 20,300,000 161,040,000 136,682,176 (48,166,777) 21,623,852 291,479,251
Amounts paid on repurchase of Ordinary Shares – – (20,161,216) – – (20,161,216)
Return on ordinary activities after taxation – – – (1,005,035) 23,898,852 22,893,817
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 (49,171,812) 21,847,960 270,537,108
See Notes to the consolidated financial statements
53
VPC SPECIALTY LENDING INVESTMENTS PLC
53
PARENT COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2021
RESTATED
31 DECEMBER 31 DECEMBER
2021 2020
NOTES £ £
Cash flows from operating activities:
Net return on ordinary activities after taxation 73,175,251 22,893,817
Adjustments for:
– Interest income (31,871,341) (35,842,688)
– Exchange (gains) losses 2,049,374 (315,612)
Total 43,353,284 (13,264,483)
Unrealised loss on investment assets designated as held at fair value
through profit or loss (7,141,907) 563,327
Unrealised (gain) loss on investments in subsidiaries (52,213,993) 1,018,002
(Gain) loss on derivative financial instruments (6,131,547) (1,773,515)
Increase in other assets and prepaid expenses (1,992,663) (221,594)
Decrease in management fee payable 63,158 (51,174)
(Decrease) increase in performance fee payable 8,873,195 (3,370,529)
Decrease in deferred income (78,800) (236,919)
Increase in accrued expenses and other liabilities 233,894 172,389
Net cash outflow from operating activities (15,035,379) (17,164,496)
Cash flows from investing activities:
Interest received 30,746,141 37,332,932
Purchase of investment assets designated as held at fair value
through profit or loss (19,086,855) –
Sale of investment assets designated as held at fair value through profit or loss 16,220,038 1,376,253
Purchase of investments in subsidiaries (29,910,829) (80,568,889)
Sales of investment in subsidiaries 45,377,842 103,634,391
Cash posted as collateral (2,993,588) (160,000)
Net cash inflow from investing activities 40,352,749 61,614,687
Cash flows from financing activities
Treasury Shares repurchased (3,741,814) (20,213,722)
Dividends paid (22,355,761) (23,674,744)
Net cash outflow from financing activities (26,097,575) (43,888,466)
Net change in cash and cash equivalents (780,205) 561,725
Exchange gains on cash and cash equivalents 343,562 205,802
Cash and cash equivalents as the beginning of the period 4,738,217 3,970,690
Cash and cash equivalents at the end of the period 7 4,301,574 4,738,217
See Notes to the consolidated financial statements
54 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
FINANCIAL STATEMENTS continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
VPC SPECIALTY LENDING INVESTMENTS PLC
54
1. GENERAL INFORMATION
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
operations on 17 March 2015 and intends to carry on business as an investment trust within the meaning of Chapter 4 of Part 4
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 2021, the Parent Company had equity in the form of 382,615,665 Ordinary Shares, 278,276,392 Ordinary
Shares in issue and 104,339,273 Ordinary Shares in Treasury (31 December 2020: 382,615,665 Ordinary Shares, 282,647,364
Ordinary Shares in issue and 99,968,301 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.
During the year, Citco Fund Administration (Cayman Islands) Limited (the “Administrator”) was appointed as the administrator of
the Group, replacing Northern Trust Hedge Fund Services LLC. 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 2021. The consolidated financial statements are prepared in accordance with UK-adopted International Accounting
Standards and with the requirements of the Companies Act 2006 as applicable to companies under those standards. They
comprise standards and interpretations approved by the International Accounting Standards Board (“IASB”) and International
Financial Reporting Committee, including interpretations issued by the IFRS Interpretations Committee and interpretations issued
by the International Accounting Standard Committee (“IASC”) that remain in effect. The financial statements have been prepared
on a going concern basis and under the historical cost convention modified by the revaluation to a fair value basis for certain
financial instruments as specified in the accounting policies below.
The Directors have reviewed the financial projections of the Group and Company from the date of this report, which shows that
the Group and Company will be able to generate sufficient cash flows in order to meet its liabilities as they fall due. In assessing
the Group’s and Company’s ability to continue as a going concern, the Directors have considered the Company’s investment
objective, risk management policies, capital management, the nature of its portfolio and expenditure projections.
55
VPC SPECIALTY LENDING INVESTMENTS PLC
55
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 12 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
12 months from the date of this report.
Based on their assessment and considerations above, the Directors have concluded that the financial statements of the Group and
Company should continue to be prepared on a going concern basis and the financial statements have been prepared accordingly.
Where presentational guidance set out in the Statement of Recommended Practice (“SORP”) for investment trusts issued by the
Association of Investment Companies (“AIC”) in November 2014 and updated in October 2019 with consequential amendments
is consistent with the requirements of IFRS, the Directors have sought to prepare the consolidated financial statements on a basis
compliant with the recommendations of the SORP.
The Parent Company and Group’s presentational currency is Pound Sterling (£). 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.
Change in accounting policy with retrospective application
All accounting policies are consistent with prior year with the exception of a voluntary change in accounting policy with respect
to investments in subsidiaries. Refer to Investment in subsidiaries section below for further information.
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
During the year, the Parent Company voluntarily changed its accounting policy for valuing its investments in subsidiaries. In
previous years, the Parent Company’s investments in its subsidiaries were measured at cost less impairment and costs of
investments in currencies other than Pound Sterling were historically translated to at the rate of exchange ruling on the date
the investment was made. This previously caused a difference in the total net asset value shown on the Parent Company
Statement of Financial Position as compared to the Group.
With the change in accounting policy, the Parent Company’s investments in its subsidiaries are now measured at fair value which
is determined with reference to the underlying NAV of the subsidiary. The NAV of the subsidiaries are used as a best estimate
of fair value through profit or loss. The NAV is the value of all the assets of the subsidiary less its liabilities to creditors (including
provisions for such liabilities) determined in accordance with applicable accounting standards, which represents fair value based
on the Company’s assessment.
The Investment Manager believes that the implemented change in accounting will provide the Shareholders of the Company
with the best indication of value of the Parent Company and will align the accounting policies of the Parent Company reporting
to be more in line with the accounting policies of the Group.
Below is the impact of this change in accounting policy on the Parent Company Statement of Financial Position:
HISTORICAL FAIR MARKET
COST VALUE
31 DECEMBER 31 DECEMBER
FINANCIAL ASSETS 2020 2020 CHANGE
Investments in subsidiaries 250,042,768 257,491,532 7,448,764
56 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
FINANCIAL STATEMENTS continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
VPC SPECIALTY LENDING INVESTMENTS PLC
56
Below is the impact of this change in accounting policy on the Parent Company Statement of Changes in Equity:
HISTORICAL FAIR MARKET
COST VALUE
2020 2020 CHANGE
£££
Total equity at 1 January 2020 280,744,571 291,479,251 10,734,680
Return on ordinary activities after taxation 26,179,731 22,893,817 –3,285,914
Total equity at 31 December 2020 263,088,342 270,537,108 7,448,766
The impact of this change in the accounting policy on the Parent Company Statement of Cash flows is the decrease of the net return
on ordinary activities after taxation noted above and an increase to the unrealised appreciation on investments in subsidiaries.
Below is the impact of this change in accounting policy on the Parent Company’s basic earnings per share:
2020 2020
HISTORICAL FAIR MARKET
COST VALUE
££
Profit for the year 26,179,731 22,893,817
Average number of Ordinary Shares in issue during the year 295,430,078 295,430,078
Earnings per Share (basic and diluted) 8.86p 7.75p
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 £73,175,251 (31 December 2020: £22,893,817).
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.
57
VPC SPECIALTY LENDING INVESTMENTS PLC
57
Finance costs
Finance costs are recognised using the effective interest rate method. The Group currently charges all finance costs to either
revenue or capital based on retained earnings of the investment that generates the fees from the perspective of the Parent
Company.
Expenses
Expenses not directly attributable to generating a financial instrument are recognised as services are received, or on the
performance of a significant act which means the Group has become contractually obligated to settle those amounts.
The Group currently charges all expenses, including investment management fees and performance fees, to either revenue or
capital based on the retained earnings of the investment that generates the fees from the perspective of the Parent Company.
At 31 December 2021, no management fees (31 December 2020: £nil) have been charged to the capital return of the Group or
the Parent Company. At 31 December 2021, performance fees of £9,179,370 (31 December 2020: £nil) have been charged to the
capital return of the Group and Parent Company relating to the net return on ordinary activities after taxation allocated to the
capital return. Refer to Note 10 for further details of the management and performance fees.
All expenses are accounted for on an accruals basis.
Dividends payable to Shareholders
Dividends payable to Shareholders are recognised in the Consolidated Statement of Changes in Equity when they are paid or
have been approved by Shareholders in the case of a final dividend and become a liability to the Parent Company.
Taxation
The tax currently payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the
Consolidated Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible
in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated
using tax rates that have been enacted or substantively enacted at the Consolidated Statement of Financial Position date.
In line with the recommendations of SORP for investment trusts issued by the AIC, the allocation method used to calculate tax
relief on expenses presented against capital returns in the supplementary information in the Consolidated Statement of
Comprehensive Income is the “marginal basis”.
Under this basis, if taxable income is capable of being offset entirely by expenses presented in the revenue return column of the
Consolidated Statement of Comprehensive Income, then no tax relief is transferred to the capital return column.
Investment trusts which have approval as such under section 1158 of the Corporation Tax Act 2010 are not liable for taxation on
capital gains.
Financial assets and financial liabilities
The Group classifies its financial assets and financial liabilities in one of the following categories below. The classification depends
on the purpose for which the financial assets and liabilities were acquired. The classification of financial assets and liabilities are
determined at initial recognition.
IFRS 9 contains a classification and measurement approach for financial assets that reflects the business model in which assets
are managed and their cash flow characteristics. IFRS 9 contains a principal-based approach and applies one classification
approach for all types of financial assets. For Debt Instruments, two criteria are used to determine how financial assets should
be classified and measured:
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
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”):
It is held within a business model whose objective is to hold assets to collect contractual cash flows; and
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.
58 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
FINANCIAL STATEMENTS continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
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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:
It is held within a business model whose objective is achieved by both collecting contractual cash flows and selling
financial assets; and
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:
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;
Past experience on how the cash flows for these assets were collected;
How the performance of the portfolio is evaluated and reported to the Investment Manager;
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
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:
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Contingent events that would change the amount and timing of cash flows;
Prepayment and extension terms;
Terms that limit the Company’s claim to cash flows from specified assets, e.g., non-recourse asset arrangements; and
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”).
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.
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.
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 an
analysis of loan collateral and credit enhancement. Impairments are recognised once a loan is deemed to have a non-trivial
likelihood of facing a material loss. The expected credit loss allowance reflects the increasing likelihood of loss as collateral
and credit enhancement become diminished or impaired. 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:
Significant increase in credit spread;
60 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
FINANCIAL STATEMENTS continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
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Significant adverse changes in business, financial and/or economic conditions in which the borrower operates;
Actual or expected forbearance or restructuring;
Actual or expected significant adverse change in operating results of the borrower;
Significant change in collateral value which is expected to increase the risk of default; or
Early signs of cashflow or liquidity problems.
Movements between Stage 2 and Stage 3 are based on whether financial assets are credit impaired as at the reporting
date. Assets can move in both directions through the stages of the impairment model.
The criteria for determining whether credit risk has increased significantly will vary by portfolio and will include a backstop
based on delinquency. IFRS 9 contains a rebuttable presumption that default occurs no later than when a payment is
90 days past due which the Group does not rebut. A loan is normally written off, either partially or in full, when there is
no realistic prospect of recovery (as a result of the customer’s insolvency, ceasing to trade or other reason) and the amount
of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of
impairment losses recorded. The Company assesses at each reporting date whether there is objective evidence that a loan
or group of loans is impaired. In performing such analysis, the Company assesses the probability of default based on the
level of collateral and credit enhancement and on the number of days past due, using recent historical rates of default on
loan portfolios with credit risk characteristics similar to those of the Company or past history if sufficient data is available
to demonstrate a reliable loss profile.
Inputs into the assessment of whether a financial instrument is in default and their significance may vary over time to
reflect changes in circumstances.
Under IFRS 9, when determining whether the credit risk (i.e. the risk of default) on a financial instrument has increased
significantly since initial recognition, reasonable and supportable information that is relevant and available without undue
cost or effort, including both quantitative and qualitative information and analysis based on historical experience, credit
assessment and forward-looking information is used.
The measurement of expected credit losses for each stage and the assessment of significant increases in credit risk must
consider information about past events and current conditions as well as reasonable and supportable forward-looking
information, including a “base case” view of the future direction of relevant economic variables and a representative range
of other possible forecasts scenarios. The process will involve developing two or more additional economic scenarios and
considering the relative probabilities of each outcome. The base case will represent a most likely outcome and be aligned
with information used for other purposes, such as strategic planning and budgeting. The number of scenarios used and
their attributes are reassessed at each reporting date by investment. The scenario weightings are determined by a
combination of statistical analysis and expert credit judgement, taking account of the range of possible outcomes each
chosen scenario is representative of.
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.
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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:
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;
Whether any substantial new terms are introduced, such as a profit share/equity-based return that substantially affect
the risk profile of the loan;
Significant extension of the loan term when the borrower is not in financial difficulty;
Significant change in the interest rate;
Change in the currency the loan is denominated in; and
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, three investments were modified per the Group’s policy (2020: two 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:
Has no obligation to make payments unless it collects equivalent amounts from the assets;
62 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
FINANCIAL STATEMENTS continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
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62
Is prohibited from selling or pledging the assets; and
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.
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Gains and losses arising from derivative instruments are credited or charged to the Consolidated Statement of
Comprehensive Income. Gains and losses of a revenue nature are reflected in the revenue column and gains and losses of
a capital nature are reflected in the capital column. Gains and losses on forward foreign exchange contracts are reflected
in Foreign exchange gain/(loss) in the Consolidated Statement of Comprehensive Income.
All derivatives are classified as assets where the fair value is positive and liabilities where the fair value is negative. Where
there is the legal ability and intention to settle net, then offsetting is applied and the derivative is classified as a net asset
or liability, as appropriate.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the Consolidated Statement of Financial Position
if, and only if, there is currently enforceable legal right to set off the recognised amounts and there is an intention to settle
on a net basis, or to realise an asset and settle the liability simultaneously.
Investments in funds
Investments in funds are measured at fair value through profit or loss. The NAV of the fund is used as a best estimate of fair
value through profit or loss. The NAV is the value of all the assets of the fund less its liabilities to creditors (including provisions
for such liabilities) determined in accordance with applicable accounting standards, which represents fair value based on the
Company’s assessment. Refer to Note 3 and Note 19 for further information.
Equity securities
Equity securities are measured at fair value. These securities are considered either Level 1, 2, or 3 investments. Further details of
the valuation of equity securities are included in Note 3. Equity securities consist of common and preferred stock, warrants and
convertible note investments.
Other receivables
Other receivables do not carry interest and are short-term in nature and are accordingly recognised at fair value as reduced by
appropriate allowances for estimated irrecoverable amounts.
Cash and cash equivalents
Cash comprises of cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments with
a maturity of 90 days or less that are readily convertible to known amounts of cash.
Deferred income
The Group and Parent Company defer draw fees received from investments and the deferred fees amortise into income on
a straight-line basis over the life of the loan, which approximates the effective interest rate method.
Other liabilities
Other liabilities and accrued expenses are not interest-bearing and are stated at their nominal values. Due to their short-term
nature this is determined to be equivalent to their fair value.
Share Capital
The Ordinary Shares are classified as equity. The costs of issuing or acquiring equity are recognised in equity (net of any related
income tax benefit), as a reduction of equity on the condition that these are incremental costs directly attributable to the equity
transaction that otherwise would have been avoided.
The costs of an equity transaction that is abandoned are recognised as an expense. Those costs might include registration and
other regulatory fees, amounts paid to legal, accounting and other professional advisers, printing costs and stamp duties.
The Group’s equity NAV per share is calculated by dividing the equity – net assets attributable to the holder of Ordinary Shares
by the total number of outstanding Ordinary Shares.
Treasury Shares have no entitlements to vote and are held by the Company.
Foreign exchange
Transactions in foreign currencies are translated into Pound Sterling at the rate of exchange ruling on the date of each
transaction. Monetary assets, liabilities and equity investments in foreign currencies at the Consolidated Statement of Financial
Position date are translated into Pound Sterling at the rates of exchange ruling on that date. Profits or losses on exchange,
64 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
FINANCIAL STATEMENTS continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
VPC SPECIALTY LENDING INVESTMENTS PLC
64
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.
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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 are 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.
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 asset backed investments, the Investment Manager performs a similar analysis as with our
financial services asset backed 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 summarises the loss stress observed by segment
where 0% indicates no change and 100% indicates a doubling of the relevant loss rate.
66 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
FINANCIAL STATEMENTS continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
VPC SPECIALTY LENDING INVESTMENTS PLC
66
2008 Recession Loss Scalars
by Asset and Population
SUBPRIME & DEEP NEAR PRIME
SUBPRIME VINTAGE VINTAGE PRIME VINTAGE
SCORE BELOW 601 SCORE 601-660 SCORE ABOVE 660
Student Loan 0% 10% 8%
Retail 17% 10% 3%
Personal Loan 16% 41% 108%
Auto 24% 54% 88%
Credit Card 43% 71% 132%
Source: Assessing Performance of Consumer Lending Assets through Macroeconomic Shocks, Second Order Solutions (June 2019).
The most heavily represented populations in the Group’s borrower portfolios are personal loans (or amortising instalment
loans). As seen in the above table, default rates on these loans increased by 1.16x-2.08x. Each portfolio was assessed based
on the applicable stress factor range based on the product and borrower population.
IFRS 9 calls for an assessment of the probability of default over the upcoming 12 months, and thus the Investment
Manager provides a view of the probability of such a severe scenario occurring in the next 12 months for each of the
investments which are at risk of incurring a loss (as some of the variables will vary between investments). Typically, the
Investment Manager reviews macroeconomic data to assess the probability of a recession or stress scenario over a
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 is consistent with the prior year. 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 asset backed 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 2021 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.
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.
67
VPC SPECIALTY LENDING INVESTMENTS PLC
67
Critical accounting judgments
Judgement is required to determine whether the Parent Company exercises control over its investee entities and whether they
should be consolidated. Control is achieved where the Parent Company has the power to govern the financial and operating
policies of an investee entity so as to obtain benefits from its activities. The Parent Company controls an investee entity when
the Parent Company is exposed to, or has rights to, variable returns from its investment and has the ability to affect those returns
through its power over the entity. At each reporting date, an assessment is undertaken of investee entities to determine control.
In the intervening period, assessments are undertaken where circumstances change that may give rise to a change in the control
assessment. These include when an investment is made into a new entity, or an amendment to existing entity documentation
or processes. When assessing whether the Parent Company has the power to affect its variable returns, and therefore control
investee entities, an assessment is undertaken of the Parent Company’s ability to influence the relevant activities of the investee
entity. These activities include considering the ability to appoint or remove key management or the manager, which party has
decision making powers over the entity and whether the manager of an entity is acting as principal or agent. The assessment
undertaken for entities considers the Parent Company's level of investment into the entity and its intended long-term holding
in the entity and there may be instances where the Parent Company owns less than 51% of an investee entity but that entity is
consolidated. Further details of the Parent Company's subsidiaries are included in Note 17.
The Group’s investments in associates all consist of limited partner interest in funds. There are no significant restrictions between
investors with joint control or significant influence over the associates listed above on the ability of the associates to transfer
funds to any party in the form of cash dividends or to repay loans or advances made by the Group. Further details of the Parent
Company’s associates are included in Note 19.
Accounting standards issued but not yet effective or not material to the Group
At the date of authorisation of these financial statements, the following standards and interpretations, which have not been
applied in these financial statements, were in issue.
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 narrow-scope amendments to IAS 1 Presentation of Financial Statements clarify that liabilities are classified as either current
or non-current, depending on the rights that exist at the end of the reporting period. Classification is unaffected by the
expectations of the entity or events after the reporting date (e.g., the receipt of a waver or a breach of covenant). The
amendments also clarify what IAS 1 means when it refers to the ‘settlement’ of a liability. The amendments could affect the
classification of liabilities, particularly for entities that previously considered management’s intentions to determine classification
and for some liabilities that can be converted into equity. They must be applied retrospectively in accordance with the normal
requirements in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. In May 2020, the IASB issued an Exposure
Draft proposing to defer the effective date of the amendments to 1 January 2023.
