Vpc Specialty Regulatory News (VSL)

27 April 2018

VPC SPECIALTY LENDING INVESTMENTS PLC

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

Annual Financial Report for the period ended 31 December 2017

The Board of Directors (the "Board") of VPC Specialty Lending Investments PLC (ticker: VSL) present the Company's Annual Financial Report for the year ended 31 December 2017.

VPC Specialty Lending Investments PLC is a UK listed investment trust investing in opportunities in the alternative lending market through specialty lending platforms ("Portfolio Companies") globally and other related opportunities. This includes investing in assets originated by Portfolio Companies as well as through floating rate senior secured credit facilities ("Credit Facilities"), equity or other instruments. The Company enables its investors to access an illiquid asset class and earn an attractive risk adjusted return through a diversified, liquid vehicle traded on the Main Market.

The Company's investing activities have been delegated by the Directors to Victory Park Capital Advisors, LLC (the "Investment Manager" or "VPC").

1. Based on a share price of 100 pence. Includes dividends paid during the year.

2. Net of issue costs.

3. On 4 March 2016 the Company's 183,000,000 C Shares were converted into 182,615,655 Ordinary Shares.

SUMMARY AND HIGHLIGHTS FOR THE PERIOD

As at 31 December 2017, the Company had deployed 92% of its NAV (with its cash holding of 8% temporarily elevated due to the recent sale of the Prosper marketplace loan portfolio). During 2017, The Company generated an NAV return of 3.07% for the Ordinary Shares and distributed dividends of 6.50 pence per Ordinary Share relating to the income earned during the year ended 31 December 2017.

The financial and business highlights for the year ended 31 December 2017 are as follows:

v January 2017: announced initial investments into Cognical, Inc. and Kueski, Inc., two new balance sheet investments.

v February 2017: announced initial investment into iZettle Capital AB, a new balance sheet investment.

v March 2017: announced a dividend of 1.50 pence per Ordinary Share for the three-month period to 31 December 2016.

v April 2017: announced conversion of the Company's convertible debt investment in Elevate Credit, Inc. ("Elevate") to stock as a part of Elevate's IPO.

v May 2017: announced a dividend of 1.50 pence per Ordinary Share for the three-month period to 31 March 2017.

v May 2017: announced the sale of the majority of the Company's Funding Circle USA, Inc. and Upstart Network, Inc. marketplace loan portfolios.

v May 2017: announced a performance fee hurdle of five per cent. per annum in respect of the performance fees payable to the Investment Manager relative to a 30 April 2017 High Water Mark.

v June 2017: announced initial investments into Bread Financial and Community Choice Financial, Inc., two new balance sheet investments.

v July 2017: announced sale and realisation of income from the partial sale of zipMoney Limited common stock.

v August 2017: announced a dividend of 1.50 pence per Ordinary Share for the three-month period to 30 June 2017.

v October 2017: announced the sale of the majority of the Company's Avant, Inc. marketplace loan investment.

v November 2017: announced a dividend of 1.70 pence per share for the three-month period to 30 September 2017.

v November 2017: announced initial investment in Oakam Ltd. and full repayment of the zipMoney balance sheet investment.

v December 2017: announced the sale of the Company's Prosper Marketplace, Inc. marketplace loan portfolio.

v December 2017: announced initial investments into Branch International, Ltd. and NCP Holdings, L.P., two new balance sheet investments.

SUBSEQUENT EVENTS

Since the year ended 31 December 2017:

v In February 2018, the Company made new balance sheet investments into Konfio Ltd. and was refinanced from its balance sheet investment into Kreditech Holding SSL GmbH.

v In March 2018, the Company was repaid the majority of its balance sheet exposure to The Credit Junction, Inc. ("TCJ"). The Company received a paydown of 3.11% of the Company's NAV as at 28 February 2018 and retains an exposure of 0.37% of NAV which it expects will be repaid in the coming months.

v In March 2018, the Company declared a dividend of 1.80 pence per Ordinary Share relating to the three-month period ending 31 December 2017.

v From 1 January 2018 to 27 April 2018 a total of 3,371,050 shares had been repurchased at an average price of 78.85 pence per Ordinary Share under the buyback programme.

