Activist investor rallies shareholders to challenge VSL board
Victory Park Capital Specialty Lending (VSL) shareholder Staude Capital has published an open letter to other shareholders, urging them to challenge the board’s proposals ahead of the annual general meeting (AGM).
Staude Capital, which has held a stake in the alternative finance-focused investment trust since 2017, blasted the board for a lack of shareholder engagement ahead of a continuation vote at the upcoming meeting.
The letter highlights that despite a turnaround in performance in recent years, the fund continues to trade at a large discount to net asset value (currently 38 per cent) and that the pandemic has laid bare the challenges the fund faces.
Staude Capital sent an initial letter to the board, on 28 April, highlighting the issues VSL faces and put forward proposals for the restructuring of the company to enable shareholders to exit at NAV.
Since publishing the April letter, it has engaged with other shareholders it says are also surprised by the lack of engagement by the board.
“In our view, it is hard to justify engaging with shareholders about the options available to address VSL’s structural problems after the board has published its proposals for the AGM,” it said.
“Given it seems likely that once the AGM proposals have been published it will be too late to change them, shareholders shall be left with an unappealing binary choice: acquiesce to proposals they have had no real input into, or vote against continuation.”
Read more: Victory Park Capital shifts holdings from origination to collections
Staude Capital is now calling for periodic opportunities for shareholders to realise part of their investment at NAV, and the addition of a shareholder-advocate to the board that is independent of the manager.
It is also urging for an assurance to appropriately manage the potential conflict of interest that the investment manager Victory Park Capital’s significant voting stake creates, particularly in relation to continuation votes.
Victory Park Capital’s investment vehicle, the SVS Opportunity Fund, increased its stake in VSL to 18.12 per cent in February.
“The board is in a difficult place with the fund trading on a significant discount,” said analysts at brokerage Numis. “Performance was strong in 2019 but the fund has struggled to attract new demand and the shares were depressed by Invesco being a seller for some time.
“This stake has now been placed (according to Bloomberg) and it is unsurprising to see value investors seeking to realise some of the value.
“We would expect Staude and other shareholders to continue to put pressure on the board, but their ability to implement change may be limited given that a vehicle managed by the manager owns an 18 per cent stake.”
VSL updated the valuation of its portfolio earlier this month, to reflect the likelihood of a “severe and sustained recession similar to the 2008 financial crisis.”
A first-quarter update highlighted that it has not yet sustained any permanent losses of capital and all interest payments are being met, but it is remaining cautious.
It increased its expected credit losses on balance sheet investments by 2.55 per cent to 4.33 per cent of its balance sheet portfolio.