Accounting standards effective in the year
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.
Refer to Note 6 for further details on the Group’s exposure to IBOR as at 31 December 2021.
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.
68 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
FINANCIAL STATEMENTS continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
VPC SPECIALTY LENDING INVESTMENTS PLC
68
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 2021 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
69
VPC SPECIALTY LENDING INVESTMENTS PLC
69
round includes gaining an understanding of the resulting rights between equity classes, and when applicable, a discount related
to rights and preference differences is applied to the implied valuation. In addition, when a portfolio company has significant
reason to believe an equity round is closing in the near future, a weighted-probability approach with the applicable discounts
may be used. Under the yield analysis approach, expected future cash flows are discounted back using a discount rate. The
discount rate used incorporates market-based yields for similar credits to the public market and the underlying risk of the
individual credit.
Due to the inherent uncertainty of determining the fair value of Level 3 assets that do not have a readily available market value,
the fair value of the assets may differ significantly from the values that would have been used had a ready market existed for
such assets and may differ materially from the values that may ultimately be received or settled. Further, such assets are
generally subject to legal and other restrictions or otherwise are less liquid than publicly traded instruments. If the Group were
required to liquidate a portfolio investment in a forced or liquidation sale, the Group may realise significantly less than the value
at which such investment had previously been recorded.
The selection of appropriate valuation techniques may be affected by the availability of relevant inputs as well as the relative
reliability of the inputs. In some cases, one valuation technique may provide the best indication of fair value while in other
circumstances, multiple valuation techniques may be appropriate. The results of the application of the various techniques may
not be equally representative of fair value, due to factors such as assumptions made in the valuation.
In some situations, the Group may determine it appropriate to evaluate and weigh the results to develop a range of possible
values, with the fair value based on the Group’s assessment of the most representative point within the range.
Investments may be classified as Level 2 when market information becomes available, yet the investment is not traded in an
active market and/or the investment is subject to transfer restrictions, or the valuation is adjusted to reflect illiquidity and/or
non-transferability.
The Group, at times, may hold Level 1 investments and will use the available market quotes to value the investments. As noted
above, these investments may include an illiquid period in which the investment does not have the ability to trade and will be
classified as Level 2.
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
2021:
INVESTMENT ASSETS DESIGNATED TOTAL LEVEL 1 LEVEL 2 LEVEL 3
AS HELD AT FAIR VALUE ££££
Investments in funds 12,531,090 – – 12,531,090
Common stock 49,501,940 11,992,005 21,201,450 16,308,485
Preferred stock 38,090,065 – – 38,090,065
Warrant 20,984,976 – 1,120,366 19,864,610
Convertible debt 20,689,151 – – 20,689,151
Total 141,797,222 11,992,005 22,321,816 107,483,401
TOTAL LEVEL 1 LEVEL 2 LEVEL 3
DERIVATIVE FINANCIAL ASSETS ££££
Forward foreign exchange contracts 2,069,698 – 2,069,698 –
Total 2,069,698 – 2,069,698 –
TOTAL LEVEL 1 LEVEL 2 LEVEL 3
DERIVATIVE FINANCIAL LIABILITIES ££££
Forward foreign exchange contracts 1,508,675 – 1,508,675 –
Total 1,508,675 – 1,508,675 –
70 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
FINANCIAL STATEMENTS continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
VPC SPECIALTY LENDING INVESTMENTS PLC
70
The following table analyses the fair value hierarchy of the Group’s assets and liabilities measured at fair value at 31 December
2020:
INVESTMENT ASSETS DESIGNATED TOTAL LEVEL 1 LEVEL 2 LEVEL 3
AS HELD AT FAIR VALUE ££££
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 ££££
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 2021:
INVESTMENT ASSETS DESIGNATED TOTAL LEVEL 1 LEVEL 2 LEVEL 3
AS HELD AT FAIR VALUE ££££
Investments in funds 12,531,090 – – 12,531,090
Total 12,531,090 – – 12,531,090
TOTAL LEVEL 1 LEVEL 2 LEVEL 3
DERIVATIVE FINANCIAL ASSETS ££££
Forward foreign exchange contracts 2,069,698 – 2,069,698 –
Total 2,069,698 – 2,069,698 –
TOTAL LEVEL 1 LEVEL 2 LEVEL 3
DERIVATIVE FINANCIAL LIABILITIES ££££
Forward foreign exchange contracts 1,508,675 – 1,508,675 –
Total 1,508,675 – 1,508,675 –
The following table analyses the fair value hierarchy of the Parent Company’s assets and liabilities measured at fair value at
31 December 2020:
INVESTMENT ASSETS DESIGNATED TOTAL LEVEL 1 LEVEL 2 LEVEL 3
AS HELD AT FAIR VALUE ££££
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 ££££
Forward foreign exchange contracts 5,758,880 – 5,758,880 –
Total 5,758,880 – 5,758,880 –
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 2021 and 31 December 2020.
71
VPC SPECIALTY LENDING INVESTMENTS PLC
71
The following table presents the movement in Level 3 positions for the year ended 31 December 2021 for the Group:
INVESTMENTS COMMON PREFERED CONVERTIBLE
TOTAL IN FUNDS STOCK STOCK WARRANT DEBT
£ £££££
Beginning balance,
1 January 2021 48,463,617 2,522,367 11,072,305 19,771,889 4,996,048 10,101,008
Purchases 45,439,031 19,086,855 7,661,428 2,250,450 5,338,445 11,101,853
Sales (25,600,304) (16,220,038) (4,899,071) (1,275,157) (2,656,064) (549,974)
Net change in unrealised
gains (losses) 39,181,057 7,141,906 2,473,823 17,342,883 12,186,181 36,264
Ending balance,
31 December 2021 107,483,401 12,531,090 16,308,485 38,090,065 19,864,610 20,689,151
The 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 2020 for the Group:
INVESTMENTS EQUITY
TOTAL IN FUNDS SECURITIES
£££
Beginning balance, 1 January 2020 39,100,521 4,461,946 34,638,575
Purchases 16,671,467 – 16,671,467
Sales (8,538,783) (1,376,253) (7,162,530)
Net change in unrealised foreign exchange gains (losses) (1,635,542) (624,808) (1,010,734)
Net realised gains (losses) (8,676,617) – (8,676,617)
Net change in unrealised gains (losses) 11,542,571 61,482 11,481,089
Ending balance, 31 December 2020 48,463,617 2,522,367 45,941,250
The following table presents the movement in Level 3 positions for the period ended 31 December 2021 for the Parent Company:
INVESTMENTS
IN FUNDS
£
Beginning balance, 1 January 2021 2,522,367
Purchases 19,086,855
Sales (16,220,038)
Transfers in (out) –
Net change in unrealised foreign exchange gains (losses) (5,567,642)
Net change in unrealised gains (losses) 12,709,548
Ending balance, 31 December 2021 12,531,090
72 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
FINANCIAL STATEMENTS continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
VPC SPECIALTY LENDING INVESTMENTS PLC
72
The following table presents the movement in Level 3 positions for the period ended 31 December 2020 for the Parent Company:
INVESTMENTS
IN FUNDS
£
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) 1,482
Ending balance, 31 December 2020 2,522,367
Quantitative information regarding the unobservable inputs for Level 3 positions as at 31 December 2021 is given below:
FAIR VALUE AT
31 DECEMBER
2021 VALUATION UNOBSERVABLE
DESCRIPTION £ TECHNIQUE INPUT RANGE
Common stock 4,819,588 Discounted Cash Flows Discount Rate 10.0%
Market Comparables Price to Book 2.1x
Price to Earnings 7.3x
7,472,470 Transaction Price Cost Basis of Investment N/A
1,710,424 Transaction Price/Recent Recent Round Price per Share $8.81
Round Price
Illiquidity Discount 20.0%
2,306,004 Transaction Price Illiquidity Discount 30.0%
Convertible debt 10,786,776 Discounted Cash Flows Discount Rate 23.0%
Annual Free Cash Flow Growth Rates 3.0%
7,374,073 Transaction Price Cost Basis of Investment N/A
2,528,302 Transaction Price/Recent Recent Round Price per Share $3.41 – €10,530.89
Round Price
Illiquidity Discount 20.0%
Preferred stock 38,090,065 Transaction Price/Recent Rights and Preferences Discount 0.0% – 20.0%
Round Price
Recent Round Price per Share $0.19 – €3,671.49
Illiquidity Discount 0.0% – 20.0%
Investments in funds 12,531,090 Net Asset Value N/A N/A
Warrants 15,143,216 Black Scholes Price Per Share $0.36 – €10,530.89
Rights & Preferences Discount 0.0% – 30.0%
Risk Free Rate 0.7% – 1.3%
Term 1.6 – 5.0 years
Volatility 22.0% – 40.0%
2,693,389 Transaction Price Cost Basis of Investment N/A
2,028,004 Transaction Price/Recent Deal Execution Risk Discount 20.0%
Round Price
Recent Round Price per Share $0.92 – $43.21
Rights & Preferences Discount 20.0% – 40.0%
Risk Free Rate 0.73%
Term 2.3 years
Volatility 40.0%
Total 107,483,401
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VPC SPECIALTY LENDING INVESTMENTS PLC
73
The investments in funds consist of investments in VPC Synthesis, L.P. and VPC Offshore Unleveraged Private Debt Fund Feeder,
L.P. These are valued based on the NAV as calculated at the balance sheet date. No adjustments have been deemed necessary
to the NAV as it reflects the fair value of the underlying investments, as such no specific unobservable inputs have been
identified. The NAVs are sensitive to movements in interest rates due to the funds’ underlying investment in loans.
If the illiquidity discount of the convertible debt valued based on discounted cash flows increased/decreased by 10% it would
have resulted in an increase/decrease to the total value of those securities of £7,852,065, which would affect the Net gain/(loss)
on investments within the capital return column of the Consolidated Statement of Comprehensive Income.
If the illiquidity discount of the preferred stock valued based on discounted cash flows increased/decreased by 10% it would
have resulted in an increase/decrease to the total value of those securities of £2,664,149, which would affect the Net gain/(loss)
on investments within the capital return column of the Consolidated Statement of Comprehensive Income.
If the volatility rate used for the warrants valued based on a Black Scholes increased/decreased by 10% it would have resulted
in an increase/decrease to the total value of those equity securities of £1,405,237, 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 £10,600,644 (31 December 2020: £4,846,362) 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 2021 but for which fair value is disclosed:
CARRYING FAIR MARKET
VALUE VALUE
££
Assets
Loans 279,339,002 279,339,002
Total 279,339,002 279,339,002
For all other assets and liabilities not carried at fair value, the carrying value is a reasonable approximation of fair value.
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
££
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.
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 2021 and 2020, 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.
74 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
VPC SPECIALTY LENDING INVESTMENTS PLC
74
FINANCIAL STATEMENTS continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
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 2021, the following forward foreign exchange contracts were included in the Group’s Consolidated Statement
of Financial Position at fair value through profit or loss and the Parent Company’s Statement of Financial Position at fair value
through profit or loss:
PURCHASE PURCHASE SALE SALE FAIR VALUE
SETTLEMENT DATE CURRENCY AMOUNT CURRENCY AMOUNT £
28 January 2022 GBP 2,620,803 AUD 4,800,000 (18,152)
28 January 2022 GBP 6,683,400 EUR 7,900,000 57,080
28 January 2022 GBP 52,879,392 USD 73,000,000 (1,082,331)
28 January 2022 GBP 3,972,910 EUR 4,700,000 23,367
28 January 2022 GBP 74,903,643 USD 103,000,000 (1,532,042)
25 February 2022 GBP 74,593,466 USD 100,000,000 701,281
25 March 2022 GBP 118,508,454 USD 156,810,386 2,411,820
Unrealised gains on forward foreign
exchange contracts 561,023
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 SALE SALE FAIR VALUE
SETTLEMENT DATE CURRENCY AMOUNT CURRENCY AMOUNT £
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
75
VPC SPECIALTY LENDING INVESTMENTS PLC
75
The following tables provide information on the financial impact of netting for instruments subject to an enforceable master
netting arrangement or similar agreement at 31 December 2021 for both the Parent Company and the Group:
GROSS
AMOUNTS OF NET AMOUNTS RELATED AMOUNTS NOT
FINANCIAL OF RECOGNISED ELIGIBLE TO BE SET-OFF IN
GROSS LIABILITIES TO BE ASSETS THE STATEMENT
AMOUNTS OF SET-OFF IN THE PRESENTED IN OF FINANCIAL POSITION
RECOGNISED STATEMENT OF THE STATEMENT
FINANCIAL FINANCIAL OF FINANCIAL FINANCIAL COLLATERAL NET
ASSETS POSITION POSITION INSTRUMENTS RECEIVED AMOUNT
AS AT 31 DECEMBER 2021 ££££££
Bannockburn Global 2,468,900 (1,100,483) 1,368,417 – – 1,368,417
Goldman Sachs 23,367 (23,367)––––
Morgan Stanley 701,281 – 701,281 – – 701,281
Total 3,193,548 (1,123,850) 2,069,698 – – 2,069,698
GROSS
AMOUNTS OF NET AMOUNTS RELATED AMOUNTS NOT
FINANCIAL OF RECOGNISED ELIGIBLE TO BE SET-OFF IN
GROSS ASSETS TO BE LIABILITIES THE STATEMENT
AMOUNTS OF SET-OFF IN THE PRESENTED IN OF FINANCIAL POSITION
RECOGNISED STATEMENT OF THE STATEMENT
FINANCIAL FINANCIAL OF FINANCIAL FINANCIAL COLLATERAL NET
LIABILITIES POSITION POSITION INSTRUMENTS RECEIVED AMOUNT
AS AT 31 DECEMBER 2021 ££££££
Bannockburn Global 1,100,483 (1,100,483)––––
Goldman Sachs 1,532,042 (23,367) 1,508,675 – – 1,508,675
Morgan Stanley ––––––
Total 2,632,525 (1,123,850) 1,508,675 – – 1,508,675
The following tables provide information on the financial impact of netting for instruments subject to an enforceable master
netting arrangement or similar agreement at 31 December 2020 for both the Parent Company and the Group:
GROSS
AMOUNTS OF NET AMOUNTS RELATED AMOUNTS NOT
FINANCIAL OF RECOGNISED ELIGIBLE TO BE SET-OFF IN
GROSS LIABILITIES TO BE ASSETS THE STATEMENT
AMOUNTS OF SET-OFF IN THE PRESENTED IN OF FINANCIAL POSITION
RECOGNISED STATEMENT OF THE STATEMENT
FINANCIAL FINANCIAL OF FINANCIAL FINANCIAL COLLATERAL NET
ASSETS POSITION POSITION INSTRUMENTS RECEIVED AMOUNT
AS AT 31 DECEMBER 2020 ££££££
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
76 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
VPC SPECIALTY LENDING INVESTMENTS PLC
76
FINANCIAL STATEMENTS continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
GROSS
AMOUNTS OF NET AMOUNTS RELATED AMOUNTS NOT
FINANCIAL OF RECOGNISED ELIGIBLE TO BE SET-OFF IN
GROSS LIABILITIES TO BE ASSETS THE STATEMENT
AMOUNTS OF SET-OFF IN THE PRESENTED IN OF FINANCIAL POSITION
RECOGNISED STATEMENT OF THE STATEMENT
FINANCIAL FINANCIAL OF FINANCIAL FINANCIAL COLLATERAL NET
ASSETS POSITION POSITION INSTRUMENTS RECEIVED AMOUNT
AS AT 31 DECEMBER 2020 ££££££
Bannockburn Global 9,702 (9,702)––––
Goldman Sachs ––––––
Morgan Stanley ––––––
Total 9,702 (9,702)––––
5. INCOME AND GAINS ON INVESTMENTS AND LOANS
Interest income in the amount of £33,158,150 (31 December 2020: £35,454,974) has been allocated to revenue and £nil
(31 December 2020: £524,984) has been allocated to capital in line with the Group’s policy as set out in Note 2.
31 DECEMBER 31 DECEMBER
2021 2020
££
Other Income
Distributable income from investments in funds 1,265,158 609,083
Interest income from investment assets designated as held at fair value
through profit or loss 2,088,723 4,791,537
Other income 1,065,739 399,147
Total 4,419,620 5,799,767
31 DECEMBER 31 DECEMBER
2021 2020
££
Net gains (losses) on investments
Realised (loss) gain on sale of investments (239,441) (9,159,855)
Unrealised gains on investment in funds 7,141,906 61,482
Unrealised gains on equity securities 60,212,530 10,944,335
Total 67,114,995 1,845,962
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.
77
VPC SPECIALTY LENDING INVESTMENTS PLC
77
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 2021, 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 2021 due to
the fixed rate nature of the investments or interest rate floors that are in place on most of the Group’s variable interest
rate loans. The interest rate floors that are in place on most of the Group’s variable interest rate loans reduces the potential
impact that a decrease in rates would have on the Group’s investments.
As at 31 December 2021, if interest rates had increased by 1%, with all other variables held constant, the change in
12 months of future cash flows on the current investment portfolio, including both interest income and expense, would
have been £480,654 (31 December 2020: 461,430). As at 31 December 2021, if interest rates had decreased by 1%, with all
other variables held constant, the change in 12 months of future cash flows on the current investment portfolio, including
both interest income and expense, would be £nil (31 December 2020: £(224,586) due to the floors in place on the Group’s
investments.
The Group does not intend to hedge interest rate risk on a regular basis. However, where it enters floating rate liabilities
against fixed-rate loans, it may at its sole discretion seek to hedge out the interest rate exposure, taking into consideration
amongst other things the cost of hedging and the general interest rate environment.
Effect of IBOR reform
Following the financial crisis, the reform and replacement of benchmark interest rates such as GBP LIBOR and other
inter-bank offered rates (‘IBORs’) has become a priority for global regulators. There remains some uncertainty around the
timing and precise nature of these changes.
The effect of a discontinuation of GBP LIBOR on the Company’s investments has had little impact to the Group as the
underlying investments have little to no exposure to GBP LIBOR at the portfolio company level. It is difficult to predict the
full impact of the transition away from USD LIBOR until new reference rates and fallbacks are commercially accepted.
78 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
VPC SPECIALTY LENDING INVESTMENTS PLC
78
FINANCIAL STATEMENTS continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
The following table contains details of all of the financial instruments that the Group holds at 31 December 2021 which
reference LIBOR and have not yet transitioned to an alternative interest rate benchmark:
ASSETS LIABILITIES
Non-derivative assets and liabilities exposed to USD LIBOR £ £
Credit assets at amortised cost 261,955,830 107,267,260
Total exposure 261,955,830 107,267,260
Currency risk
Currency risk is the risk that the value of net assets will fluctuate due to changes in foreign exchange rates. Relevant risk
variables are generally movements in the exchange rates of non-functional currencies in which the Group holds financial
assets and liabilities.
The assets of the Group as at 31 December 2021 were invested in assets which were denominated in US Dollar, Euro,
Australian Dollar, Pound Sterling and other currencies. Accordingly, the value of such assets may be affected favourably or
unfavourably by fluctuations in currency rates. The Group hedges currency exposure between Pound Sterling and any
other currency in which the Group’s assets may be denominated, in particular US Dollars, Australian Dollars, and Euros.
The Group continuously monitors for fluctuations in currency rates. The Group performs stress tests and liquidity
projections to determine how much cash should be held back to meet potential future obligations to settle margin calls
arising from foreign exchange hedging.
Micro and small cap company investing risk
The Group will generally invest with companies that are small, not widely known and not widely held. Small companies tend to
be more vulnerable to adverse developments than larger companies and may have little or no track records. Small companies
may have limited product lines, markets, or financial resources, and may depend on less seasoned management. Their securities
may trade infrequently and in limited volumes. It may take a relatively long period of time to accumulate an investment in a
particular issue in order to minimise the effect of purchases on market price. Similarly, it could be difficult to dispose of such
investments on a timely basis without adversely affecting market prices. As a result, the prices of these securities may fluctuate
more than the prices of larger, more widely traded companies. Also, there may be less publicly available information about small
companies or less market interest in their securities compared to larger companies, and it may take longer for the prices of these
securities to reflect the full value of their issuers’ earnings potential or assets.