FOR FURTHER INFORMATION, PLEASE CONTACT:

ABOUT:

VPC Specialty Lending Investments PLC (the "Company" or "VSL", Company No. 9385218) is a U.K. listed investment trust investing in opportunities in the specialty lending market through senior secured balance sheet facilities ("Portfolio Companies"). This includes investing in assets originated by Portfolio Companies as well as through floating rate senior secured credit facilities ("Credit Facilities"), equity or other instruments. Investing in VSL gives shareholders access to a diversified portfolio of high-growth financial technology companies, focused on the rapidly developing online lending sector.

The Company's investing activities have been delegated by the Directors to Victory Park Capital Advisors, LLC (the "Investment Manager" or "VPC"). VPC has great 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 various financial services Portfolio Companies, spanning multiple geographies, products and structures, and is continuing to deploy capital into existing and new Portfolio Companies.

This annual report for the year to 31 December 2017 (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 was admitted to the premium listing segment of the Official List of the U.K. Listing Authority (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. The Company provides its investors access to an illiquid asset class and is committed to generating attractive risk-adjusted return through a diversified, liquid vehicle traded on the premium segment of the Main Market.

A summary of the principal terms of the Investment Manager's appointment can be found in the Company's full Annual Report and Financial Statements and a statement relating to their continuing appointment can also be found in the Company's full Annual Report and Financial Statements. The investment policy can be found below. 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.

Further information on VPC Specialty Lending Investments PLC is available at https://vpcspecialtylending.com.

A copy of the Company's Annual Report will shortly be available to view and download from the Company's website, https://vpcspecialtylending.com. Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into or forms part of this announcement.

The following text is extracted from the Annual Report and Financial Statements of the Company for the year ended 31 December 2017.

STRATEGIC REPORT

CHAIRMAN'S STATEMENT

I am pleased to present VPC Specialty Lending Investments PLC's Annual Report, for the year ended 31 December 2017. The total NAV per share return for the Company was 3.07% for the year compared to 0.95% in 2016 and the Total Shareholder Return (based on share price)1 was 7.30% for the year compared to -9.79% in 2016. The Company declared dividends of 6.80 pence per Ordinary Share relating to the returns of the Company for the year ended 31 December 2017 and delivered a dividend yield of 7.24%4 on the average Ordinary Share NAV for the year.

During 2017, the Investment Manager successfully reallocated the majority of capital from marketplace lending assets to balance sheet investments. The Company has generated strong risk-adjusted returns across its balance sheet facilities with an average annualised return on invested capital of the balance sheet investments of 14.25%5. In addition, the Company increased diversification by completing initial investments in nine new balance sheet investments during the year and at year end the number of balance sheet deals stood at 24.

The Company also announced the modification of performance fees to include an annual hurdle rate of 5%, effective beginning 1 May 2017. The Company believes the modification serves to more closely align the incentives of the Investment Manager with the interests of the Company's shareholders.

The Company's Ordinary Share price was steady during 2017, closing the year near the same price it began. Despite the strong dividend yield, the shares continue to trade at a discount to NAV. As a result, the share buyback program continued to purchase shares on the open market, purchasing a total of 10,927,718 shares during the year. In addition, the Investment Manager continued its practice of using 20% of management fees to purchase shares, resulting in an additional 903,869 shares purchased throughout the year.

During the year, the Company delivered a below target total NAV return, but made significant progress by driving revenue returns higher, ending the year with a fourth quarter record revenue return of 2.63%. Given the trajectory and the strong condition of the portfolio, I look forward to continued gains and a stronger total return in 2018.

1. Based on a share price of 100 pence. Includes dividends paid during the year.

4. This return denotes an average return calculated by the dividends paid divided by the average Net Asset Value (Cum Income) of the Company for the period. This is an Alternative Performance Measure as defined below.

5. This return denotes an average return calculated by dividing the income earned on the balance sheet investments for the period by the average capital invested in balance sheet loans each month in the period. This return includes limited gearing on the balance sheet portfolio. This is an Alternative Performance Measure as defined below.