Gearing and borrowing risk
Whilst the use of borrowings by the Group should enhance the net asset value of an investment when the value of an
investment’s underlying assets is rising, it will, however, have the opposite effect where the underlying asset value is falling. In
addition, in the event that an investment’s income falls for whatever reason, the use of borrowings will increase the impact of
such a fall on the net revenue of the Group’s investment and accordingly will have an adverse effect on the ability of the
investment to make distributions to the Group. This risk is mitigated by limiting borrowings to ring-fenced Special-Purpose
Vehicles (“SPVs”) without recourse to the Group and employing gearing in a disciplined manner.
Concentration of foreign currency exposure
The Investment Manager monitors the fluctuations in foreign currency exchange rates and may use forward foreign exchange
contracts to hedge the currency exposure of the Parent Company and Group’s non-Pound Sterling denominated investments.
The Investment Manager re-examines the currency exposure on a regular basis in each currency and manages the Parent
Company’s currency exposure in accordance with market expectations.
The below table presents the net exposure to foreign currency at 31 December 2021. The table includes forward foreign
exchange contracts at their notional exposure value and excludes all GBP assets and liabilities recorded on the Group’s
Consolidated Statement of Financial Position.
79
VPC SPECIALTY LENDING INVESTMENTS PLC
79
FORWARD NET
ASSETS LIABILITIES CONTRACTS EXPOSURE
31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER
2021 2021 2021 2021
££££
Euro 8,010,560 – 10,656,310 (2,645,750)
US Dollar 402,708,565 (107,267,260) 320,884,955 (25,443,650)
Swiss Francs 10,238,876 – – 10,238,876
Australian Dollars 2,591,233 – 2,620,803 (29,570)
If the GBP exchange rate simultaneously increased/decreased by 10% against the above currencies, the impact on profit would
be an increase/decrease of £1,778,009. 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 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
££££
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
The table below presents the net exposure to foreign currency at 31 December 2021. The table includes forward foreign
exchange contracts at their notional exposure value and excludes all GBP assets and liabilities recorded on the Parent Company’s
Statement of Financial Position.
FORWARD NET
ASSETS LIABILITIES CONTRACTS EXPOSURE
31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER
2021 2021 2021 2021
££££
Euro 8,010,560 – 10,656,310 (2,645,750)
US Dollar 295,395,347 – 320,884,955 (25,489,608)
Swiss Francs 10,238,876 – – 10,238,876
Australian Dollars 2,591,233 – 2,620,803 (29,570)
If the GBP exchange rate simultaneously increased/decreased by 10% against the above currencies, the impact on profit would
be an increase/decrease of £1,792,605 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 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.
80 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
VPC SPECIALTY LENDING INVESTMENTS PLC
80
FINANCIAL STATEMENTS continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
FORWARD NET
ASSETS LIABILITIES CONTRACTS EXPOSURE
31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER
2020 2020 2020 2020
££££
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
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 2021:
WITHIN ONE TO OVER FIVE
ONE YEAR FIVE YEARS YEARS TOTAL
££££
Assets
Loans 29,270,006 250,068,996 – 279,339,002
Cash and cash equivalents 6,300,572 – – 6,300,572
Cash posted as collateral 4,133,588 – – 4,133,588
Interest receivable 4,708,481 – – 4,708,481
Dividend receivable 3,996 – – 3,996
Other assets and prepaid expenses 2,877,815 – – 2,877,815
Total 47,294,458 250,068,996 – 297,363,454
WITHIN ONE TO OVER FIVE
ONE YEAR FIVE YEARS YEARS TOTAL
££££
Liabilities
Notes payable – 19,834,365 87,432,895 107,267,260
Management fee payable 155,399 – – 155,399
Performance fee payable 12,913,280 – – 12,913,280
Deferred income 174,603 – – 174,603
Other liabilities and accrued expenses 1,550,415 – – 1,550,415
Total 14,793,697 19,834,365 87,432,895 122,060,957
81
VPC SPECIALTY LENDING INVESTMENTS PLC
81
The following tables show the contractual maturity of the financial assets and financial liabilities of the Group as at 31 December
2020:
WITHIN ONE TO OVER FIVE
ONE YEAR FIVE YEARS YEARS TOTAL
££££
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 TO OVER FIVE
ONE YEAR FIVE YEARS YEARS TOTAL
££££
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 Investment Manager manages the Group’s liquidity risk by investing primarily in a diverse portfolio of assets.
At 31 December 2021, the Group had investments in 48 Portfolio Companies (31 December 2020: 43 Portfolio Companies).
At 31 December 2021, 10% of the loans had a stated maturity date of less than a year (31 December 2020: 15%).
The Group and Parent Company continuously monitor for fluctuation in currency rates. The Parent Company performs stress tests
and liquidity projections to determine how much cash should be held back to meet potential future obligations to settle margin
calls arising from foreign exchange hedging.
As at 31 December 2021, £19.8 million (£48.6 million as at 31 December 2020) 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 2021 and do not project cash flows until
maturity of the investment liabilities.
On 1 March 2021, the Company closed on a USD$130 million gearing facility with MassMutual. At the closing, the Company
repaid its previous facility with Pacific Western Bank. The MassMutual gearing facility has a stated maturity date of 1 March 2027.
In accordance with IFRS 7 paragraph 39, the Group has projected cash interest payments of £20,383,279 which is calculated
using the amount outstanding and interest rate as at 31 December 2021 and does not factor in any future paydowns, draws or
changes in interest and foreign exchange rates before the maturity date on 1 March 2027.
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.
82 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
VPC SPECIALTY LENDING INVESTMENTS PLC
82
FINANCIAL STATEMENTS continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
The Group will invest across various Portfolio Companies, asset classes, geographies (primarily United States, United Kingdom,
Europe and Latin America) and credit bands in order to ensure diversification and to seek to mitigate concentration risks.
Under the Asset Backed Lending Model, the Group provides a floating rate credit facility to the portfolio company via an SPV,
which retains Debt Instruments that are originated by the portfolio company. The debt financing is typically arranged in the form
of a senior secured facility and the portfolio company injects junior capital in the SPV, which provides significant first loss
protection to the Group and excess spread. The Group’s asset backed investments are loans to SPVs that are capitalised and
actively managed by the portfolio companies in their capacity as both the owner and managing partner of the SPVs and the
SPVs are not considered structured entities under IFRS 12. Refer to page 11 for further details on the structuring of the lending
investments of the Group.
There are no loans past due which are not impaired. Refer to Note 9.
Credit quality
The credit quality of loans is assessed through the evaluation of various factors, including (but not limited to) credit scores,
payment data, collateral and other information. Set out below is the analysis of the Group’s loan investments by grade,
geography, and sector:
TOTAL
31 DECEMBER
FINTECH eSME LEGAL FINANCE 2021
INTERNAL GRADE ££££
Stage 1
A – 1 42,399,368 15,229,645 – 57,629,013
A – 2 144,483,270 49,803,839 4,216,832 198,503,941
B 9,917,622 3,470,478 8,182,974 21,571,074
C––––
Total 196,800,260 68,503,962 12,399,806 277,704,028
Stage 2
A – 1 ––––
A – 2 ––––
B––––
C––––
Total ––––
Stage 3
A – 1 ––––
A – 2 ––––
B––––
C 14,098,947 – – 14,098,947
Total 14,098,947 – – 14,098,947
83
VPC SPECIALTY LENDING INVESTMENTS PLC
83
TOTAL
UNITED LATIN 31 DECEMBER
STATES AMERICA EUROPE ASIA 2021
INTERNAL GRADE £££££
Stage 1
A – 1 57,629,013–––57,629,013
A – 2 123,954,264 48,352,882 13,417,801 12,778,994 198,503,941
B 18,100,596 – 3,470,478 – 21,571,074
C–––––
Total 199,683,873 48,352,882 16,888,279 12,778,994 277,704,028
Stage 2
A – 1 –––––
A – 2 –––––
B–––––
C–––––
Total –––––
Stage 3
A – 1 –––––
A – 2 –––––
B–––––
C – – 14,098,947 – 14,098,947
Total – – 14,098,947 – 14,098,947
TOTAL
LEGAL MARKETPLACE 31 DECEMBER
FINTECH eSME FINANCE LOANS 2020
INTERNAL GRADE £££££
Stage 1
A - 1 85,551,562 – – 3,001 85,554,563
A - 2 139,465,092 12,296,728 41,934,631 39,332 193,735,783
B 6,351,153 – – 117,400 6,468,553
C – – – 8,325 8,325
Total 231,367,807 12,296,728 41,934,631 168,058 285,767,224
Stage 2
A - 1 – – – – –
A - 2 – – – 6,163 6,163
B – – – 20,251 20,251
C 3,675,244 – – – 3,675,244
Total 3,675,244 – – 26,414 3,701,658
84 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
FINANCIAL STATEMENTS continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
VPC SPECIALTY LENDING INVESTMENTS PLC
84
TOTAL
LEGAL MARKETPLACE 31 DECEMBER
FINTECH eSME FINANCE LOANS 2020
INTERNAL GRADE £££££
Stage 3
A - 1 – – – – –
A - 2 – – – 11,537 11,537
B – – – 170,395 170,395
C 11,952,754 – – 11,970 11,964,724
Total 11,952,754 – – 193,902 12,146,656
TOTAL
UNITED LATIN 31 DECEMBER
STATES AMERICA EUROPE ASIA 2020
INTERNAL GRADE £££££
Stage 1
A - 1 80,371,977 – – 5,182,586 85,554,563
A - 2 148,757,061 41,854,564 2,761,132 363,026 193,735,783
B 6,351,153 – 117,400 – 6,468,553
C – – 8,325 – 8,325
Total 235,480,191 41,854,564 2,886,857 5,545,612 285,767,224
Stage 2
A - 1 –––––
A - 2 – – 6,163 – 6,163
B – – 20,251 – 20,251
C – – 3,675,244 – 3,675,244
Total – – 3,701,658 – 3,701,658
Stage 3
A - 1 –––––
A - 2 11,537 – – – 11,537
B 170,395 – – – 170,395
C 11,970 – 11,952,754 – 11,964,724
Total 193,902 – 11,952,754 – 12,146,656
INTERNAL GRADE DEFINITION
A – 1 Asset backed loans structured with credit enhancement and strong operating liquidity positions
A – 2 High credit quality borrowers or asset backed loans structured with credit enhancement
B High credit quality borrowers with some indicators of credit risk or asset backed loans with
limited structural credit enhancement
C Borrowers with elevated levels of credit risk
85
VPC SPECIALTY LENDING INVESTMENTS PLC
85
The following investment limits and restrictions shall apply to the Group, to ensure that the diversification of the Group’s
portfolio is maintained, and that concentration risk is limited:
Portfolio Company restrictions
The Group does not intend to invest more than 20% of its Gross Assets in Debt Instruments (net of any gearing ring-fenced
within any special purpose vehicle which would be without recourse to the Group), originated by, and/or Credit Facilities and
equity instruments in, any single Portfolio Company, calculated at the time of investment. All such aggregate exposure to any
single Portfolio Company (including investments via a special purpose vehicle) will always be subject to an absolute maximum,
calculated at the time of investment, of 25% of the Group’s Gross Assets.
Asset class restrictions
The Group does not intend to acquire Debt Instruments for a term longer than five years. The Group will not invest more than
20% of its Gross Assets, at the time of investment, via any single investment fund investing in Debt Instruments and Credit
Facilities. In any event, the Group will not invest, in aggregate, more than 60% of its Gross Assets, at the time of investment, in
investment funds that invest in Debt Instruments and Credit Facilities.
The Group will not invest more than 10% of its Gross Assets, at the time of investment, in other listed closed-ended investment
funds, whether managed by the Investment Manager or not, except that this restriction shall not apply to investments in listed
closed-ended investment funds which themselves have stated investment policies to invest no more than 15% of their gross
assets in other listed closed-ended investment funds.
The following restrictions apply, in each case at the time of investment by the Group, to both Debt Instruments acquired by the
Group via wholly owned special purpose vehicles or partially-owned special purpose vehicles on a proportionate basis under the
Marketplace Model, as well as on a look-through basis under the Asset Backed Lending Model and to any Debt Instruments held
by another investment fund in which the Group invests:
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
PARENT PARENT
GROUP GROUP COMPANY COMPANY
31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER
2021 2020 2021 2020
££££
Cash held at bank 6,300,572 6,416,028 4,301,574 4,738,217
Total 6,300,572 6,416,028 4,301,574 4,738,217
The Parent Company has posted cash collateral of £3,010,000 as at 31 December 2021 (31 December 2020: £1,140,000) with
Goldman Sachs and cash of £1,123,927 (31 December 2020: £nil) with Morgan Stanley in relation to the outstanding derivatives.
86 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
FINANCIAL STATEMENTS continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
VPC SPECIALTY LENDING INVESTMENTS PLC
86
Below are the credit ratings of the banks where the Parent Company and Group hold cash as at 31 December 2021 from
Moody’s:
BANK RATING
Northern Trust A2
Goldman Sachs A2
Morgan Stanley A1
US Bank A1
Keybank A1
Wells Fargo A2
8. NOTES PAYABLE
The Group entered into contractual obligations with a third party to structurally subordinate a portion of the principal directly
attributable to existing investments. The cash flows received by the Group from the underlying investments are used to pay the
lender principal, interest, and draw fees based upon the stated terms of the Credit Facility. Unless due to a fraudulent act, as
defined by the Credit Facilities, none of the Group’s other investment assets can be used to satisfy the obligations of the Credit
Facilities in the event that those obligations cannot be met by the subsidiaries. Each subsidiary with a Credit Facility is a
bankruptcy remote entity.
The table below provides details of the outstanding debt of the Group at 31 December 2021:
OUTSTANDING
INTEREST PRINCIPAL
31 DECEMBER 2021 RATE £ MATURITY
Credit Facility 03-2021 3.95% + 1M LIBOR 87,432,895 1 March 2027
Total 87,432,895
The table below provides details of the outstanding debt of the Group at 31 December 2020:
OUTSTANDING
INTEREST PRINCIPAL
31 DECEMBER 2020 RATE £ MATURITY
Credit Facility 11-2018 4.25% + 1M LIBOR 37,534,297 30 November 2022
Total 37,534,297
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.
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87
The table below provides details of the outstanding first-out participation liabilities of the Group at 31 December 2021:
OUTSTANDING
PRINCIPAL
31 DECEMBER 2021 £ MATURITY
First-Out Participation 03-2017 18,181,601 1 January 2024
First-Out Participation 04-2019 1,652,764 1 January 2024
Total 19,834,365
The table below provides details of the outstanding first-out participation liabilities of the Group at 31 December 2020:
OUTSTANDING
PRINCIPAL
31 DECEMBER 2020 £ MATURITY
First-Out Participation 06-2015 10,109,810 13 June 2021
First-Out Participation 03-2017 20,446,931 1 January 2024
First-Out Participation 04-2019 17,996,145 1 January 2024
Total 48,552,886
The table below provides the movement of the notes payable and securities sold under agreements to repurchase for the year
ended 31 December 2021 for the Group.
NOTES
PAYABLE
£
Beginning balance, 1 January 2021 86,087,183
Purchases 179,944,080
Sales (163,403,782)
Net change in unrealised foreign exchange gains (losses) 4,639,779
Ending balance, 31 December 2021 107,267,260
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
£
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
88 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
FINANCIAL STATEMENTS continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
VPC SPECIALTY LENDING INVESTMENTS PLC
88
9. IMPAIRMENT OF FINANCIAL ASSETS AT AMORTISED COST
The table below provides details of the investments at amortised cost held by the Group as at 31 December 2021 under IFRS 9:
COST BEFORE LOANS CARRYING
ECL ECL WRITTEN-OFF VALUE
££££
Loans at amortised cost 291,802,975 12,463,973 – 279,339,002
Total 291,802,975 12,463,973 – 279,339,002
The table below provides details of the investments at amortised cost held by the Group as at 31 December 2020 under IFRS 9:
COST BEFORE LOANS CARRYING
ECL ECL WRITTEN-OFF VALUE
££££
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 Parent Company does not hold any loans.
Credit impairment losses
The credit impairment losses of the Group for the year ended 31 December 2021 comprises of the following under IFRS 9:
CREDIT IMPAIRMENT LOSSES
31 DECEMBER 2021
£
Loans recovered (358,867)
Change in expected credit losses 3,974,814
Currency translation on expected credit losses 20,195
Credit impairment losses 3,636,142
The impairment charge of the Group for the year ended 31 December 2020 comprises of the following under IFRS 9:
CREDIT IMPAIRMENT LOSSES
31 DECEMBER 2020
£
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
Impairment of loans written off
Impairment charges of loans written off (recovered) of £(358,867) (31 December 2020: £1,515,872) 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 2021, the Group has created a reserve provision on the outstanding principal of the Group’s loans of
£12,463,973 (31 December 2020: £8,489,159), 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.
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89
The expected credit losses comprised the following during 2021:
31 DECEMBER 2021
£
Beginning balance 1 January 2021 8,489,159
Change in expected credit losses or equivalent 3,974,814
Ending balance 31 December 2021 12,463,973
The expected credit losses comprised the following during 2020
31 DECEMBER 2020
£
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
Below is a breakout of the provision for expected credit losses by stage of the ECL model as at 31 December 2021:
31 DECEMBER
FINTECH eSME LEGAL FINANCE 2021
INTERNAL GRADE ££££
Stage 1 ––––
Stage 2 ––––
Stage 3 12,463,973 – – 12,463,973
Expected credit losses 12,463,973 – – 12,463,973
UNITED LATIN 31 DECEMBER
STATES AMERICA EUROPE ASIA 2021
INTERNAL GRADE £££££
Stage 1 –––––
Stage 2 –––––
Stage 3 – – 12,463,973 – 12,463,973
Expected credit losses – – 12,463,973 – 12,463,973
Below is a breakout of the provision for expected credit losses by stage of the ECL model as at 31 December 2020:
TOTAL
LEGAL MARKETPLACE 31 DECEMBER
FINTECH eSME FINANCE LOANS 2020
INTERNAL GRADE £££££
Stage 1 – – – 61,040 61,040
Stage 2 500,000 – – 24,804 524,804
Stage 3 7,793,186 – – 110,129 7,903,315
Total 8,293,186 – – 195,973 8,489,159
90 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
FINANCIAL STATEMENTS continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
VPC SPECIALTY LENDING INVESTMENTS PLC
90
TOTAL
UNITED LATIN 31 DECEMBER
STATES AMERICA EUROPE ASIA 2020
INTERNAL GRADE £££££
Stage 1 – – 61,040 – 61,040
Stage 2 – – 524,804 – 524,804
Stage 3 110,129 – 7,793,186 – 7,903,315
Total 110,129 – 8,379,030 – 8,489,159
The breakout of the gross value of loans by stage of the ECL model as at 31 December 2021 and 31 December 2020 can be
found in footnote 6. One investment moved from Level 2 to Level 3 in 2021. All write-offs (recoveries) during the year were on
assets that were considered Stage 3. There were no material movements between stages during 2020.
10. FEES AND EXPENSES
Investment management fees
Under the terms of the Management Agreement, the Investment Manager is entitled to a management fee and a performance
fee together with reimbursement of reasonable expenses incurred by it in the performance of its duties.
The management fee is payable in Pound Sterling monthly in arrears and is at the rate of 1/12 of 1.0% per month of NAV (the
“Management Fee”). For the period from Admission until the date on which 90% of the net proceeds of the Issue have been
invested or committed for investment (other than in Cash Instruments), the value attributable to any Cash Instruments of the
Group held for investment purposes will be excluded from the calculation of NAV for the purposes of determining the
Management Fee. The management fee expense for the year is £3,802,097 (31 December 2020: £3,394,740), of which £155,399
(31 December 2020: £92,241) was payable as at 31 December 2021.
The Investment Manager shall not charge a management fee twice. Accordingly, if at any time the Group invests in or through
any other investment fund or special purpose vehicle and a management fee or advisory fee is charged to such investment fund
or special purpose vehicle by the Investment Manager or any of its affiliates, the Investment Manager agrees to either (at the
option of the Investment Manager): (i) waive such management fee or advisory fee due to the Investment Manager or any of its
affiliates in respect of such investment fund or special purpose vehicle, other than the fees charged by the Investment Manager
under the Management Agreement; or (ii) charge the relevant fee to the relevant investment fund or special purpose vehicle,
subject to the cap set out in the paragraph below, and ensure that the value of such investment shall be excluded from the
calculation of the NAV for the purposes of determining the Management Fee payable pursuant to the above.