INVESTMENTS

Similar to 2016, the performance of the Company's investment portfolio was sharply polarised throughout the year. The balance sheet portfolio continued to generate strong returns, with an average annualised return on invested capital of the balance sheet investments of 14.25%5. These investments benefit from excess spread, first loss protection and full security and covenant packages. There have been no major credit issues across the portfolio and operational performance remains strong.

During the year, the Company executed on several transactions that accelerated the disposal of the marketplace lending portfolios, which now represent a minimal portion of the portfolio. The Company disposed of 16.97%6 of the Company's NAV through these portfolio sales, resulting in a non-recurring capital loss of 1.27%7. The Avant, Inc ("Avant") residuals have continued to underperform and create a drag on performance, a disappointing result given the other positive developments across the portfolio. As at 31 December 2017 the combined exposure to marketplace loans and securitisations has seen no systemic signs of deteriorating across the underlying consumer and small business loans that support the balances sheet loans.

At the beginning of 2017, the Company had a Look-Through Leverage Ratio of 0.63x. This gradually declined over the course of the year down to 0.17x as at 31 December 2017. The Company's balance sheet investments are on average less geared than its marketplace and securitisation investments. The reallocation of capital into balance sheet investments over the course of the year has had a positive impact on the financial performance of the Company and the Group. Whilst the Group's loans at amortised cost have decreased to £306 million from £470 million, the notes payable and impairment charges have also decreased to £44 million from £186 million and to £15 million from £41 million respectively while the net Revenue Return of the Company has increased to £29 million from £23 million.

I am particularly encouraged by the progress the Investment Manager has made in sourcing and executing on new high-quality deals which will drive the returns for the Company in the coming years. The strategy of partnering with the best entrepreneurs who have the strongest equity backing has continued to pay dividends as the quality of executed deals has remained very high. Two portfolio companies had their Initial Public Offerings during 2017 and others are exploring the opportunity to do so in the coming year, which I think speaks to the strength of the underlying performance. Looking forward, the Company has a record number of 24 balance sheet deals and Victory Park has significant unfunded capacity on existing terms, providing attractive investment opportunities for the Company, so I am confident the Company will continue to have ample reinvestment opportunities in the future.

5. This return denotes an average return calculated by dividing the income earned on the balance sheet investments for the period by the average capital invested in balance sheet loans each month in the period. This return includes limited gearing on the balance sheet portfolio. This is an Alternative Performance Measure as defined below.

6. Represents the percentage of NAV comprised by the loans sold prior to the sale of loans calculated off the NAV of the Company the month each individual sale was completed.

7. The loss on each portfolio sale is calculated off the NAV of the Company the month each individual sale was completed. The impact to the Company for the year ended 31 December 2017 was £4,437,504. This is an Alternative Performance Measure as defined below.

COSTS

The Company's annualised ratio of ongoing charges for the calendar year 2017 stands at 1.35% (approximately even with 1.30% in 2016) which comprises of management fees, advisory, legal, professional and other operating costs of the Company. Expenses incurred at any investment fund or special purpose vehicle that the Company invests in are excluded from the ongoing charges calculation of the Company.

SHARE PRICE DISCOUNT MANAGEMENT POLICY

During the year, the Company continued to implement the share buyback programme in light of the significant disparity between the Company's share price and its NAV. During 2017, a total of 10,927,718 shares were bought back at an average price of 78.44 pence per share, accounting for 2.86% of the total issued shares of the Company.

The Board continually monitors the share buyback programme as well as the Company's premium or discount and has the ability to issue or buy back shares to limit the volatility of the share price discount or premium. For more information on the Company's authorities in relation to its share capital, see the full Annual Report and Accounts.

IFRS 9

IFRS 9 was adopted by the Group on 1 January 2018 and will be implemented in the financial statements for the year ending 31 December 2018. The adoption of IFRS 9 will reduce the Group's net assets at 1 January 2018 by 1.11% of the Group's NAV. The impact of the new accounting pronouncement can be found in Note 2 of the financial statements.