Notwithstanding the above, where such investment fund or special purpose vehicle employs gearing from third parties and the
Investment Manager or any of its affiliates is entitled to charge it a fee based on gross assets in respect of such investment, the
Investment Manager may not charge a fee greater than 1.0% per annum of gross assets in respect of any investment made by
the Parent Company or any member of the Group.
Performance fees
The performance fee is calculated by reference to the movements in the Adjusted Net Asset Value since the end of the
Calculation Period in respect of which a performance fee was last earned or Admission if no performance fee has yet been
earned. The payment of any performance fees to the Investment Manager will be conditional on the Parent Company achieving
at least a 5.0% per annum total return for shareholders relative to a 30 April 2017 High Water Mark.
The performance fee will be calculated in respect of each 12 month period starting on 1 January and ending on 31 December
in each calendar year (a “Calculation Period”) and provided further that if at the end of what would otherwise be a Calculation
Period no performance fee has been earned in respect of that period, the Calculation Period shall carry on for the next 12 month
period and shall be deemed to be the same Calculation Period and this process shall continue until a performance fee is next
earned at the end of the relevant period. The performance fee expense for the year is £12,913,280 (31 December 2020:
£4,040,085), of which £12,913,280 was payable as at 31 December 2021 (31 December 2020: £4,040,085).
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91
The performance fee will be equal to the lower of (i) in each case as at the end of the Calculation Period, an amount equal to
(a) Adjusted Net Asset Value minus the Adjusted Hurdle Value, minus (b) the aggregate of all Performance Fees paid to the
Manager in respect of all previous Calculation Periods; and (ii) the amount by which (a) 15% of the total increase in the Adjusted
Net Asset Value since the Net Asset Value as at 30 April 2017 (being the aggregate of the increase in the Adjusted Net Asset
Value in the relevant Calculation Period and in each previous Calculation Period) exceeds (b) the aggregate of all Performance
Fees paid to the Manager in respect of all previous Calculation Periods. In the foregoing calculation, the Adjusted Net Asset Value
will be adjusted for any increases or decreases in the Net Asset Value attributable to the issue or repurchase of any Ordinary
Shares in order to calculate the total increase in the Net Asset Value attributable to the performance of the Parent Company.
“Adjusted Net Asset Value” means the Net Asset Value plus (a) the aggregate amount of any dividends paid or distributions made
in respect of any Ordinary Shares and (b) the aggregate amount of any dividends or distributions accrued but unpaid in respect
of any Ordinary Shares, plus the amount of any Performance Fees both paid and accrued but unpaid, in each case after the
Effective Date and without duplication. “Adjusted Hurdle Value” means the Net Asset Value as at 30 April 2017 adjusted for any
increases or decreases in the Net Asset Value attributable to the issue or repurchase of any Ordinary Shares increasing at an
uncompounded rate equal to the Hurdle. The “Hurdle” means a 5% per annum total return for shareholders.
The Investment Manager shall not charge a performance fee twice. Accordingly, if at any time the Group invests in or through
any other investment fund, special purpose vehicle or managed account arrangement and a performance fee or carried interest
is charged to such investment fund, special purpose vehicle or managed account arrangement by the Investment Manager or
any of its affiliates, the Investment Manager agrees to (and shall procure that all of its relevant affiliates shall) either (at the
option of the Investment Manager): (i) waive such performance fee or carried interest suffered by the Group by virtue of the
Investment Manager’s (or such relevant affiliate’s/affiliates’) management of (or advisory role in respect of) such investment fund,
special purpose vehicle or managed account, other than the fees charged by the Investment Manager under the Management
Agreement; or (ii) calculate the performance fee as above, except that in making such calculation the NAV (as of the date of the
High Water Mark) and the Adjusted NAV (as of the NAV calculation date) shall not include the value of any assets invested in
any other investment fund, special purpose vehicle or managed account arrangement that is charged a performance fee or
carried interest by the Investment Manager or any of its affiliates (and such performance fee or carried interest is not waived
with respect to the Group).
Administration
The Group has entered into an administration agreement with Citco Fund Administration (Cayman Islands) Limited. The Group
pays to the Administrator an annual administration fee based on the Parent Company’s net assets subject to a monthly minimum
charge.
The Administrator shall also be entitled to be repaid all its reasonable out-of-pocket expenses incurred on behalf of the Group.
All Administrator fees are included in other expenses on the Consolidated Statement of Comprehensive Income.
Secretary
Under the terms of the Company Secretarial Agreement, Link Group is entitled to an annual fee of £75,000 (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 £1.25 per Shareholder
account per annum, subject to a minimum fee of £2,500 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.
92 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
FINANCIAL STATEMENTS continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
VPC SPECIALTY LENDING INVESTMENTS PLC
92
Auditors’ remuneration
For the year ended 31 December 2021, the remuneration for work carried out by PricewaterhouseCoopers LLP, the statutory
auditors, was as follows:
31 DECEMBER 31 DECEMBER
2021 2020
££
Fees charged by PricewaterhouseCoopers LLP:
the audit of the Parent Company and Consolidated Financial Statements; and 317,000 245,000
the audit of the Company’s subsidiaries. 22,300 13,000
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 2021:
REVENUE CAPITAL TOTAL
£££
Net return on ordinary activities before taxation 21,123,168 52,090,200 73,213,368
Tax at the standard UK corporation tax rate of 19.00% 4,013,402 9,897,138 13,910,540
Effects of:
Non-taxable income (4,013,402) – (4,013,402)
Capital items exempt from corporation tax – (9,897,138) (9,897,138)
Total tax charge –––
93
VPC SPECIALTY LENDING INVESTMENTS PLC
93
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 – – –
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 31 DECEMBER
2021 2020
££
Net assets attributable to Shareholders of the Parent Company 317,614,784 270,537,108
Ordinary Shares in issue (excluding Treasury Shares) 278,276,392 282,647,364
Net asset value per Ordinary Share 114.14p 95.72p
13. RETURN PER ORDINARY SHARE
Basic earnings per share is calculated using the weighted average number of shares in issue during the year, excluding the
average number of Ordinary Shares purchased by the Parent Company and held as Treasury Shares.
AS AT AS AT
31 DECEMBER 31 DECEMBER
2021 2020
££
Profit for the year 73,183,772 22,879,629
Average number of Ordinary Shares in issue during the year 279,617,119 295,430,078
Earnings per Share (basic and diluted) 26.17p 7.74p
The Parent Company has not issued any shares or other instruments that are considered to have dilutive potential.
94 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
FINANCIAL STATEMENTS continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
VPC SPECIALTY LENDING INVESTMENTS PLC
94
14. SHAREHOLDERS’ CAPITAL
Set out below is the issued share capital of the Company as at 31 December 2021. All shares issued are fully paid with none not
fully paid:
NOMINAL
VALUE NUMBER
£ OF SHARES
Ordinary Shares 0.01 278,276,392
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
£ OF SHARES
Ordinary Shares 0.01 282,647,364
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.
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VPC SPECIALTY LENDING INVESTMENTS PLC
95
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 2021:
SHARES IN SHARES IN
FOR THE YEAR FROM ISSUE AT THE ISSUE AT THE
1 JANUARY 2021 TO BEGINNING OF SHARES END OF
31 DECEMBER 2021 THE PERIOD REPURCHASED THE PERIOD
Ordinary Shares 282,647,364 (4,370,972) 278,276,392
The table below shows the movement in shares through 31 December 2020:
SHARES IN SHARES IN
FOR THE YEAR FROM ISSUE AT THE ISSUE AT THE
1 JANUARY 2020 TO BEGINNING OF SHARES END OF
31 DECEMBER 2020 THE PERIOD REPURCHASED THE PERIOD
Ordinary Shares 312,302,305 (29,654,941) 282,647,364
Share buyback programme
All Ordinary Shares bought back through the share buyback programme are held in treasury as at 31 December 2021. Details of
the programme are as follows:
ORDINARY AVERAGE LOWEST HIGHEST TOTAL
DATE OF SHARES PRICE PER PRICE PER PRICE PER TREASURY
PURCHASE PURCHASED SHARE SHARE SHARE SHARES
January 2021 – 0.00p 0.00p 0.00p 99,968,301
February 2021 583,465 88.25p 86.65p 88.99p 100,551,766
March 2021 1,587,507 84.01p 82.61p 89.77p 102,139,273
April 2021 550,000 85.56p 85.39p 85.80p 102,689,273
May 2021 600,000 85.63p 85.00p 86.20p 103,289,273
June 2021 1,050,000 84.07p 83.48p 84.07p 104,339,273
July 2021 – 0.00p 0.00p 0.00p 104,339,273
August 2021 – 0.00p 0.00p 0.00p 104,339,273
September 2021 – 0.00p 0.00p 0.00p 104,339,273
October 2021 – 0.00p 0.00p 0.00p 104,339,273
November 2021 – 0.00p 0.00p 0.00p 104,339,273
December 2021 – 0.00p 0.00p 0.00p 104,339,273
96 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
FINANCIAL STATEMENTS continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
VPC SPECIALTY LENDING INVESTMENTS PLC
96
Details of the share buyback programme during the year ended 31 December 2020 as follows:
ORDINARY AVERAGE LOWEST HIGHEST TOTAL
DATE OF SHARES PRICE PER PRICE PER PRICE PER TREASURY
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
Other distributable reserve
During 2021, the Company declared and paid dividends of £Nil (2020: £Nil) 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 £3,741,814 (2020:
£20,161,216). The closing balance in the other distributable reserve has been reduced to £112,779,146 (31 December 2020:
£116,520,960).
15. DIVIDENDS PER SHARE
The following table summarises the amounts recognised as distributions to equity shareholders in the period:
31 DECEMBER 31 DECEMBER
2021 2020
££
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
2020 interim dividend of 2.00 pence per Ordinary Share paid on 1 April 2021 5,638,178 –
2021 interim dividend of 2.00 pence per Ordinary Share paid on 24 June 2021 5,586,527 –
2021 interim dividend of 2.00 pence per Ordinary Share paid on 23 September 2021 5,565,528 –
2021 interim dividend of 2.00 pence per Ordinary Share paid on 23 December 2021 5,565,528 –
Total 22,355,761 23,674,744
An interim dividend of 2.00 pence per Ordinary Share, equalling £5,565,528, was declared by the Board on 24 February 2022 in
respect of the period to 31 December 2021, was paid to shareholders on 31 March 2022. The interim dividend has not been
included as a liability in these financial statements in accordance with International Accounting Standard 10: Events After the
Balance Sheet Date. The Parent Company allocated £88,856 of the 2021 interim dividend paid on 1 April 2021 to a 2020 final
dividend.
VPC SPECIALTY LENDING INVESTMENTS PLC
97
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 £33,000 for each Director per annum. The Chair’s fee is £55,000
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 £5,500 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 2021, £193,200 (31 December 2020: £179,563) was paid to the Directors and £nil (31 December 2020: £nil) was
owed for services performed.
As at 31 December 2021 and 31 December 2020, the Directors’ interests in the Parent Company’s Shares were as follows:
31 DECEMBER 31 DECEMBER
2021 2020
Oliver Grundy Ordinary Shares 30,000 N/A
Kevin Ingram Ordinary Shares N/A 64,968
Mark Katzenellenbogen Ordinary Shares 215,000 215,000
Elizabeth Passey Ordinary Shares 10,000 10,000
Clive Peggram Ordinary Shares 333,240 333,240
Graeme Proudfoot Ordinary Shares 130,000 50,000
Investment management fees for the year ended 31 December 2021 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 2021, 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 2021, the Investment Manager has purchased 4,496,991 (31 December 2020: 3,705,991)
Ordinary Shares.
As at 31 December 2021, Partners and Principals of the Investment Manager held 510,000 (31 December 2020: 510,000) Shares
in the Parent Company.
The Group has invested in VPC Offshore Unleveraged Private Debt Fund Feeder, L.P. The Investment Manager of the Parent
Company also acts as manager to VPC Offshore Unleveraged Private Debt Fund Feeder, L.P. The principal activity of VPC Offshore
Unleveraged Private Debt Fund Feeder, L.P. is to invest in alternative finance investments and related instruments with a view to
achieving the Parent Company’s investment objective. As at 31 December 2021 the Group owned 26% of VPC Offshore
Unleveraged Private Debt Fund Feeder, L.P. (31 December 2020: 26%) and the value of the Group’s investment in VPC Offshore
Unleveraged Private Debt Fund Feeder, L.P. was £1,640,256 (31 December 2020: £2,454,004).
The Group has invested in VPC Synthesis, L.P. The Investment Manager of the Parent Company also acts as manager to
VPC Synthesis, L.P. The principal activity of VPC Synthesis, L.P. is to invest in alternative finance investments and related
instruments with a view to achieving the Parent Company’s investment objective. As at 31 December 2021 the Group owned 4%
of VPC Synthesis, L.P. (31 December 2020: £nil) and the value of the Group’s investment in VPC Synthesis, L.P. was £10,890,834
(31 December 2020: £nil).
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 2021, £23,697 was due to the Investment Manager (31 December 2020: £44,240) and is included in
the Accrued expenses and other liabilities balance on the Consolidated Statement of Financial Position.
FINANCIAL STATEMENTS continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
VPC SPECIALTY LENDING INVESTMENTS PLC
98 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
17. SUBSIDIARIES
PERCENTAGE PERCENTAGE
OWNERSHIP OWNERSHIP
AS AT AS AT
PRINCIPAL COUNTRY OF NATURE OF 31 DECEMBER 31 DECEMBER
NAME ACTIVITY INCORPORATION INVESTMENT 2021 2020
VPC Specialty Investment vehicle USA Limited partner Sole limited Sole limited
Lending Investments interest partner partner
Intermediate, L.P.
VPC Specialty
Lending Investments Investment vehicle USA Limited partner Sole limited N/A
Intermediate interest partner
Holdings, L.P.
VPC Specialty General partner USA Membership interest Sole member Sole member
Lending Investments
Intermediate GP, LLC
Fore London, L.P. Investment vehicle UK Limited partner Sole limited Sole limited
interest partner partner
Fore London GP, LLC General partner UK Membership interest Sole member Sole member
Duxbury Court I, L.P. Investment vehicle USA Limited partner 95% 95%
interest
Duxbury Court I GP, LLC General partner USA Membership interest 95% 95%
Drexel I, L.P. Investment vehicle USA Limited partner 52% 52%
interest
Drexel I GP, LLC General partner USA Membership interest 52% 52%
The subsidiaries listed above as investment vehicles are consolidated by the Group and there is no activity to consolidate within
the subsidiaries listed as general partners.
NAME REGISTERED ADDRESS
VPC Specialty Lending Investments Intermediate, L.P. 150 North Riverside Plaza, Suite 5200, Chicago, IL 60606
VPC Specialty Lending Investments Intermediate 150 North Riverside Plaza, Suite 5200, Chicago, IL 60606
Holdings, L.P.
VPC Specialty Lending Investments Intermediate GP, LLC 150 North Riverside Plaza, Suite 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, LLC 150 North Riverside Plaza, Suite 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
VPC SPECIALTY LENDING INVESTMENTS PLC
99
The table below illustrates the movement of the investment in subsidiaries of the Parent Company in 2021:
INVESTMENTS
IN SUBSIDIARIES
£
Beginning balance, 1 January 2021 257,491,532
Purchases 29,910,829
Sales (45,377,842)
Appreciation of investments in subsidiaries 61,150,460
Ending balance, 31 December 2021 303,174,979
The table below illustrates the movement of the investment in subsidiaries of the Parent Company in 2020:
INVESTMENTS
IN SUBSIDIARIES
£
Beginning balance, 1 January 2020 281,465,228
Purchases 80,568,889
Sales (103,634,392)
Appreciation of investments in subsidiaries (908,193)
Ending balance, 31 December 2020 257,491,532
FINANCIAL STATEMENTS continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
VPC SPECIALTY LENDING INVESTMENTS PLC
100 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
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 2021 represents the portion of the NAV of
the controlled subsidiaries attributable to the other investors. As at 31 December 2021, the portion of the NAV attributable to
non-controlling interests investments totalled £45,958 (31 December 2020: £19,337). In the Consolidated Statement of
Comprehensive Income, the amount attributable to non-controlling interests represents the increase in the fair value of the
investment in the period.
The following entities have been consolidated which have non-controlling interests as at 31 December 2021:
PROFIT OR LOSS
OF SUBSIDIARY
PROPORTION ALLOCATED TO
OF OWNERSHIP NON- ACCUMULATED
INTERESTS CONTROLLING NON-
HELD BY INTERESTS CONTROLLING
NON- DURING THE INTERESTS IN
CONTROLLING PERIOD ENDED SUBSIDIARY AS
PRINCIPAL INTERESTS AS AT 31 DECEMBER AT 31 DECEMBER
PLACE OF 31 DECEMBER 2021 2021
NAME OF SUBSIDIARY BUSINESS 2021 £ £
Drexel I, L.P. USA 47% 14,468 20,506
Duxbury Court I, L.P. USA 5% 15,128 25,452
Totals 29,596 45,958
SUMMARISED FINANCIAL 31 DECEMBER 2021
NAME OF SUBSIDIARY INFORMATION FOR SUBSIDIARY £
Drexel I, L.P. Distributions to non-controlling interests –
Profit/(loss) of subsidiary for period ended 31 December 2021 31,707
Assets as at 31 December 2021 81,028
Liabilities as at 31 December 2021 36,960
Duxbury Court I, L.P. Distributions to non-controlling interests –
Profit/(loss) of subsidiary for period ended 31 December 2021 32,424
Assets as at 31 December 2021 527,330
Liabilities as at 31 December 2021 36,960
VPC SPECIALTY LENDING INVESTMENTS PLC
101
The following entities have been consolidated which have non-controlling interests during 2020:
PROFIT OR LOSS
OF SUBSIDIARY
PROPORTION ALLOCATED TO
OF OWNERSHIP NON- ACCUMULATED
INTERESTS CONTROLLING NON-
HELD BY INTERESTS CONTROLLING
NON- DURING THE INTERESTS IN
CONTROLLING PERIOD ENDED SUBSIDIARY AS
PRINCIPAL INTERESTS AS AT 31 DECEMBER AT 31 DECEMBER
PLACE OF 31 DECEMBER 2020 2020
NAME OF SUBSIDIARY BUSINESS 2020 £ £
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 31 DECEMBER 2020
NAME OF SUBSIDIARY INFORMATION FOR SUBSIDIARY £
Drexel I, L.P. Distributions to non-controlling 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 I, L.P. Distributions to 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
Larkdale I, L.P. Distributions to non-controlling 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 –
SVTW, L.P. Distributions to non-controlling 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 –
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 OF EXPOSURE TO
INTEREST AS AT LOSS AS AT
PRINCIPAL PROPORTION OF 31 DECEMBER 31 DECEMBER
PLACE OF PRINCIPAL OWNERSHIP BASIS OF 2021 2021
NAME OF ASSOCIATE BUSINESS ACTIVITY INTERESTS HELD VALUATION ££
VPC Offshore Unleveraged Private Cayman Investment 26% Designated as 1,640,256 1,640,256
Debt Fund Feeder, L.P. Islands fund held at fair value
through profit or
loss – using NAV
VPC Synthesis, L.P. USA Investment 4% Designated as 10,890,834 10,890,834
vehicle held at fair value
through profit or
loss – using NAV
SUMMARISED FINANCIAL 31 DECEMBER 2021
NAME OF ASSOCIATE INFORMATION FOR ASSOCIATE £
VPC Offshore Unleveraged Profit/(loss) of associate for period ended 31 December 2021 1,151,744
Private Debt Fund Feeder, L.P. Assets as at 31 December 2021 4,431,392
Liabilities at 31 December 2021 157,672
VPC Synthesis, L.P. Profit/(loss) of associate for period ended 31 December 2021 5,838,471
Assets as at 31 December 2021 283,302,763
Liabilities at 31 December 2021 237,818,787
MAXIMUM
FAIR VALUE OF EXPOSURE TO
INTEREST AS AT LOSS AS AT
PRINCIPAL PROPORTION OF 31 DECEMBER 31 DECEMBER
PLACE OF PRINCIPAL OWNERSHIP BASIS OF 2020 2020
NAME OF ASSOCIATE BUSINESS ACTIVITY INTERESTS HELD VALUATION ££
VPC Offshore Unleveraged Private Cayman Investment 26% Designated as 2,454,004 2,454,004
Debt Fund Feeder, L.P. Islands fund held at fair value
through profit or
loss - using NAV
Larkdale III, L.P. USA Investment vehicle 52%* Designated as 68,362 68,362
held at fair value
through profit or
loss - using NAV
FINANCIAL STATEMENTS continued
VPC SPECIALTY LENDING INVESTMENTS PLC
102 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
SUMMARISED FINANCIAL 31 DECEMBER 2020
NAME OF ASSOCIATE INFORMATION FOR ASSOCIATE £
VPC Offshore Unleveraged Profit/(loss) of associate for period ended 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, L.P. Profit/(loss) of associate for period ended 31 December 2020 12,207
Assets as at 31 December 2020 190,860
Liabilities at 31 December 2020 58,441
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, equalling £5,565,528 for the three-month period ended
31 December 2021 and paid the dividend on 31 March 2022.
There were no other significant events subsequent to the year end.