MARKET OUTLOOK

As 2017 ended, investor sentiment towards online lending was improving, evidenced by over $7.8 billion in consumer loan marketplace lending asset backed securities issuance, a 71% increase over 20168. After 2016 saw a significant drop in U.S. online consumer loan origination, sparked by the data quality and corporate governance issues at Lending Club, 2017 saw a significant recovery in volume as most of the major issuers saw a consistent uptick in originations throughout the year. Although SoFi experienced management problems of its own in 2017, the company, nevertheless, was a large contributor to volume growth throughout the year. Marcus, the online consumer loan platform of Goldman Sachs, announced in September 2017 that it had exceeded $1 billion in loan originations9.

In the U.K., 2017 saw over £2.9 billion in peer-to-peer loans facilitated10, relatively flat from 2016. As with last year, this volume was heavily weighted towards the second half of the year after lending volumes initially dipped in the second quarter. Accordingly, in the fourth quarter of 2017, origination volumes were growing sequentially in both the U.S. and U.K.

The political and macroeconomic outlook continues to appear generally positive for lenders under the new administration in the U.S. The tax cut signed at the end of 2017 should give a significant boost to both business and consumers. The regulatory environment is expected to improve for marketplace lending as the Consumer Financial Protection Bureau ("CFPB") rolls back plans for increased oversight, and the current administration focuses on reducing regulations applicable to lenders. On the other hand, individual states may become more proactive at protecting consumers, which can lead to a complicated environment for lenders. In the U.K., banks reduced the availability of unsecured consumer credit in each quarter of 2017 and intend to continue tightening standards into 20188. The FCA has yet to publish its post-implementation review of peer-to-peer lending, which was expected in 2017 as the snap election, Brexit and other issues took priority during the year.

Further rate increases, which are expected in the U.S. during the year, will continue to translate into increased income for the Company due to the floating rate balance sheet investments and the short duration of the marketplace loan assets. As at 31 December 2017, the Company reported an unlevered weighted average yield on the balance sheet investments of 13.29%11 in the monthly newsletter. The increase in LIBOR from the prevailing rates from 31 December 2016 to 31 December 2017 accounted for an increase in 0.40% of the unlevered weighted average yield. As interest rates continue to increase, the Company's continued focus on balance sheet deals, with first loss protection and significant excess spread, provides insulation from any potential deterioration in currently benign credit conditions.

The long term structural growth drivers for online lending remain intact. Loan volumes should continue to increase as banks continue to scale back the availability of consumer credit, while established online lenders continue to grow, build scale and newer companies establish a presence. The availability of credit information outside banks continues to improve and, through continued technological innovation, online lenders can profitably lend to these under-served SMEs and consumers. Online lenders continue to innovate and provide a better user experience to borrowers. Anticipated regulatory crackdowns in both the U.S. and the U.K. have not materialised. These growth drivers are likely to sustain the continued progress and development of the online lending sector for many years to come. The Company remains well positioned to capture the resulting income opportunity due to its Investment Manager's experience and technical expertise.

8. Source: KBRA "2017 Consumer Loan Marketplace Lending Year in Review and 2018 Outlook".

9. Source: Peer-to-Peer Finance Association (P2PFA).

10. Source: Bank of England.

11. This return denotes an average return calculated by dividing the income earned on balance sheet investments for the period by the average capital invested in balance sheet loans each month in the period. The return excludes gearing. This is an Alternative Performance Measure as defined below.

Andrew Adcock

Chairman

27 April 2018

INVESTMENT OBJECTIVES

The Company's investment objectives are to:

(i) generate an attractive total return for shareholders consisting of distributable income and capital growth through investments in specialty lending opportunities;

(ii) achieve portfolio diversification across Portfolio Companies, geographies, borrower types, credit quality, loan structures and investment models; and

(iii) enable our shareholders to benefit from equity upside through exposure to equity or equity-linked securities issued by Platforms.

The Company's reported Net Asset Value (the "NAV") as at 31 December 2017 was £339.4 million (cum income).