VPC SPECIALTY LENDING INVESTMENTS PLC
103
GOVERNANCE
VPC SPECIALTY LENDING INVESTMENTS PLC
105
105
BOARD OF DIRECTORS
This section forms part of the Directors’ Report.
All Directors are Non-Executive and are independent of the Investment Manager. The Directors of the Company who were in office
during the year and up to the date of signing the financial statements were as follows:
GRAEME PROUDFOOT, CHAIR
Appointed 1 December 2020
1,2,3,4
Appointed Chairman 24 June 2021
Independent Non-Executive Director
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, latterly as Managing Director, EMEA and
CEO of Invesco Pensions. 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 several of Invesco’s UK functions including
its investment trust business, which he led from 1999 until his retirement in 2019. Graeme began his career at Wilde Sapte
Solicitors, practising in London and New York.
MARK KATZENELLENBOGEN
Appointed 1 May 2019
1,2,3*,4
Independent Non-Executive Director
Mark Katzenellenbogen has been involved in financial services for more than 39 years. He began his career in credit and banking
with S.G Warburg before working for the bank’s mergers and acquisitions department in the UK, US and South Africa. Mark has
been a non-executive director of Oldfield, a long-only value equity manager, since 2005. In 2007, Mark was appointed CEO of
Auden Capital LLP, a London-based corporate finance advisory firm specialising in the investment and wealth management
sector.
ELIZABETH PASSEY
Appointed 19 February 2015
1,2,3,4
Independent Non-Executive Director
Elizabeth Passey is a Senior Adviser to J. Stern & Co Private Investment Office, is a Member of the Board of the National Lottery
Community Fund and Chairman of the Rural Payments Agency. She is a past Managing Director of Morgan Stanley and past
Chairman of the Board of Morgan Stanley International Foundation as well as a past Managing Director of Investec Asset
Management. Elizabeth is the Convener of Court of The University of Glasgow and is a Freeman of the Goldsmiths Company.
CLIVE PEGGRAM
Appointed 19 February 2015
1*,2,3,4
Independent Non-Executive Director
Clive Peggram has more than 35 years’ experience of working in the asset management industry, from private equity through to
structured finance. He is currently Chairman of Apex2100, a high-performance facility based in France. Before this appointment,
he was Deputy Group CEO of Financial Risk Management, a US$10 billion institutionally focused asset manager. Clive was
formerly Managing Director of Banque AIG for ten years, where he was responsible for establishing and running its investment
management team. Previously, he gained considerable experience in the developing derivative markets at Swiss Bank
Corporation. Clive is a Non-Executive Director of several asset management companies and is also a Trustee of the Apex2100
Foundation.
1 = Management Engagement Committee *Chair of Committee.
2 = Audit & Valuation Committee *Chair of Committee.
3 = Nomination Committee *Chair of Committee.
4 = Disclosure Committee *Chair of Committee.
GOVERNANCE
GOVERNANCE continued
VPC SPECIALTY LENDING INVESTMENTS PLC
106 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
OLIVER GRUNDY
Appointed 12 March 2021
1,2*,3,4
Independent Non-Executive Director
Oliver was an audit partner at 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 team of 35 partners and 500 professionals, before becoming the
audit and advisory partner to significant funds. From 2017 to 2019, Oliver was the Deloitte UK ethics partner, with responsibility for
all whistleblowing and conduct matters as well as the firm’s Public Interest Review Group. During his Deloitte career, Oliver also held
several roles at the Institute of Chartered Accountants of England & Wales (ICAEW), including as Council member, Disciplinary
Committee Tribunal Chairman and serving on the Practice, Risk & Regulation and the Ethics Standards Committees. Oliver is
currently a member of the Red Cross International Medical Fundraising Board.
1 = Management Engagement Committee *Chair of Committee.
2 = Audit & Valuation Committee *Chair of Committee.
3 = Nomination Committee *Chair of Committee.
4 = Disclosure Committee *Chair of Committee .
VPC SPECIALTY LENDING INVESTMENTS PLC
107
DIRECTORS’ REPORT
The Directors of the Company are pleased to present the Annual Report for the Company and its subsidiaries (the “Group”) for
the year ended 31 December 2021.
The Corporate Governance Statement, Audit and Valuation Committee Report and the Directors’ Remuneration Report are
included in this Directors’ Report. The Board seeks to understand the needs and priorities of the Company’s stakeholders. The
report can be found within the Strategic Report on pages 27 to 30.
RESULTS AND DIVIDENDS
The interim dividends paid by the Company are set out in Note 15 of the financial statements. A summary of the Company’s
performance during the year is set out in the Strategic Report on pages 7 to 31.
INVESTMENT TRUST STATUS
The Company has received written approval from HM Revenue & Customs (“HMRC”) as an authorised investment trust under
Sections 1158/1159 of the Corporation Tax Act 2010. The Directors are of the opinion that the Company has conducted its affairs
in compliance with such approval and intends to continue doing so.
DIRECTORS
Directors’ Appointments
As at the date of this report, the Board consists of five Non-Executive Directors, all of whom are considered by the Board to be
independent. Biographies of the Directors are set out on pages 105 and 106 and demonstrate the range of skills and experience
each Director brings to the Board. During the period, Graeme Proudfoot was appointed Chair of the Board on 24 June 2021, and
Oliver Grundy was appointed as a Non-Executive Director on 12 March 2021.
The appointment and replacement of Directors is governed by the Company’s Articles of Association (the “Articles”), the
Companies Act 2006, related legislation and Listing Rules. The Articles may be amended by a special resolution of the
shareholders.
Directors’ Interests
None of the current Directors, or any persons connected with them, had a material interest in the transactions and arrangements
of, or an agreement with, the Investment Manager during the period. The remuneration of the Directors and their beneficial
interests in the Company’s securities are set out in the Directors’ Remuneration Report on pages 126 to 130.
Directors’ Indemnity and Compensation for Loss of Office
Save for such indemnity provisions in the Articles and in Directors’ letters of appointment, there are no qualifying third-party
indemnity provisions in force. The Board has agreed to a procedure by which Directors may seek independent professional
advice if necessary and at the Company’s expense. The Company has also arranged for the appropriate provision of Directors’
and Officers’ Liability Insurance. The Company does not have any arrangements in place with any Director that would provide
compensation for loss of office.
Directors’ Share Dealings
On 3 July 2016, the European Union’s Market Abuse Regulation (“MAR”) became effective following which the Board adopted a
MAR compliant Share Dealing Code. MAR was adopted into UK law by virtue of the European Union (Withdrawal) Act 2018.
Details of the Directors’ shareholdings are set out in the Directors’ Remuneration Report on page 129.
Conflicts of Interest
The Articles provide that the Directors may authorise any actual or potential conflict of interest that may arise, with or without
imposing any conditions that they consider appropriate on the Director. Directors are not able to vote in respect of any contract,
arrangement or transaction in which they have a material interest and, in such circumstances, they are not counted in the
quorum. A process has been developed to identify any of the Directors’ potential or actual conflicts of interest. This includes
GOVERNANCE continued
VPC SPECIALTY LENDING INVESTMENTS PLC
108 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021108
declaring any potential new conflicts before the start of each Board meeting. The Directors are satisfied that this procedure is
adequate.
SHARES AND SHAREHOLDERS
Share Capital
The share capital as at 31 December 2021, and rights attaching to the Shares are set out in Note 14 to the financial statements.
As at the date of this report, the Company’s issued share capital consisted of 278,276,392 Ordinary Shares of £0.01 each with
voting rights. In addition, 104,339,273 shares were held in Treasury.
At the Company’s Annual General Meeting (“AGM”) on 24 June 2021, the shareholders of the Company passed certain resolutions
in relation to the allotment and buyback of its equity securities which remained valid as at 31 December 2021. In summary, these
resolutions were:
An ordinary resolution, to issue shares other than pursuant to the Share Issuance Programme up to an aggregate nominal
amount of £279,526, representing approximately 10% of the issued Ordinary Share capital at the date of the Notice of
AGM, excluding shares held in treasury. The Board has authority to continue to allot shares up until the conclusion of the
Company’s next Annual General Meeting in 2022.
A special resolution authorising the Directors to dis-apply the pre-emption rights of existing Shareholders in relation to
issues of Ordinary Shares (being in respect of Ordinary Shares up to an aggregate nominal amount of £279,526
representing up to 10% of the Company’s issued Ordinary Share capital as at the date of the Notice, excluding shares held
in treasury). This authority shall expire at the conclusion of the Company’s next Annual General Meeting in 2022.
A special resolution authorising market purchases of Ordinary Shares, provided that the maximum number of Ordinary
Shares authorised to be purchased is up to 41,901,006 ordinary shares, representing 14.99% of the issued Ordinary Shares
at the date of the Notice of AGM, excluding shares held in treasury. This authority shall expire at the conclusion of the
Company’s next Annual General Meeting in 2022.
No shares were allotted by the Company during the year. During the year the Company bought back a total of 4,370,972
Ordinary Shares to be held in Treasury, representing 1.14% of the issued share capital as at 31 December 2021, with an
aggregate nominal value of £43,709.72. The total amount paid for these shares was £3,741,814 at an average price of £0.8561
per Ordinary Share.
At the Company’s AGM in 2022, the Board will seek authority to issue Shares and to renew its authority to purchase Ordinary
Shares.
Shares bought back and held in Treasury will not be sold out of Treasury at a discount wider than the discount at which the
Shares were initially bought back by the Company. The authority to allot new Ordinary Shares, dis-apply pre-emption rights or
for the Company to purchase its own Shares will only be used if the Directors believe it is in the best interests of the Company.
Proposals for these and other authorities sought at the AGM, including their restrictions, will be set out in the Notice of the 2022
AGM.
Except as set out in the Company’s Articles, there are no restrictions concerning the transfer of securities in the Company or on
voting rights; no special rights with regard to control attached to securities; no agreements between holders of securities
regarding their transfer known to the Company; and no agreements which the Company is party to that might affect its control
following a successful takeover bid.
Substantial Shareholdings
The Company has been informed of the following notifiable interests as at 31 December 2021 in the Company’s voting rights
under DTR 5. This information was correct at the date of notification. It should be noted that these holdings may have changed
since notified to the Company and may not therefore be wholly accurate statements of actual holdings as at 31 December 2021.
However, notification of any change is not required until the next applicable threshold is crossed.
VPC SPECIALTY LENDING INVESTMENTS PLC
109
109
NUMBER PERCENTAGE OF
SHAREHOLDER OF SHARES VOTING RIGHTS*
SVS Opportunity Fund GP, L.P. 56,256,107 20.22%
Premier Fund Managers Limited 22,165,000 7.97%
Newton Investment Management Limited 16,389,923 5.89%
Schroders plc 22,400,000 8.05%
AXA Investment Managers 19,450,000 6.99%
Metage Capital Limited 8,201,393 2.95%
* Percentage of voting rights as at 31 December 2021.
The Company has been notified of the following changes in notifiable interests since 31 December 2021 and up until the date
of this report:
Newton Investment Management Limited had an interest in 12,870,021 ordinary shares representing 4.62% of the total voting
rights.
Articles of Association
Any amendments to the Articles of Association must be made by special resolution at a general meeting of the shareholders.
The Annual General Meeting
The Company’s AGM will be held on 13 June 2022 and explanations of the business proposed at the AGM will be contained in
the Notice of that Meeting.
AUDITORS AND FINANCIAL STATEMENTS
Independent Auditors
The auditors to the Company, PricewaterhouseCoopers LLP (“PwC” or the “Auditors”), were appointed in February 2015. They have
indicated their willingness to continue in office as Auditors of the Company.
The Audit and Valuation Committee has the responsibility for making a recommendation to the Board on the reappointment of
the external auditors. After careful consideration and a review of their effectiveness as external auditors, the Audit and Valuation
Committee has recommended that PwC be reappointed as the Company’s Auditors. Resolutions will therefore be proposed at
the forthcoming Annual General Meeting to re-appoint PwC as Auditors and for the Audit and Valuation Committee to determine
PwC’s remuneration. For more information refer to the Audit and Valuation Committee Report on pages 123 to 125.
Audit Information
The Directors who held office at the date of this Annual Report confirm that, so far as they are aware, there is no relevant audit
information of which the Company’s Auditors are unaware; and each Director has taken all the steps that he/she ought to have taken
as a Director to make himself/herself aware of any relevant audit information and to establish that the Company’s Auditors are aware
of that information. This confirmation is given in accordance with the provisions of Section 418 of the Companies Act 2006.
Financial Risk Management
The principal financial risks and the Group’s policies for managing these risks are set out on pages 22 to 26.
Subsequent Events
The important subsequent events are included on page 103.
GOVERNANCE continued
VPC SPECIALTY LENDING INVESTMENTS PLC
110 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021110
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 12 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
12 months from the date of this report.
Based on their assessment and considerations above, the Directors have concluded that the financial statements of the Group
and Company should continue to be prepared on a going concern basis.
Viability Statement
In accordance with provision 31 of the UK Corporate Governance Code, published by the Financial Reporting Council in July
2018, and as part of an ongoing programme of risk assessment, the Directors have assessed the prospects of the Company, to
the extent that they are able, over a three-year period. The Directors have chosen a three-year period as this is viewed as
sufficiently long term to provide shareholders with a meaningful view, without extending the period so far into the future as to
undermine the exercise. Additionally, the asset backed 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 2024 was modelled under scenarios addressing the two conditions
below:
(i) 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
(ii) 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 (iii) 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 22 to 26, their mitigants and the impact these might have
on the business model, future performance, solvency and liquidity. Both the principal risks and the monitoring system are subject
to a robust assessment at least annually.
In addition, the Directors considered the Company’s current financial position and prospects, the composition of the investment
portfolio, the level of outstanding capital commitments, the term structure and availability of borrowings and the ongoing costs
of the business. As part of the approach, due consideration has been given to the uncertainty inherent in financial forecasts and,
where applicable, as described above reasonable sensitivities have been applied to the investment portfolio in stress situations.
All the analysis above indicates that due to the stability and cash generating nature of the investment portfolio, specifically the
asset backed investments, as well as the debt facility in place, the Group would be able to withstand the impacts outlined above.
Based on the robust assessment of the principal risks, prospects and viability of the Group, the Board confirms that they have
reasonable expectation that the Group will be able to continue operation and meet its liabilities as they fall due over the
three-year period to 31 December 2024.
VPC SPECIALTY LENDING INVESTMENTS PLC
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ADDITIONAL DISCLOSURES
Requirements of the Listing Rules
Listing Rule 9.8.4 requires the Company to include certain information in a single identifiable section of the Annual Report or
a cross-reference table indicating where the information is set out.
The Directors confirm that there are no disclosures to be made in relation to Listing Rule 9.8.4.
Political Donations
The Company made no political donations during the period to organisations either within or outside of the EU. (Period to
31 December 2020: £nil).
Modern Slavery Act
The Company is not within the scope of the Modern Slavery Act 2015 because it has insufficient turnover and is therefore not
obliged to make a human trafficking statement.
This Report was approved by the Board of Directors on 27 April 2022 and signed on its behalf by
Link Company Matters Limited
Company Secretary
27 April 2022
GOVERNANCE continued
VPC SPECIALTY LENDING INVESTMENTS PLC
112 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021112
CORPORATE GOVERNANCE STATEMENT
This Corporate Governance Statement forms part of the Directors’ Report and includes the Audit and Valuation Committee
Report and Directors’ Remuneration Report.
APPLICABLE CORPORATE GOVERNANCE CODE
The Company is committed to high standards of corporate governance. This statement, together with the Statement of Directors’
Responsibilities on page 131, indicates how the Company has applied the principles of recommended governance of the
Financial Reporting Council (“FRC”) 2018 UK Corporate Governance Code (the ‘UK Code’) and the AIC’s Code of Corporate
Governance issued in 2019, (the ‘AIC Code’), which complements the UK Corporate Governance Code and provides a framework
of best practice for investment trusts.
The Board considers that reporting against the principles and provisions of the AIC Code, which has been endorsed by the FRC,
provides more relevant information to both Shareholders and stakeholders and that by reporting against the AIC Code the
Company has met its obligations in relation to the UK Code and associated disclosure requirements under paragraph 9.8.6 of the
Listing Rules.
The UK Code is available on the FRC website (www.frc.org.uk). The AIC Code is available on the AIC website (www.theaic.co.uk)
and includes an explanation of how the AIC Code adapts the principles and provisions set out in the UK Code to make them
relevant for investment companies.
STATEMENT OF COMPLIANCE
The Board is responsible for ensuring the appropriate level of corporate governance and considers that the Company has
complied with the principles and provisions of the AIC Code except as disclosed below:
Provision 14: No senior independent director has been appointed. All the Directors have different qualities and areas of
expertise on which they lead, and concerns can be conveyed to another Director if Shareholders do not wish to raise
concerns with the Chairman or the Chairman of the Audit and Valuation Committee. Any other Director will chair the Board
or Nomination Committee meeting when the annual evaluation of the Chairman’s performance, his re-election, or the
recruitment of his successor, is discussed;
Provision 23: Directors are not appointed for a specified term, as all Directors are non-executive and the Board believes
that a Director’s performance and their continued contribution to the running of the Company is of greater importance
and relevance to Shareholders than the length of time for which they have served as a Director of the Company. Each
Director is subject to the election and re-election provisions set out in the Articles which provide that a Director appointed
during the year is required to retire and seek election by Shareholders at the next Annual General Meeting (“AGM”)
following their appointment. Thereafter the Directors intend to offer themselves for re-election annually; and
Provision 37: As all the Directors are non-executive, the Board is of the view that there is no requirement for a separate
remuneration committee. Directors’ fees will be considered by the Board as a whole within the limits approved by
Shareholders.
THE PRINCIPLES OF THE AIC CODE
The AIC Code is made up of 17 principles split into five sections covering:
Board leadership and purpose;
Division of responsibilities;
Composition, succession and evaluation;
Audit, risk and internal control; and
Remuneration.
VPC SPECIALTY LENDING INVESTMENTS PLC
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BOARD LEADERSHIP AND PURPOSE
The Board considers the long-term sustainable success as their main focus and all
decisions are considered from this point of view. As outlined below, the Company
has a set of core values and corporate culture which are embedded into everything
the Company does. VPC takes an active interest in how the portfolio companies
manage environmental, social and governance (ESG) issues and the Board and VPC
agree that responsible business practices help to generate long term sustainable
returns. VPC and the Board continue to work on implementing an ESG policy.
As part of this the opportunities and risks faced by the business are considered,
monitored and assessed on a regular basis, both in terms of potential and emerging
risks that the business may face. More detail regarding the principal risk and
uncertainties and the sustainability of the business model can be found in the
Strategic Report on pages 22 to 26.
The purpose of the Company is the investment objective as set out on page 5. The
strategy that the Board follows in order to achieve this objective, is outlined in the
Strategic Report on pages 7 to 31.
The Board adopts some key values which are embedded into the culture of the
business and are key to any investment decision made by the Company. These
values and culture also drive how the Board and the relationship with the
Investment Manager proceed. These are:
Ensure all business decisions are made once all potential impacts on
stakeholders are fully understood.
Encourage open, honest and collaborative discussions at all levels in Board
meetings, with shareholders and stakeholders and with third party service
providers.
To avoid any potential conflicts of interest.
The values and culture of the business are considered as part of the annual board
evaluation process to ensure that they remain a key focus that all decisions are
based on.
The Board regularly considers the Company’s position the balance sheet, cash flow
projections, the availability of funding and the Company’s contractual commitments.
The Company’s objective is to deliver consistent, long-term returns to shareholders;
therefore, one of the measures the Board considers is the total return per share.
The Board and the Management Engagement Committee assesses the performance
of the Investment Manager in a number of different ways including through the KPIs
set out on page 21.
The Audit and Valuation Committee is responsible for assessing and managing risks
and further information about how this is done can be found in the Audit and
Valuation Committee Report on pages 123 to 125.
The Board understands its responsibilities to shareholders and stakeholders and
considers the opinions of all such parties when making any decision. The Board
considers that, other than shareholders, their other key stakeholders are their
portfolio companies, their third-party providers and the Investment Manager in
particular. The Management Engagement Committee considers the relationship with
all third-party providers on at least an annual basis and there is an ongoing dialogue
with the Investment Manager to ensure views are aligned.
The Board considers the impact any decision will have on all stakeholders to ensure
that they are making a decision that promotes the long-term success of the
Company, whether this be in relation to dividends, new investment opportunities,
potential future fundraisings, etc.
A. A successful company is led by an
effective board, whose role is to
promote the long-term sustainable
success of the company,
generating value for shareholders
and contributing to wider society.
B. T
he board should establish the
company’s purpose, values and
strategy, and satisfy itself that
these and its culture are aligned.
All directors must act with
integrity, lead by example and
promote the desired culture.
C. T
he board should ensure that the
necessary resources are in place for
the company to meet its objectives
and measure performance against
them. The board should also
establish a framework of prudent
and effective controls, which
enable risk to be assessed and
managed.
D. I
n order for the company to meet
its responsibilities to shareholders
and stakeholders, the board should
ensure effective engagement with,
and encourage participation from,
these parties.
GOVERNANCE continued
VPC SPECIALTY LENDING INVESTMENTS PLC
114 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021114
BOARD LEADERSHIP AND PURPOSE
In addition, the Directors welcome the views of all shareholders and place
considerable importance on communications with them. In addition, the Directors
are available to meet shareholders in person when able to do so or virtually.
Shareholders wishing to communicate with the Chairman, or any other member of
the Board, may do so by writing to the Company, for the attention of the Company
Secretary at the Registered Office.
In accordance with the guidance issued by the Investment Association in the cases
where shareholder votes against a resolution exceed 20%, the Board must consult
with shareholders to understand the reasons for their votes.
Representatives of the Investment Manager regularly meet institutional shareholders
to discuss historical performance and to understand their issues and concerns and,
if applicable, to discuss corporate governance issues. The results of such meetings
are reported at the following Board meeting. Regular reports on investor sentiment
and industry issues from the Company’s broker are submitted to the Board.
Any substantive communications regarding any major corporate issues would be
discussed by the Board taking into account representations from the Investment
Manager, the Auditor, legal advisers, broker and Company Secretary.
Further details of the Board’s engagement with shareholders during the year can be
found in the Strategic Report on pages 27 to 30 and the Chairman’s Statement on
pages 7 to 9.
DIVISION OF RESPONSIBILITIES
There is a clear division of responsibility between the Chair, the Directors, the
Investment Manager and the Company’s other third-party service providers. The
Chair is responsible for leading the Board, ensuring its effectiveness in all aspects of
its role and is responsible for ensuring that all Directors receive accurate, timely and
clear information. The responsibilities of the Chair are set out in writing and are
available on the Company’s website.
The Board meets regularly throughout the year and representatives of the
Investment Manager are in attendance, when appropriate, at each meeting and most
Committee meetings.
The Board has agreed a schedule of matters specifically reserved for decision by the
Board. This includes establishing the investment objectives, strategy and
benchmarks, the permitted types or categories of investments, the markets in which
transactions may be undertaken, the level of permitted gearing and borrowings, the
amount or proportion of the assets that may be invested in any category of
investment or in any one investment, and the Company’s treasury and share
buyback policies.
The Board, at its regular meetings, undertakes reviews of key investment and
financial data, revenue projections and expenses, analyses of asset allocation,
transactions and performance comparisons, share price and net asset value
performance, gearing, marketing and shareholder communication strategies, the
risks associated with pursuing the investment strategy, peer group information and
industry issues.
The review of each Director’s performance was undertaken by the Chair and the
review of the Chair’s performance was carried out during the period under review
by Elizabeth Passey. This concluded that the Directors believed the Chair encouraged
good debate, ensured all Directors were involved in discussions and that the Board
as a whole was working well.
F. The chair leads the board and is
responsible for its overall
effectiveness in directing the
company. They should
demonstrate objective judgement
throughout their tenure and
promote a culture of openness and
debate. In addition, the chair
facilitates constructive board
relations and the effective
contribution of all non-executive
directors, and ensures that
directors receive accurate, timely
and clear information.
VPC SPECIALTY LENDING INVESTMENTS PLC
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DIVISION OF RESPONSIBILITIES
All of the Directors are non-executive and are independent of the Investment
Manager and the other service providers.
The Chair, Graeme Proudfoot, was independent of the Investment Manager at the
time of his appointment and remains so. The Board is aware of the AIC’s guidance
on this issue and regards Graeme Proudfoot as independent.
Each Director is not a director of another investment company managed by the
Company’s Investment Manager, nor has any Board member been an employee of
the Company or any of its service providers.
The Board evaluation concluded that each Director provides a valuable contribution
to Board meeting discussions and exercises appropriate levels of challenge and
debate.
As part of the Board evaluation process, the contributions of each director, as well
as the time commitments made by each board member are considered and
reviewed. As explained above, it was concluded that each Director provided
appropriate levels of challenge and provided the Company and the Investment
Manager with guidance and advice when required.
The Management Engagement Committee reviews the performance and cost of the
Company’s third-party service providers on an annual basis. More information
regarding the work of the Management Engagement Committee can be found on
page 120.
The Directors have access to the advice and services of the Company Secretary
through its appointed representative which is responsible to the Board for ensuring
that Board procedures are followed and that applicable rules and regulations are
complied with. The Company Secretary is also responsible for ensuring good
information flows between all parties.
COMPOSITION, SUCCESSION AND EVALUATION
The Board has established a Nomination Committee, comprising all of the
independent Directors. This Committee will lead the appointment process of new
Directors, as and when vacancies arise and as part of the Directors’ ongoing
succession plans. More information regarding the work of the Nomination
Committee can be found on page 120.
The Board has adopted a diversity policy, which acknowledges the benefits of
greater diversity, and remains committed to ensuring that the Company’s Directors
bring a wide range of skills, knowledge, experience, backgrounds and perspectives
to the Board. Whilst the Board does not feel that it would be appropriate to set
targets as all appointments are made on merit, the following objectives for the
appointment of Directors have been established:
all Board appointments will be made on merit, in the context of the skills,
knowledge and experience that are needed for the Board to be effective; and
long lists, and, ideally, short lists of potential should include diverse candidates
of appropriate merit.
The Company is committed to ensuring that any vacancies to the Board arising in
future are filled by the most qualified candidates.
G. The board should consist of an
appropriate combination of
directors (and, in particular,
independent non-executive
directors) such that no one
individual or small group of
individuals dominates the board’s
decision making.
H. Non-
executive directors should
have sufficient time to meet their
board responsibilities. They should
provide constructive challenge,
strategic guidance, offer specialist
advice and hold third party service
providers to account.
I. T
he board, supported by the
company secretary, should ensure
that it has the policies, processes,
information, time and resources it
needs in order to function
effectively and efficiently.
J. Appointments t
o the board should
be subject to a formal, rigorous
and transparent procedure, and an
effective succession plan should be
maintained. Both appointments
and succession plans should be
based on merit and objective
criteria and, within this context,
should promote diversity of
gender, social and ethnic
backgrounds, cognitive and
personal strengths.
GOVERNANCE continued
VPC SPECIALTY LENDING INVESTMENTS PLC
116 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021116
COMPOSITION, SUCCESSION AND EVALUATION
Directors biographical details are set out on pages 105 and 106 of this Report. These
demonstrate the wide range of skills and experience that they bring to the Board.
Each Director was appointed with a view to having a Board with a good
combination of skills, experience and knowledge. This is reviewed as part of the
annual evaluation process. When considering new appointments, the Board will
review the skills of the Directors and seek to add persons with complementary skills
or who possess skills and experience which fill any gaps in the Board’s knowledge
or experience and who can devote sufficient time to the Company to carry out their
duties effectively.
Details of the policies on tenure of the Directors and the Chairman can be found
below on page 119 of this Report.
The Board has agreed to evaluate its own performance and that of its Committees,
Chair and Directors on an annual basis. For the period under review this was carried
out by way of a questionnaire. The Chair led the assessment, which covered the
functioning of the Board as a whole, the effectiveness of the Board Committees and
the independence and contribution made by each Director.
As necessary, the Chair discussed the responses with each Director individually. The
Chair absented himself from the Board’s review of his effectiveness as the Company
Chair, and this review was led by Elizabeth Passey.
Following this review, the Board is satisfied that the structure, mix of skills and
operation of the Board is effective and relevant for the Company.
The individual performance of each Director standing for election and re-election
has been evaluated and a recommendation is being made that shareholders vote in
favour of their election or re-election at the AGM. All Directors will be subject to
annual re-election by shareholders. More information regarding the proposed
election or re-election of each Director at the 2022 AGM can be found in the
separate AGM circular.
AUDIT, RISK AND INTERNAL CONTROL
The Audit and Valuation Committee has put in a place a non-audit services policy,
which ensures that any work outside the scope of the standard audit work requires
prior approval by the Audit and Valuation Committee. This enables the Committee
to ensure that the external auditors remain fully independent.
In addition, the Audit and Valuation Committee carries out a review of the
performance of the external auditor on an annual basis. Feedback from other third
parties, including the Investment Manager, is included as part of this assessment to
ensure the Audit and Valuation Committee takes into account the views of different
parties who have a close working relationship with the external auditor.
Further information regarding the work of the Audit and Valuation Committee can
be found on page 120.
The Board and Audit and Valuation Committee have considered the Annual Report
and Financial Statements as a whole and agreed that they believe that the
document presents a fair, balanced and understandable assessment of the
Company’s position and prospects. In particular, they have considered the language
used in the document to ensure unnecessary jargon is avoided. They have also
considered in particular the content of the Strategic Report which provides a clear
outline of the Company’s position and prospects.
K. The board and its committees
should have a combination of
skills, experience and knowledge.
Consideration should be given to
the length of service of the board
as a whole and membership
regularly refreshed.
L. Annual evaluation of the boar
d
should consider its composition,
diversity and how effectively
members work together to achieve
objectives. Individual evaluation
should demonstrate whether each
director continues to contribute
effectively.
M. T
he board should establish formal
and transparent policies and
procedures to ensure the
independence and effectiveness of
external audit functions and satisfy
itself on the integrity of financial
and narrative statements.
N. T
he board should present a fair,
balanced and understandable
assessment of the company’s
position and prospects.
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AUDIT, RISK AND INTERNAL CONTROL
The Audit and Valuation Committee reviews reports from the principal service
providers on compliance and the internal and financial control systems in operation
and relevant independent audit reports thereon.
The Directors have carried out a review of the effectiveness of the Company’s
systems of internal control as they have operated over the year and up to the date
of approval of the Annual Report. Given the nature of the business, the Company is
reliant on its service providers and their internal controls. The Audit and Valuation
Committee reviews the Investment Manager’s compliance and control systems in
operation insofar as they relate to the affairs of the Company.
As set out in more detail in the Audit and Valuation Committee Report on pages 123
to 125, the Company has in place a system for assessing the adequacy of those
controls.
There were no material matters arising from the review of the Company’s controls
that required further investigation and no significant failings or weaknesses were
identified.
REMUNERATION
As outlined in the Remuneration Report on page 126, the Company follows the
recommendation of the AIC Code that non-executive Directors’ remuneration should
reflect the time commitment and responsibilities of the role. The Company’s policy
is that the remuneration of non-executive Directors should reflect the experience of
the Board as a whole and be determined with reference to comparable organisations
and appointments. Directors are not eligible for bonuses, share options, long-term
incentive schemes or other performance- related benefits as the Board does not
believe that this is appropriate for non-executive Directors.
The remuneration policy is therefore designed to attract and retain high quality
Directors, whilst ensuring that Directors remain focused and incentivised to promote
the long-term sustainable success of the Company.
All Directors own shares in the Company, all of which were purchased in the open
market and using the Directors’ own resources.
The Board will periodically review the fees paid to the Directors and compare these
with the fees paid by the Company’s peer group and the investment trust industry
generally, taking into account the time commitment and responsibility of each Board
member.
More information regarding the work of the Remuneration Committee can be found
in the Remuneration Report on pages 126 to 130.
The Remuneration Policy has been developed with reference to comparable
organisations and appointments. There is an agreed fee which all non-executive
directors receive (irrespective of experience or tenure) and an additional fee for the
role of Audit and Valuation Committee Chair. There is also an agreed fee for the role
of Chair. Any changes to the Chair’s fee is considered by the Board as a whole, with
the exception of the Chair who excuses himself from this part of the meeting.
Any decision with regard to remuneration is taken after considering the performance
of the Company and the current market conditions. Any increase in directors’ fees
would need to be supported by positive growth of the Company.
The Board has no current intention to change the proposed Remuneration Policy for
the foreseeable future. If any significant changes to the Remuneration Policy were to
be considered, the Board would consult with shareholders and external
remuneration consultants before proposing any such changes.
O. The board should establish
procedures to manage risk, oversee
the internal control framework, and
determine the nature and extent of
the principal and emerging risks
the company is willing to take in
order to achieve its long-term
strategic objectives.
P. Remuneration policies and prac
tices
should be designed to support
strategy and promote long-term
sustainable success.
Q. A f
ormal and transparent procedure
for developing remuneration policy
should be established. No director
should be involved in deciding
their own remuneration outcome.
R. Dir
ectors should exercise
independent judgement and
discretion when authorising
remuneration outcomes, taking
account of company and individual
performance, and wider
circumstances.
GOVERNANCE continued
VPC SPECIALTY LENDING INVESTMENTS PLC
118 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021118
2021 ANNUAL GENERAL MEETING – UPDATE STATEMENT
On 25 June 2021, the Board of the Company announced that all resolutions proposed at the 2021 Annual General Meeting of
the Company (the “AGM”) had been passed. The Investment Association outlines that investment trusts should consult with
shareholders if any resolutions receive votes against exceeding 20%. In the case of the 2021 AGM no resolution reached the
threshold.
ROLE OF THE BOARD
A management agreement between the Company and the Investment Manager sets out the matters over which the Investment
Manager has authority. This includes management of the Company’s assets and some marketing services. The Board is
collectively responsible for the success of the Company and a formal schedule of matters reserved to the Board for decision has
been approved, which is available on the Company’s website: https://vpcspecialtylending.com. This includes strategy and
management, Board and committee membership and other appointments, appointment and oversight of delegates, corporate
structure and share capital, remuneration, financial reporting and controls, company contracts, internal controls, corporate
governance and policies.
The Board is responsible for the approval of annual and half year results and other public documents and for ensuring that such
documents provide a fair, balanced and understandable assessment of the Group’s position and prospects.
The Board’s role is to provide leadership within a framework of prudent and effective controls that enable risk to be assessed
and managed. It is responsible for setting the Company’s standards and values and for ensuring that its obligations to its
Shareholders and other stakeholders are understood and met. The Board sets the Company’s strategic aims (subject to the
Company’s Articles of Association, and to such approval of the Shareholders in General Meeting as may be required from time
to time) and ensures that the necessary resources are in place to enable the Company’s objectives to be met.
The Board meets formally at least seven times a year, with additional ad hoc Board or Committee meetings arranged when
required. The Directors have regular contact with the Investment Manager and Company Secretary between formal meetings.
Full and timely information is provided to the Board to enable it to function effectively and to allow Directors to discharge their
responsibilities.
At each meeting the Directors follow a formal agenda, which includes a review of the Company’s NAV, share price, discount,
financial position, gearing levels, peer group performance, investment performance, asset allocation and transactions and any
other relevant business matters to ensure that control is maintained over the affairs of the Company. The Board monitors
compliance with the investment restrictions required by the FCA and s1158 of the Corporation Tax Act 2010, the Company’s
objective, investment, borrowing and hedging policies and reviews the investment strategy. The Board regularly receives reports
from the Investment Manager on marketing and investor relations. The proceedings at all Board and Committee meetings are
fully recorded through a process that allows any Director’s concerns to be recorded in the minutes.
There is an agreed procedure for Directors to take independent professional advice if necessary and at the Company’s expense.
This is in addition to the access that every Director has to the advice and services of the Company Secretary, Link Company
Matters Limited, which is responsible to the Board for ensuring that Board procedures are followed and that applicable rules and
regulations are complied with.
BOARD COMPOSITION
The Board was chaired by Kevin Ingram until his retirement at the 2021 AGM and Graeme Proudfoot was appointed as his
successor with effect 24 June 2021. The Board consists of five non-executive Directors who have all served throughout the
period, with the exception of Oliver Grundy who joined the Board on 12 March 2021. All current members of the Board are
regarded as independent of the Company’s Investment Manager.
The Directors have a breadth of investment, financial and professional experience relevant to the Company’s business and brief
biographical details of each Director are set out on pages 105 and 106.
A review of Board composition and balance is included as part of the annual performance evaluation of the Board, details of
which may be found below.
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119
TENURE
Directors are generally initially appointed by the Board, until the following AGM when, as required by the Company’s Articles of
Association, they will stand for election by Shareholders. Thereafter, a Director’s appointment is subject to an annual performance
evaluation and the approval of Shareholders at each AGM, in accordance with corporate governance best practice.
Under the Articles of Association, Shareholders may remove a Director before the end of his or her term by passing a special
resolution at a meeting, and may by ordinary resolution appoint another person who is willing to act to be a Director in his or
her place. A special resolution is passed if more than 75% and an ordinary resolution is passed if 50% of the votes cast, in person
or by proxy, are in favour of the resolution.
In accordance with the above and the AIC Code, all Directors will stand for election or re-election at the 2022 AGM. The
contribution and performance of the Directors seeking election or re-election was reviewed by the Nomination Committee at its
meeting in February 2022 which recommended to the Board their continuing appointment. Biographies of each Director are
available on pages 105 and 106. It is the Board’s view that the Directors’ biographies illustrate why each Director’s contribution
is, and continues to be, important to the Company’s long-term sustainable success.
The Board has adopted a formal tenure policy for Directors based on a continual review of performance. The Board does not
believe that length of service in itself necessarily disqualifies a Director from seeking reappointment but, when making a
recommendation, the Board takes into account the on-going requirements of the UK Corporate Governance Code, including the
need to refresh the Board and its Committees. It is not anticipated that any of the Directors would normally serve in excess of
nine years. In exceptional circumstances, which would be fully explained to Shareholders at the time, a short extension might
be appropriate.
Similarly, it is not anticipated that the Chair will normally serve in excess of nine years. However, given the entirely non-executive
nature of the Board and as the Chair may not be appointed as such at the time of their initial appointment as a Director, in
exceptional circumstances, which would be fully explained at the time, a short extension might be appropriate. As with all
Directors, the continuing appointment of the Chairman is subject to on-going review of performance, including a satisfactory
annual evaluation, annual re-election by Shareholders and may be further subject to the particular circumstances of the
Company at the time he or she intends to retire from the Board.
DIVERSITY
The Directors acknowledge the benefits of Board diversity and continual review of the Board’s and individual Directors’
effectiveness, while seeking to retain a balance of knowledge of the Company, diversity and continuity in the relationship with
the Investment Manager. The Board has adopted a Diversity Policy in line with its commitment to ensuring that the Company’s
Directors bring a wide range of skills, knowledge, experience, backgrounds and perspectives to the Board.
The Board does not feel that it would be appropriate to set targets as all appointments must be made on merit. However,
diversity generally will be taken into consideration when evaluating the skills, knowledge and experience desirable to fill each
Board vacancy.
INDUCTION AND TRAINING
On appointment, the Investment Manager and Company Secretary provides new Directors with induction training as appropriate.
The training covers the Company’s investment strategy, policies and practices. The Directors are also given regular briefings on
changes in law and regulatory requirements that affect the Company and the Directors. It is the Chair’s responsibility to ensure
that the Directors have sufficient knowledge to fulfil their role and Directors are encouraged to attend industry and other
seminars covering issues and developments relevant to investment trust companies. Regular reviews of Directors’ training needs
are carried out by the Chair by means of the evaluation process described below.
The Directors have access to the advice and services of the Company Secretary through its appointed representative, who is
responsible for general secretarial functions and for assisting the Company with compliance with its continuing obligations as a
company listed on the premium segment of the Official List. The Company Secretary is also responsible for ensuring good
information flows between all parties.