TOP TEN POSITIONS

The table below provides a summary of the top ten positions of the Group, excluding equity exposure, as at 31 December 2017. The summary includes a look-through of the Group's investment in VPC Offshore Unleveraged Private Debt Fund Feeder, L.P. to illustrate the exposure to underlying Portfolio Companies as it is a requirement of the investment policy (set out below) to consider the application of the restrictions in this policy on a look-through basis. All balance sheet investments (excluding convertible notes) are disclosed as loans at amortised cost in accordance with the International Financial Reporting Standards within the Statement of Financial Position. There has been a continued, deliberate and significant shift to balance sheet assets throughout 2017. At the end of 2017, the top ten positions contain all balance sheet investments compared to six of the top ten at the end of 2016.

The table below provides a summary of the top ten positions of the Group, excluding equity exposure, as at 31 December 2016. The summary includes a look-through of the Group's investment in VPC Offshore Unleveraged Private Debt Fund Feeder, L.P.

INVESTMENT MANAGER'S REPORT

SUMMARY

During the year, the Company has made a great deal of progress and have now successfully completed most of the Group's portfolio transition into balance sheet investments from marketplace loans, which as at 31 December 2017 represented 79% of the portfolio and had a gross return on invested capital (ROIC) of 14.25%5. However, total NAV return for 2017 was 3.07%, which was below the target return levels, but largely due to one-time losses from portfolio sales and drag from the remaining securitisation residuals. Victory Park ended the year on a strong note having completed nine new balance sheet deals and exiting two deals that matured in November and December. Looking forward, The Company has a record number of 24 balance sheet deals and Victory Park has significant unfunded capacity on existing terms, providing attractive investment opportunities for the Company.

As a firm Victory Park has continued to invest heavily in both investment and operational resources to support the Company's growth as one of the largest and most active financial technology investors globally. Additionally, we expanded our relationships into new products and geographies to help foster innovation and growth in the financial technology ecosystem. We are committed to producing strong risk-adjusted returns by partnering with the best management teams and sponsors in the industry, while at the same time focusing on downside protection from credit losses through rigorous analysis and portfolio monitoring.

Overall, 2017 was an encouraging year for the Company, during which it invested in new transactions and expanded the existing portfolio. Although the total return was not satisfactory, we feel that we have a strong portfolio that will drive higher returns in 2018. The marketplace loans and securitisations have proved to perform poorly, but we are proud to have successfully transitioned out of the majority of the portfolio's marketplace loan facilities and into what we believe, are more superior balance sheet investments. As it stands today, the Company has the strongest credit portfolio since inception and we look forward to improved performance throughout 2018 and beyond.

5. This return denotes an average return calculated by dividing the income earned on the balance sheet investments for the period by the average capital invested in balance sheet loans each month in the period. This return includes limited gearing on the balance sheet portfolio. This is an Alternative Performance Measure as defined below.

VPC Firm Update

The Victory Park team continues to grow as we hire new talent to strengthen our operations and investment teams, led by two senior additions to the financial services team. Troy Jamison joined as the new Chief Risk Officer and Todd Kushman as Principal and Head of Capital Markets.

Troy Jamison joined in October with over 20 years of experience in risk management, most recently at Second Order Solutions, a boutique credit advisory firm that we have worked with extensively. Prior to that he had a long career as a senior risk officer at Capital One, the largest issuer of non-prime credit cards in the United States. Troy and his team operate in a parallel function to the deal teams and do both quantitative and qualitative work to analyse loan pools and credit data to flag any issues to our Investment Committee. He will also oversee our platform audit process to coordinate our third party operational and financial audits which we perform annually on every portfolio company.

Todd Kushman joined us in December from Torrey Pointe Capital where he was a partner and chief operating officer. Prior to that role, he was a managing director at Cerberus Capital Management, where he centralised the firm's interest rate hedging program across all investment strategies and executed strategic financings. Todd will help with new product development and in identifying financing opportunities to support the firm's investment products. Additionally, he will assist VSL in finding more attractive and lower cost credit facilities.

Finally, Victory Park celebrated its 10th anniversary and relocated its Chicago headquarters to 150 North Riverside Plaza, Suite 5200, Chicago, Illinois 60606. The new office space compliments our offices in New York and Los Angeles, and allows our team to grow for years to come.