GOVERNANCE continued
VPC SPECIALTY LENDING INVESTMENTS PLC
120 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021120
BOARD COMMITTEES
Directors are members of each of the Committees, as this was deemed appropriate given the size and nature of the Board. Each
of the Committees has formal terms of reference established by the Board, which are available on the Company’s website.
Unless invited to attend by the Committee’s Chair or members, only members of the Committees are entitled to be present at
Committee meetings. An outline of the remit of each of the Committees and their activities during the period are set out below.
Audit and Valuation Committee
The Company’s Audit and Valuation Committee meets at least twice during the year and is chaired by Oliver Grundy.
The main responsibilities of the Audit and Valuation Committee are set out below. The Company’s Audit and Valuation
Committee Report is on pages 123 to 125.
The Audit and Valuation Committee is responsible for monitoring the integrity of the financial statements of the Group and any
other formal announcements in relation to its financial performance. On an annual basis, it reviews the adequacy and
effectiveness of the Group’s financial reporting and internal control policies. The Committee reviews the scope, results, cost
effectiveness, independence and objectivity of the external auditor and makes recommendations to the Board in relation to the
appointment, re-appointment and removal of the Company’s Auditors.
Management Engagement Committee
The Management Engagement Committee is chaired by Clive Peggram and meets at least once a year, or more often if required.
The Management Engagement Committee is principally responsible for reasonably satisfying itself that the IMA is fair, and its
terms remain appropriate, relevant, competitive and sensible.
It also reviews the systems put in place by the Investment Manager, including those relating to compliance. It annually reviews
the performance and fees of the Investment Manager in order to make a recommendation to the Board regarding its continued
appointment. In addition, it reviews and considers the appointment and remuneration of providers of services to the Company.
During the year, the Management Engagement Committee met once to consider the performance of the service providers and
Investment Manager. Following the recommendation from the Management Engagement Committee, the Board agreed that the
continuing appointment of the Investment Manager on the current terms (as summarised on page 122) was in the interest of
the shareholders as a whole. This is primarily driven by the Investment Manager’s extensive experience and impressive track
record in the specialty lending sector. After the year end, one of the non executive directors, Clive Peggram, advised the Board
that a family member had been approached by VPC with an offer of employment. The individual is no longer a dependent of
Mr Peggram and the Board felt that the appointment did not affect Mr Peggram’s independence of the Investment Manager. It
was also felt that Mr Peggram’s experience remained important to the board’s effectiveness. It was however decided that
Mr Peggram would step down from the Management Engagement Committee, and the role of chair of that committee would
be passed to Elizabeth Passey. In board meetings, should a conflict be perceived at any future point, should the relative be
engaged in any matter relevant to the Company, Mr Peggram would recuse himself from decisions on that topic.
Nomination Committee
The Nomination Committee is chaired by Mark Katzenellenbogen and meets at least once a year, or more often if required. The
Nomination Committee is responsible for considering the structure, size and composition of the Board. The Nomination
Committee considers recommendations to shareholders concerning the (re)election of the Directors and is also responsible for
considering succession planning.
During the period, the Nomination Committee met three times.
Disclosure Committee
In response to the Market Abuse Regulation, the Board has established a Disclosure Committee. The principal role of the
Committee is to monitor the implementation of procedures for identifying inside information when it arises and ensuring the
Company complies with its disclosure and other obligations in respect of such inside information.
The Committee is chaired by Elizabeth Passey. The other members are any one of the other independent non-executive directors
and a senior executive of the investment manager. The performance of the Investment Manager in its submissions to the
Disclosure Committee forms part of the overall review of the performance of the Investment Manager by the Management
Engagement Committee.
Since the last Annual Report, the Disclosure Committee has met once in February 2022. The Investment Manager regularly
provided papers and updated the Board on items as they related to the Market Abuse Regulation.
VPC SPECIALTY LENDING INVESTMENTS PLC
121
121
BOARD AND COMMITTEE MEETING ATTENDANCE
The Board has at least seven scheduled meetings a year and meets more often if required. Directors’ attendance at Board and
Committee meetings held during the year to 31 December 2021 is set out in the below table:
AUDIT AND MANAGEMENT
VALUATION ENGAGEMENT NOMINATION
DIRECTOR BOARD
1
COMMITTEE
1
COMMITTEE
1
COMMITTEE
1
Oliver Grundy
3
6 (6) 5 (5) 1 (1) 1 (1)
Kevin Ingram
2
5 (5) 3 (3) 0 (0) 2 (2)
Mark Katzenellenbogen 8 (8) 6 (6) 1 (1) 3 (3)
Elizabeth Passey 8 (8) 6 (6) 1 (1) 3 (3)
Clive Peggram 8 (8) 6 (6) 1 (1) 3 (3)
Graeme Proudfoot 8 (8) 6 (6) 1 (1) 3 (3)
BOARD RESPONSIBILITIES AND RELATIONSHIP WITH INVESTMENT MANAGER
The Board has overall responsibility for the Company’s activities, including the review of investment activity and performance
and the control and supervision of all suppliers of services to the Company including the Investment Manager. It is also
responsible for the determination of the Company’s investment policy and strategy and the Company’s system of internal and
financial controls, including ensuring that commercial risks and financing needs are properly considered and that the obligations
of a public limited company are adhered to.
To assist the Board in the day-to-day operations of the Company, arrangements have been put in place to delegate authority for
the performance of day-to-day operations of the Company to the Investment Manager and other third-party service providers.
The Board has appointed the Investment Manager to manage the Company’s investment portfolio within guidelines set by the
Board. The Investment Manager has been actively involved in the specialty lending marketplace and has made investments and
commitments across multiple Portfolio Companies, geographies (US, UK, Europe and Caribbean), products (consumer and
business) and structures (senior credit facilities).
The Investment Manager is in frequent contact with the Board and supplies the Directors with regular updates on the Company’s
activities and detailed reports at each Board meeting.
Summary of Investment Management Agreement
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.
Under the terms of the IMA, the Investment Manager is entitled to a management fee together with reimbursement of all
reasonable costs and expenses incurred by it in the performance of its duties. The Investment Manager is also entitled to a
performance fee in certain circumstances (see further below). Further documentation of the fees are included in Note 10 of the
financial statements on pages 90 and 91.
The IMA shall continue in force until and unless terminated by any party giving to the other not less than six months’ notice in
writing to terminate the same. The Management Agreement may be terminated with immediate effect on the occurrence of
certain events, including insolvency or material breach of agreement.
The Company has given an indemnity in favour of the Investment Manager in respect of the Investment Manager’s potential
losses in carrying on its responsibilities under the IMA.
1
The number in brackets denotes the number of meetings each Director was entitled to attend. In addition, during the course of the year the
Board delegated to a sub-committee specific remit for consideration and recommendation but with the final responsibility in these areas remaining
with the Board.
2
Kevin Ingram retired from the Board at the AGM held on 24 June 2021.
3
Oliver Grundy was appointed to the Board 12 March 2021.
GOVERNANCE continued
VPC SPECIALTY LENDING INVESTMENTS PLC
122 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021122
In 2016, the Company and the Investment Manager agreed on an amendment to the IMA. Under the revised agreement, the
Investment Manager agreed to invest 20% of its monthly management fee received from the Company into shares in the
Company at the prevailing market price on an on-going basis, provided that the shares are trading at a discount to the prevailing
net asset value and the Investment Manager does not hold more than 10% of the voting rights of the Company. Since 2016 the
Investment Manager has acquired 4,496,991 Ordinary Shares in the Company through this mechanism.
In 2017, the Company and Investment Manager agreed to the introduction of a performance hurdle in respect of the
performance fees payable to the Investment Manager. With effect from 1 May 2017, the payment of any performance fees to the
Investment Manager is conditional on the Company achieving at least a 5.0% per annum total return for shareholders relative
to a 30 April 2017 High Water Mark.
Continuing appointment of the Investment Manager
It is considered that the Investment Manager has executed the Company’s investment strategy according to the Board’s
expectations. Accordingly, the Directors believe that the continuing appointment of Victory Park Capital Advisors, LLC as the
Investment Manager of the Company, on the terms agreed, is in the best interests of the Company and its shareholders as
a whole.
This statement was approved by the Board of Directors and signed on its behalf by:
Link Company Matters Limited
Company Secretary
27 April 2022
VPC SPECIALTY LENDING INVESTMENTS PLC
123
123
AUDIT AND VALUATION COMMITTEE REPORT
MEMBERSHIP OF THE COMMITTEE
The Audit and Valuation Committee (the “Committee”) meets at least two times a year and met six times during 2021. All the
Directors are members of the Committee and Oliver Grundy is the Chairman. At least one member of the Committee has recent and
relevant financial experience, and the Committee as a whole has competence relevant to the sector within which the Company
operates. Representatives of the Auditors also attend and present at meetings of the Committee. The other Directors considered that
it was appropriate for Graeme Proudfoot as Chair of the Board to be a member of, but not chair, the Committee, due to the Board’s
small size, the lack of perceived conflict of interest, and because the other Directors believe that Graeme Proudfoot continues to be
independent. The Investment Manager’s management team also attends meetings of the Committee by invitation.
THE ROLE OF THE AUDIT AND VALUATION COMMITTEE
The responsibilities of the Committee are set out in the AIC Code, Disclosure Guidance and Transparency Rule 7.1 and the
Committee’s terms of reference. These include that it shall:
monitor the integrity of the financial statements of the Group and any other formal announcements relating to its financial
performance;
review and challenge, where necessary, the Group’s financial statements;
review annually the adequacy and effectiveness of the Group’s financial reporting and internal control policies and
procedures, including related reporting;
review the Investment Manager’s whistleblowing procedures, adequacy and effectiveness of the compliance function and
its financial viability, when required;
review the adequacy and security of the Group’s arrangements for its contractors to raise concerns, the Group’s service
providers’ procedures for detecting fraud, the Group’s systems and controls for the prevention of bribery and receive
reports on non-compliance;
review all reports on the Group from the Investment Manager’s operational control function and consider annually whether
there is a need for an internal audit function;
oversee the relationship with the external auditor, including considering and making recommendations to the Board in
relation to their appointment, reappointment and removal, including in relation to any tender for the audit service
including approval of audit fees and non-audit services and fees;
recommend valuations of the Group’s investments to the Board and monitor the integrity of the recommended valuations
made by the Investment Manager;
review the content of the annual report and financial statements and advise the Board on whether, taken as a whole, it is
fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s
performance, business model and strategy; and
report formally to the Board on its proceedings after each meeting on all matters within its duties and responsibilities and
shall also formally report to the Board on how it has discharged its responsibilities.
MATTERS CONSIDERED IN THE YEAR
The principal matters considered by the Committee were as follows:
the internal controls, including cyber security, and risk management of the Group and Investment Manager;
the Auditors’ fees;
the timetable for the approval, announcement and distribution of dividends;
the valuation of loans and equity, including warrants, convertible debt, common stock, preferred stock and other investments;
the plan for the audit of the Group’s Annual Financial Statements;
the Group’s half-year financial statements and Annual Financial Statements;
making recommendations to the Board regarding interim dividend payments;
key risks in relation to the Group’s financial statements (see page 125 for more details).
the Group’s expected credit loss reserve policy;
the Group’s non-audit services policy;
the Viability and Going Concern statements;
consideration of COVID-19 and its impact on the Group’s financial statements; and
its own performance as a Committee, and its terms of reference.
GOVERNANCE continued
VPC SPECIALTY LENDING INVESTMENTS PLC
124 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021124
GOVERNANCE continued
INTERNAL AUDIT
The Board has considered the need for an internal audit function and it has decided that the systems and procedures employed
by the Investment Manager and the other third-party providers in relation to the Group give sufficient assurance that a sound
system of internal control, which safeguards the Group’s assets, is maintained. An internal audit function specific to the Group is
therefore considered unnecessary. The requirement, however, will be re-visited on an annual basis in accordance with the
Committee’s terms of reference.
RISK MANAGEMENT AND INTERNAL CONTROLS
The Committee is responsible for satisfying itself that the accounting and internal control systems of the Company, the
Investment Manager and other service providers are appropriate and adequate. The Committee has received reports from the
Investment Manager for the purpose of reviewing the control mechanisms in place and the Committee is satisfied that the
relevant legal and regulatory requirements have been met. The Committee is also responsible for ensuring that compliance is
under proper review and is provided with an update and reports from the Investment Manager at regular Committee meetings.
Risk is inherent in the Group’s activities and accordingly, the Company has established a risk map consisting of the key risks and
controls in place to mitigate those risks. The risk map provides a basis for the Committee and the Board to monitor the effective
operation of the controls and to update the matrix when new risks are identified.
The Investment Manager is responsible for operating the Group’s internal system of control and for initially reviewing its
effectiveness. Such systems are however designed to minimise risk rather than eliminate risk; they can provide only reasonable
and not absolute assurance against material misstatement of loss. The Management Engagement Committee carries out reviews
at least annually of the performance of the Investment Manager as well as the other service providers appointed by the Group.
The following are the key components which the Group has in place to provide effective internal control:
The Board has agreed clearly defined investment criteria and platform restrictions, which specify levels of authority and
exposure limits. The Investment Manager regularly reports to the Audit and Valuation Committee on compliance with these
criteria.
The Board has a procedure to ensure that the Company can continue to be approved as an investment company by
complying with sections 1158/1159 of the Corporation Tax Act 2010.
The Investment Manager and Administrator prepare forecasts and management financial statements, covering investment
activities and financial matters, which allow the Committee to assess the Group’s activities and review its performance.
Contractual arrangements with the Investment Manager and other third-party service providers are in place which
specifically define their roles and responsibilities to the Group.
The services and controls of the Investment Manager and other third-party service providers are subject to review by the
Management Engagement Committee on an on-going basis. Regular reports are provided to the Board by the
Administrator and the Depositary.
The Investment Manager’s operations and compliance departments continually review the Investment Manager’s operations and
report to the Committee. The Investment Manager works with the Committee to comply in all material respects with rules and
requirements of governmental authorities (as modified or re-enacted from time to time) applicable to it and obtain appropriate
advice with a view to assisting the Company in its compliance with the laws, rules and regulations (including, without limit, those
relating to environmental matters) prevailing in each jurisdiction in which the Group may invest.
The Committee recognises that these control systems can only be designed to manage, rather than eliminate, the risk of failure
to achieve business objectives and to provide reasonable, but not absolute, assurance against material misstatement or loss.
Discussion of the Group’s principal risks is on pages 22 to 26.
EXTERNAL AUDIT
The Company’s Auditors, PricewaterhouseCoopers LLP (“PwC”), were appointed in 2015. The Committee monitors the Company’s
relationship with the Auditors and has discussed and considered their independence and objectivity. The Auditors also provide
confirmation that they are independent within the meaning of all regulatory and professional requirements and that objectivity
of the audit is not impaired. The Committee is, therefore, satisfied that PwC was independent, especially considering the term of
appointment to date, and will continue to monitor this position. Under the Financial Reporting Council’s regulations, the
Company is required to re-tender, at the latest, by 2025. The Committee intends to retender within this timeframe. The
Committee intends to keep under review the requirement to re-tender within this timeframe. Ethical standards generally require
the rotation of the lead audit partner every five years for a listed client. Claire Sandford has acted as lead audit partner since
2020.
VPC SPECIALTY LENDING INVESTMENTS PLC
125
The Auditors are invited to attend Committee meetings and meet with the Committee and its Chair without the presence of the
Investment Manager. After the external audit has been completed, the Committee obtains feedback on the conduct of the audit.
Following the completion of the audit, the Committee reviewed PwC’s effectiveness by:
discussing the overall risk-based audit process and the audit procedures taken to address the identified significant risks;
considering feedback on the audit provided by the Investment Manager and the Administrator; and
considering the experience, involvement of specialists and continuity of the audit team, including the audit partner.
The Audit and Valuation Committee has considered the significant risks identified by the audit team during the audit of the
financial statements for the year. The feedback provided by the Investment Manager and by the Administrator regarding the
audit team’s performance on the audit is positive. The Committee acknowledged that the audit team, including the audit partner,
comprised staff with appropriate levels of knowledge and experience of the investment trust sector. Accordingly, the Committee
has recommended to the Board that PwC be re-appointed as Auditors at the forthcoming AGM. PwC has confirmed its
willingness to continue in office.
AUDIT FEES AND NON-AUDIT SERVICES
The breakdown of fees between audit services and non-audit services for the period are provided in Note 10 of the financial
statements. There were no non-audit services rendered during the year.
The Committee reviews and approves in advance the provision of non-audit services during the year by the Auditors, taking into
account the recommendations of the Financial Reporting Council. There were no non-audit services provided during the year
and the Committee does not believe there was any impediment to the Auditors’ objectivity and independence from doing this
work during the period.
SIGNIFICANT ISSUES CONSIDERED BY THE AUDIT AND VALUATION COMMITTEE
After discussion with the Investment Manager and the Auditors, the Committee determined that the significant issues considered
by the Committee in the context of the Group’s financial statements were:
SIGNIFICANT AREA HOW ADDRESSED
Investments that are unlisted or not actively traded are valued using a variety of techniques
to determine a fair value, as set out in the accounting policies note on beginning on
page 54, and all such valuations are carefully reviewed by the Investment Manager’s
valuation committee as well as the Committee. Actively traded listed investments are valued
using stock exchange prices provided by third party pricing vendors.
The Investment Manager values the loans at amortised cost and monitors the performance
and repayment of the loans to assess whether any expected credit losses exist, as set out
in the accounting policies note beginning on page 54. The valuation approach has been
reviewed by the Investment Manager’s valuation committee as well as the Committee.
Fraud in income recognition The Investment Manager recognises income as revenue return provided that the underlying
assets of the investments comprise solely income generating loans, or investments in
lending Portfolio Companies which themselves generate net interest income. The
Committee has reviewed income recognition with the Investment Manager and has inquired
with the Auditors regarding the testing performed over income recognition and the
conclusions reached.
These issues were discussed with the Investment Manager and the Auditors at the time the Committee reviewed and agreed to
the Audit plan for the year. After full consideration, the Committee was also content with the judgements made by the
Investment Manager in respect of the key risks.
For and on behalf of the Audit and Valuation Committee
Oliver Grundy
Audit and Valuation Committee, Chair
27 April 2022
Valuation of unquoted
investments reported at fair
value through profit or loss
Expected credit losses on loans
r
eported at amortised cost
GOVERNANCE continued
VPC SPECIALTY LENDING INVESTMENTS PLC
126 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
DIRECTORS’ REMUNERATION REPORT
ANNUAL STATEMENT FROM THE CHAIR
This Directors’ Remuneration Report for the year ended 31 December 2021 has been prepared in accordance with Schedule 8 of
the Large and Medium-Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 and, alongside this
Annual Statement, comprises two separate parts: the Annual Report on Remuneration and the Directors’ Remuneration Report.
The Annual Report on Remuneration sets out payments made to the Directors during the period. This report, including this
Annual Statement, is subject to an advisory vote by Ordinary Resolution at the Company’s forthcoming AGM. The Directors’
Remuneration Report is forward-looking and was approved by shareholders at the Company’s last AGM in June 2021. The
resolution at the 2021 AGM to approve the Directors’ Remuneration Report was passed with 99.96% of the votes ‘for’. The current
shareholder approved policy governs the remuneration of the directors for a period of three years expiring at the AGM in 2022
(and was passed with 100% of the votes ‘for’). Any views expressed by shareholders on the remuneration being paid to Directors
will be taken into consideration by the Board.
During the year, the Directors reviewed the need for the Company to have a separate Remuneration Committee. Due to the
nature and structure of the Company, it was agreed that the role and duties of a Remuneration Committee can continue to be
fulfilled by the Board.
The Directors of the Company are all Non-Executive and receive a fee per annum which for the year ended 31 December 2021
was £55,000 for the Chair and £33,000 for the other Directors. The Chairman is entitled to a higher fee to reflect the additional
work required to carry out the role. The Chair of the Audit and Valuation Committee receives an additional fee of £5,500 per
annum for taking on this responsibility. Mr. Proudfoot received £33,000 per annum with his fee increasing to the remuneration
payable to the Chair of the Board on his appointment at the 2021 AGM. In addition, Mr Katzenellenbogen received a one-off fee
of £4,000 for his contribution to the Board during 2021. With the exception of the one-off payment to Mr Katzenellenbogen, the
current fees have been unchanged for the past five years.
DIRECTORS’ REMUNERATION POLICY
The components of the remuneration package for the Company’s Non-Executive Directors, which comprise the Directors’
Remuneration Policy, are set out below:
REMUNERATION TYPE DESCRIPTION AND APPROACH TO DETERMINATION
Fixed fees Annual fees are set for each of the Directors, taking into account the wider industry and
individual skills, time commitment and experience.
These fees shall not exceed £500,000 per annum, divided between the Directors as they
may determine.
Directors do not participate in discussions relating to their own fee.
Additional fees If any Director, being willing and having been called upon to do so, shall render or perform
extra or special services of any kind, including services on any Committee of the Board, or
shall travel or reside abroad for any business or purposes of the Company, he or she shall be
entitled to receive such sum as the Board may think fit for expenses, and also such
remuneration as the Board may think fit, either as a fixed sum or as a percentage of profits
or otherwise, and such remuneration may, as the Board shall determine, be either in addition
to or in substitution for any other remuneration he or she may be entitled to receive.
Expenses The Directors shall be entitled to be paid all expenses properly incurred by them in
attending General Meetings or separate meetings of the holders of any class of shares or
meetings of the Board or Committees of the Board or otherwise in or with a view to the
performance of their duties.
Other Directors are not eligible for bonuses, share options or long-term incentives schemes or
other performance-related benefits. There are no pension arrangements in place for the
Directors of the Company.
VPC SPECIALTY LENDING INVESTMENTS PLC
127
Directors’ fee levels
RATE AS AT
COMPONENT ROLE 31 DECEMBER 2021 PURPOSE OF REMUNERATION
Annual fee Chair £55,000 Commitment as Chair
1
Annual fee Non- executive Director £33,000 Commitment as non-executive Director
2
Additional fee Chair of the Audit & £5,500 For additional responsibilities and time
Valuation Committee commitments
3
Additional fee Non- executive Director £4,000 One-time payment in 2021 for additional
responsibilities and time commitments to
the Board
4
Additional fee All Directors N/A For extra or special services performed in
their role as a Director
4
The Directors hold their office in accordance with the Articles and their appointment letters. No Director has a service contract
with the Company and there are no notice periods. On termination of their appointment, Directors should only be entitled to
accrued fees as at the date of termination together with reimbursement of any expenses properly incurred to that date.
Fees of any new Director appointed will be on the above basis and are likely to be in-line with the fees of existing Directors.
Fees payable in respect of subsequent periods will be determined following an annual review. The Company has no employees
other than its Directors who are all Non-Executive. When considering the level of fees, the Board will evaluate the contribution
and responsibilities of each Director and the time spent on the Company’s affairs. Following approval of the Directors’
Remuneration Policy by Shareholders at the AGM in June 2021, the Company believes the remuneration of Directors to be
appropriate given the nature of the Company and will review the Directors’ fees against remuneration of other investment
companies of similar size in future years. The current fees are also within the limits set out in the Company’s Articles of
Association, which prohibit the total aggregate annual fees payable to the Directors in respect of any financial period to exceed
£500,000 per annum. Any views expressed by shareholders on the fees being paid to Directors would be taken into consideration
by the Board.
ANNUAL REPORT ON REMUNERATION
Service Contracts Obligations and Payment on Loss of Office
No Director has a service contract with the Company and as such is not entitled to compensation payments upon termination
of their appointment or loss of office.
1
The Chair of the Board is paid a higher fee than the other Directors to reflect the more onerous role.
2
The Company’s Articles of Association limit the aggregate fees payable to the Board of Directors to £500,000 per annum.
3
The Chair of the Audit & Valuation Committee is paid a higher fee than the other Directors to reflect the more onerous role.
4
Additional fees would only be paid in exceptional circumstances in relation to the performance of extra or special services.
GOVERNANCE continued
VPC SPECIALTY LENDING INVESTMENTS PLC
128 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
1
Oliver Grundy was appointed as a Director on 12 March 2021.
2
Kevin Ingram retired as Chair of the Board at the Company’s AGM in 2021.
3
Mark Katzenellenbogen received an additional fee for his additional responsibilities and commitment to the Board in 2021.
4
Graeme Proudfoot was appointed as Chair of the Board at the Company’s AGM in 2021.
Total Remuneration Paid to Each Director (Audited)
31 DECEMBER 31 DECEMBER
2021 2020
DIRECTORS’ REMUNERATION £ £
Oliver Grundy
1
30,236 Nil
Kevin Ingram
2
13,750 55,000
Mark Katzenellenbogen
3
37,000 33,000
Elizabeth Passey 33,000 33,000
Clive Peggram 34,791 38,500
Graeme Proudfoot
4
44,423 2,750
Total 193,200 162,250
No Director is eligible for any pension entitlements.
Share Price Total Return
The graph below compares the shareholder return on the Company’s Shares compared to that of the FTSE All-Share Total Return
Index (“ASX Total Return Index”) from 16 March 2015 to 31 December 2021. The Board has adopted as this measure for the
Company’s performance as there is no widely used comparative benchmark for the underlying credit assets that the Company
invests in.
VSL vs ASX Total Return Index
Source: Bloomberg.
This graph assumes that on the respective placing dates, £100 was invested in the Ordinary Shares and the FTSE All-Share Total
Return Index. The graphs also assume the reinvestment of all cash dividends received prior to any tax effect at the closing share
price on the day the dividend was paid.
60
70
80
90
100
110
120
130
140
150
160
Dec-21
Sep-21
Jun-21
Mar-21
Dec-20
Sep-20
Jun-20
Mar-20
Dec-19
Sep-19
Jun-19
Mar-19
Dec-18
Sep-18
Jun-18
Mar-18
Dec-17
Sep-17
Jun-17
Mar-17
Dec-16
Sep-16
Jun-16
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Dec-15
Sep-15
Jun-15
Mar-15
VSL LN Equity ASXTR Index
VPC SPECIALTY LENDING INVESTMENTS PLC
129
Relative Importance of Spend on Pay
The table below shows the proportion of the Company’s income spent on pay.
2021 2020
££
Total Directors’ Remuneration 193,200 162,250
Total Share Buyback 3,741,814 20,161,216
Total Dividend Payments 22,283,112 23,128,918
The 2021 total dividend payments above includes the fourth quarter dividend to be paid in the second quarter of 2022. The
2020 total dividend payments above includes the fourth quarter dividend that was declared and paid in the second quarter of
2021. Refer to Note 15 to the financial statements further disclosures on the total dividend payments.
Remuneration Advisors
The Board has not sought the advice or service by any outside person in respect of its consideration of the Directors’
remuneration.
Directors’ Interests (Audited)
There is no requirement under the Company’s Articles of Association or letters of appointment for Directors to hold shares in
the Company.
The interests of the Directors in the shares of the Company at the end of the period under review were as follows:
31 DECEMBER 31 DECEMBER
DIRECTOR 2021 2020
Oliver Grundy
1
Ordinary Shares 30,000 Nil
Kevin Ingram
2
Ordinary Shares N/A 64,968
Mark Katzenellenbogen Ordinary Shares 215,000 215,000
Elizabeth Passey Ordinary Shares 10,000 10,000
Clive Peggram Ordinary Shares 333,240 333,240
Graeme Proudfoot Ordinary Shares 130,000 50,000
Implementation of Policy in the Next Year
No significant changes to the remuneration policy are expected for the upcoming fiscal year. The Board may continue to review
fees against peer companies and in light of the time commitment and skills of the Directors.
1
Oliver Grundy was appointed as a Director on 12 March 2021.
2
Kevin Ingram retired from the Board at the Company’s AGM in 2021.
GOVERNANCE continued
VPC SPECIALTY LENDING INVESTMENTS PLC
130 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
Approval
On behalf of the Board and in accordance with Part 2 of Schedule 8 of the Large and Medium-sized Companies and Groups
(Accounts and Reports) (Amendment) Regulations 2013, I confirm that the above Report on Remuneration Implementation
summarises, as applicable, for the year to 31 December 2021:
(a) the major decisions on Directors’ remuneration;
(b) any substantial changes relating to Directors’ remuneration made during the year; and
(c) the context in which the changes, if any, occurred and decisions have been taken.
This report was approved by the Board of Directors on 27 April 2022 and signed on its behalf by
Graeme Proudfoot
Chair
27 April 2022
VPC SPECIALTY LENDING INVESTMENTS PLC
131
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE
FINANCIAL STATEMENTS
The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law
and regulation.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have
prepared the group and the company financial statements in accordance with UK-adopted international accounting standards.
Under company law, directors must not approve the financial statements unless they are satisfied that they give a true and fair
view of the state of affairs of the group and company and of the profit or loss of the group for that period. In preparing the
financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
state whether applicable UK-adopted international accounting standards have been followed, subject to any material
departures disclosed and explained in the financial statements;
make judgements and accounting estimates that are reasonable and prudent; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and
company will continue in business.
The directors are responsible for safeguarding the assets of the group and company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The directors are also responsible for keeping adequate accounting records that are sufficient to show and explain the group’s
and company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and company
and enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with the Companies
Act 2006.
The directors are responsible for the maintenance and integrity of the company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
DIRECTORS’ CONFIRMATIONS
The directors consider that the Annual Report and the financial statements, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess the Group’s and Company’s position and performance, business
model and strategy.
Each of the directors, whose names and functions are listed in Strategic Report and Directors’ Report confirm that, to the best of their
knowledge:
the group and company financial statements, which have been prepared in accordance with UK-adopted international
accounting standards, give a true and fair view of the assets, liabilities and financial position of the group and company,
and of the profit of the group; and
the Strategic Report and Directors’ Report includes a fair review of the development and performance of the business and
the position of the group and company, together with a description of the principal risks and uncertainties that it faces.
For and on behalf of the Board:
Graeme Proudfoot
Chair
27 April 2022
GOVERNANCE continued
VPC SPECIALTY LENDING INVESTMENTS PLC
132 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
REGULATORY DISCLOSURES
AIFMD DISCLOSURES
In accordance with the Alternative Investment Fund Managers Directive (“AIFMD”), the Company is an Alternative Investment
Fund (“AIF”) and has appointed Victory Park Capital Advisors, LLC as its Alternative Investment Fund Manager (the “AIFM”) to
provide portfolio management and risk management services to the Company in accordance with the IMA.
The Company is categorised as an externally managed European Economic Area (“EEA”) domiciled AIF for the purposes of the
AIFMD. Since the Investment Manager is a non-EEA AIFM, the Investment Manager is only subject to the AIFMD to the extent
that it markets an EEA AIF in the EEA. Accordingly, the Investment Manager is required to make only certain financial and non-
financial disclosures.
REPORT ON REMUNERATION
AIFMs are obliged to publish certain information for investors and prospective investors and that information may be found
either in this annual report or on the Company’s website. Any information on remuneration not already disclosed in the
remuneration report will be provided to investors on request.
RISK DISCLOSURES
The financial risk disclosures relating to risk framework, gearing and liquidity risk as required in accordance with the AIFMD are
set out on pages 22 to 26 and in Note 6 of the financial statements.
PRE-INVESTMENT DISCLOSURES
The AIFMD requires certain information to be made available to investors in AIFs before they invest and requires that material
changes to this information be disclosed in the annual report of each AIF. The Company’s prospectus, which sets out information
on the Company’s investment strategy and policies, gearing, risk, liquidity, administration, management, fees, conflicts of interest
and other shareholder information is available on the Company’s website. There have been no material changes to this
information requiring disclosure. Any information requiring immediate disclosure pursuant to the AIFMD will be disclosed to the
London Stock Exchange through a primary information provider.
INFORMATION TO BE DISCLOSED IN ACCORDANCE WITH LISTING RULE 9.8.4R
The following table provides cross-references to where the relevant required information by Listing Rule 9.8.4R for the Period is
disclosed.
SECTION LISTING RULE REQUIREMENT LOCATION
9.8.4 (1) Not applicable
9.8.4 (2) Information required in relation to the publication of unaudited financial information. Not applicable
9.8.4 (4) Details of any long-term incentive schemes. Not applicable
9.8.4 (5), (6) Not applicable
9.8.4 (7) Details of any non pre-emptive issues of equity for cash. Not applicable
9.8.4 (8) Not applicable
9.8.4 (9) Details of parent participation in a placing by a listed subsidiary. Not applicable
9.8.4 (10)
9.8.4 (11) Not applicable
9.8.4 (12), (13) Details of waiver of dividends by a shareholder. Not applicable
9.8.4 (14) Board statement in respect of relationship agreement with the controlling shareholder. Not applicable
A statement of the amount of interest capitalised during the period under review and
details of any related tax relief.
Details of any arrangements under which a director has waived emoluments, or agreed
t
o waive any future emoluments, from the company.
Details of any non pre-emptive issues of equity for cash by any unlisted major
subsidiar
y undertaking.
Pages 107 and
121
Details of any contract of significance with the Company (or one of its subsidiaries)
with r
espect to which a director or controlling shareholder is material interested.
Details of any contract of significance for the provision of services to the Company (or
one of its subsidiaries) b
y a controlling shareholder.
SHAREHOLDER
INFORMATION
134 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
SHAREHOLDER INFORMATION
VPC SPECIALTY LENDING INVESTMENTS PLC
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, Asia and Latin
America) and credit bands in order to create a diversified portfolio and thereby mitigates concentration risks.
INVESTMENT RESTRICTIONS
The following investment limits and restrictions apply to the Company, to ensure that the diversification of the Company’s
portfolio is maintained, and that concentration risk is limited.
PLATFORM RESTRICTIONS
Subject to the following, the Company generally does not intend to invest more than 20% of its Gross Assets in Debt Instruments
(net of any gearing ring-fenced within any SPV which would be without recourse to the Company), originated by, and/or Credit
Facilities and equity instruments in, any single portfolio company, calculated at the time of investment. All such aggregate
exposure to any single portfolio company (including investments via an SPV) will always be subject to an absolute maximum,
calculated at the time of investment, of 25% of the Company’s Gross Assets.
ASSET CLASS RESTRICTIONS
Single loans acquired by the Company will typically be for a term no longer than five years.
The Company will not invest more than 20% of its Gross Assets, at the time of investment, via any single investment fund
investing in Debt Instruments and Credit Facilities. In any event, the Company will not invest, in aggregate, more than 60% of
its Gross Assets, at the time of investment, in investment funds that invest in Debt Instruments and Credit Facilities.
135
VPC SPECIALTY LENDING INVESTMENTS PLC
The Company will not invest more than 10% of its Gross Assets, at the time of investment, in other listed closed-ended
investment funds, whether managed by the Investment Manager or not, except that this restriction shall not apply to
investments in listed closed-ended investment funds which themselves have stated investment policies to invest no more than
15% of their gross assets in other listed closed-ended investment funds.
The following restrictions apply, in each case at the time of investment by the Company, to both Debt Instruments acquired by
the Company via wholly-owned SPVs or partially-owned SPVs on a proportionate basis under the Marketplace Model, on a
look-through basis under the Asset Backed Lending Model and to any Debt Instruments held by another investment fund in
which the Company invests:
No single consumer loan acquired by the Company shall exceed 0.25% of its Gross Assets.
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.
No single trade receivable asset acquired by the Company shall exceed 5.0% of its Gross Assets.
OTHER RESTRICTIONS
The Company’s un-invested or surplus capital or assets may be invested in Cash Instruments for cash management purposes and
with a view to enhancing returns to shareholders or mitigating credit exposure.
Where appropriate, the Company will ensure that any SPV used by it to acquire or receive (by way of assignment or otherwise)
any loans to UK consumers shall first obtain the appropriate authorisation from the FCA for consumer credit business.
BORROWING POLICY
Borrowings may be employed at the level of the Company and at the level of any investee entity (including any other investment
fund in which the Company invests or any SPV that may be established by the Company in connection with obtaining gearing
against any of its assets).
The Company may, in connection with seeking such gearing or securitising its loans, seek to assign existing assets to one or
more SPVs and/or seek to acquire loans using an SPV.
The Company may establish SPVs in connection with obtaining gearing against any of its assets or in connection with the
securitisation of its loans (as set out further below). It intends to use SPVs for these purposes to seek to protect the geared
portfolio from group level bankruptcy or financing risks.
The aggregate leverage of the Company and any investee entity (on a look-through basis, including borrowing through
securitisation using SPVs) shall not exceed 1.5 times its NAV (1.5x).
As is customary in financing transactions of this nature, the particular SPV will be the borrower and the Company may from time
to time be required to guarantee or indemnify a third-party lender for losses incurred as a result of certain “bad boy” acts of the
SPV or the Company, typically including fraud or wilful misrepresentation or causing the SPV voluntarily to file for bankruptcy
protection. Any such arrangement will be treated as ‘non-recourse’ with respect to the Company provided that any such
obligation of the Company shall not extend to guaranteeing or indemnifying Ordinary portfolio losses or the value of the
collateral provided by the SPV.
SHARE REGISTER ENQUIRIES
For shareholder enquiries, please contact the Company’s registrar, Link Group on +44 (0) 371 664 0391.
Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the
applicable international rate. Lines are open between 09:00 – 17:30, Monday to Friday (excluding public holidays in England and Wales).
136 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
SHAREHOLDER INFORMATION
continued
VPC SPECIALTY LENDING INVESTMENTS PLC
SHARE CAPITAL AND NET ASSET VALUE INFORMATION
Ordinary £0.01 Shares 278,276,392
SEDOL Number BVG6X43
ISIN Number GB00BVG6X439
SHARE PRICES
The Company’s shares are listed on the London Stock Exchange.
ANNUAL AND HALF-YEARLY REPORTS
Copies of the Annual and Half-Yearly Reports are available from the Investment Manager on and are available on the Company’s
website http://vpcspecialtylending.com.
PROVISIONAL FINANCIAL CALENDAR
June 2022 Annual General Meeting
June 2022 Payment of interim dividend to 31 March 2022
30 June 2022 Half-year End
September 2022 Announcement of half-yearly results
September 2022 Payment of interim dividend to 30 June 2022
December 2022 Payment of interim dividend to 30 September 2022
31 December 2022 Year End
DIVIDENDS
The following table summarises the amounts recognised as distributions to equity shareholders relating to 2021:
£
2021 interim dividend of 2.00 pence per Ordinary Share paid on 24 June 2021 5,586,528
2021 interim dividend of 2.00 pence per Ordinary Share paid on 23 September 2021 5,565,528
2021 interim dividend of 2.00 pence per Ordinary Share paid on 23 December 2021 5,565,528
2021 interim dividend of 2.00 pence per Ordinary Share paid on 31 March 2022 5,565,528
Total 22,283,112
137
VPC SPECIALTY LENDING INVESTMENTS PLC
DEFINITIONS OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES
The Group uses the terms and alternative performance measures below to present a measure of profitability which is aligned
with the requirements of 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 – Calculated as the dividends declared during 2021 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).
NAV (Cum Income) or NAV or Net Asset Value – The 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.
Inception to
2021 Calculation 2020 Calculation Date Calculation
(A) Closing NAV (Cum Income) per share 114.14p 95.72p 114.14p
(B) Opening NAV (Cum Income) per share 95.72p 93.33p 98.00p
(C) Dividends declared and paid 8.00p 8.00p 47.59p
D = (A – B + C) / B 27.60% 11.12% 65.03%
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 2021 to 31 December 2020
plus the dividends declared in 2021 divided by the traded share price as at 31 December 2020.
Inception to
2021 Calculation 2020 Calculation Date Calculation
(A) Closing Ordinary Share price 92.20p 78.70p 92.20p
(B) Opening Ordinary Share price 78.70p 78.20p 100.00p
(C) Dividends declared and paid 8.00p 8.00p 47.59p
D = (A – B + C) / B 27.32% 10.87% 39.79%
Trailing Twelve Month Dividend Yield – Calculated as the total dividends declared over the last 12 months as at 31 December
2021 divided by the 31 December 2021 closing share price.
138 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
SHAREHOLDER INFORMATION
continued
VPC SPECIALTY LENDING INVESTMENTS PLC
CONTACT DETAILS OF THE ADVISERS
Directors Oliver Grundy
Mark Katzenellenbogen
Elizabeth Passey
Clive Peggram
Graeme Proudfoot
all of the registered office below
Registered Office 6th 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 Capital 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 Group
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
139
VPC SPECIALTY LENDING INVESTMENTS PLC
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
140 ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
Notes
VPC SPECIALTY LENDING INVESTMENTS PLC
VPC Specialty Lending Investments PLC