COMPANY PERFORMANCE

NAV (Cum Income) Return Analysis

During the year, the Company generated a NAV return of 3.07% for the Ordinary Shares and declared dividends relating to the period totalled 6.80 pence per Ordinary Share (up from 6.00 pence per Ordinary Share in 2016). The NAV per share (Cum Income) at year end 2017 was 91.68 pence per Ordinary Share.

The Company generated gross revenue returns of 9.93% as a percentage of NAV in 2017, of which 9.39% was derived from balance sheet investments and 0.54% from marketplace investments. Expenses were -1.70% for a net revenue return of 8.23%. Capital returns contributed -5.16%, comprised of -2.90% from marketplace investments, -2.10% from securitisation residuals, 0.13% from equity investments and -0.29% from other capital returns, for a net total return of 3.07%.

Other Selected Return Statistics

Below are selected return statistics for the Company in addition to the return analysis disclosed above.

5. This return denotes an average return calculated by dividing the income earned on the balance sheet investments for the period by the average capital invested in balance sheet loans each month in the period. This return includes limited gearing on the balance sheet portfolio. This is an Alternative Performance Measure as defined below.

6. Represents the percentage of NAV comprised by the loans sold prior to the sale of loans calculated off the NAV of the Company the month each individual sale was completed.

7. The loss on each portfolio sale is calculated off the NAV of the Company the month each individual sale was completed. The impact to the Company for the year ended 31 December 2017 was £4,437,504. This is an Alternative Performance Measure as defined below.

INVESTMENTS

The Company invests directly and/or indirectly into available opportunities, including investments in funds managed by the Investment Manager. Direct investments include consumer loans, SME loans and advances against corporate trade receivables originated by Portfolio Companies ("Debt Instruments"). Indirect investments 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.

We allocate capital 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. As at 31 December 2017, the Company's investments were diversified across hundreds of thousands of consumer and small business loans originated by 29 different Portfolio Companies, including companies supporting the financial services market across the U.S., U.K., Europe and Australia. Capital was provided to 24 Portfolio Companies via balance sheet investments. As part of its investment portfolio, the Company also had exposure to 24 Portfolio Companies through equity securities or convertible notes as at 31 December 2017.

We continue to implement our strategy of deploying capital across a broad range of Portfolio Companies with diversity of geographies, borrower types and credit quality. As at 31 December 2017, consumer exposure accounted for 81% of the investment portfolio, while SME exposure accounted for 19%. Investments in U.S. Portfolio Companies accounted for 79% of the investment portfolio, with U.K. Portfolio Companies accounting for a further 8% of the portfolio, and European Portfolio Companies and other at 13%.

During 2017, the Group's portfolio of balance sheet investments continued to generate strong risk-adjusted returns. These investments benefit from first loss protection and excess spread, which provides downside protection in the case of increased credit losses. The credit metrics on the underlying loans have continued to show strong performance across the portfolio with no signs of immediate macro weakness. Furthermore, the pipeline of available balance sheet investment opportunities is the strongest since inception.

Geographic Diversification

While the Company's investments are concentrated within the U.S., we continue to leverage our extensive sponsor network to build our international exposure and we expect this trend to continue over time. Furthermore, we are evaluating unique opportunities to partner with leading entrepreneurs in emerging markets. We have closed a total of eight financial services investments outside the U.S. and UK, and we are in final diligence with two companies which we expect to close in the near term. Throughout the year, the Company expanded its exposure to Mexico, Continental Europe, Kenya, Canada and Scandinavia. We expect to grow our international business over the next several years to supplement our existing exposure.

Major Equity Funding Updates

During the year, several of the Company's portfolio companies announced new equity fundraisings led by renowned equity sponsors. The equity raised supplements our debt facilities and fosters growth. In addition, there are three investments not disclosed publicly by our portfolio companies.

v Over the course of the year, two of our Portfolio Companies completed their Initial Public Offerings, Elevate Credit, Inc. and Curo Financial Technologies Corp are now listed U.S. companies. The new capital raised will help support the rapid portfolio growth for both companies in conjunction with our current debt facilities.

v Branch International, Inc. announced a $25.0 million Series B equity round, led by Trinity Ventures, to support portfolio growth and geographic expansion.

v iZettle Capital AB announced its fifth round of equity funding for a total of €40.0 million, led by the Swedish National Pension Fund and existing investors.

v Cognical, Inc. announced a $10.0 million equity fundraising, led by Curo Financial Technologies Corp, another one of our Portfolio Companies

v Bread Finance announced a $26.0 million Series B equity round led by Menlo Ventures.

v Applied Data Finance, LLC raised $18.0 million from Red Point Partners.

PORTFOLIO COMPOSITION (AS AT 31 DECEMBER 2017) 

12. Percentages calculated on a look-through basis to the Company's investee entities and SPVs.

13. Calculations using gross asset exposure and not reduced for gearing. Excludes cash.

GEARING

At the beginning of 2017, the Company had a Look-Through Leverage Ratio of 0.63x. This gradually declined over the course of the year down to 0.17x as at 31 December 2017. This was driven mainly by the sales of marketplace loans during the year. The Company's balance sheet investments are on average less geared than its marketplace and securitisation investments, as shown below. The reallocation of capital into balance sheet investments over the course of the year has tended to lower the Company's overall gearing.

The Company continues to explore sourcing a corporate gearing facility which would provide more flexibility with respect to leverage and reduce the potential cash drag impact associated with the Company's currency hedging.

MARKET UPDATE

AVAILABILITY OF CREDIT

Since the 2008 recession, the supply of credit to many SMEs and non-prime consumer borrowers has remained constrained. An estimated 46% of consumers in the U.S. have non-prime credit scores (defined as FICO scores below 720) leaving them without access to financing at prime rates15. As a result, there is a large and growing population of U.S. consumers with reduced access to traditional consumer credit; the 2016 FDIC survey showed that approximately 66.7 million adults, lived in unbanked and underbanked households in the U.S.16

Lending to SMEs has declined significantly over the past few years in the U.K., with the total outstanding borrowing facilities from banks to SMEs reduced from £103.7 billion at the end of 2011 to £91 billion as of December 2017.17

However, overall macro-economic conditions in the U.S. and U.K. have been favourable for credit quality, with low unemployment and positive economic growth.

At a macro level, credit assets have generally performed strongly as might be expected given the favourable underlying economic conditions. By way of illustration, credit card charge-offs are below their long term historical averages in both the U.S. and U.K.

The credit performance of the loans financed by the Company's balance sheet positions has been consistent with this generally benign credit environment.

15. Source: CFPB Consumer Credit Card Market Report 2017

16. Source: FDIC National Survey of Unbanked and Underbanked Households (October 2016).

17. Source: UK Finance - SME Finance Update Q4 2017.

VOLUME GROWTH

Based on publicly available data, online lending volumes appear to remain on a growth trend despite some short-term volatility. In the U.S., 2016 volume growth was negatively impacted in the second quarter by corporate governance issues at Lending Club although sequential growth resumed in the fourth quarter of 2016 and carried into 2017. In the U.K., growth of online lending volumes slowed in the second quarter of 2017 but rebounded in the second half of 2017.

DEVELOPMENTS IN SECURITISATION MARKET

Securitisation issuance for online lending continued to grow in 2017, indicating increasing institutional appetite for credit assets with first loss protection, backed by loans originated online.

OUTLOOK

Macro Update

Heading into 2018, VPC is taking a very cautious approach to credit given the long economic expansion in the U.S. and a loosening corporate credit environment. While we have seen no immediate signs of credit stress across our portfolio, there are pockets of credit weakness in the broader economy. Both prime credit cards and non-prime auto loans have recently displayed stress with rising delinquency rates and increased charge-offs. However, the recent tax overhaul in the U.S. should provide some relief to the consumer and wage growth. Last year represented the strongest economic growth in the U.S. since before the financial crisis. In particular, wage growth seems to be the focus of the Federal Reserve, which led them to raise short-term interest rates three times during 2017. Given our balance sheet facilities are floating rate, the investments are not directly affected, but instead benefit from rising rates. However, the rate differential with the U.K. has widened, and in return this has subsequently increased our hedging costs throughout 2017 causing a 0.54% NAV loss on foreign exchange. The overall effect is largely neutral for the Company, since hedging costs are offset by more interest income earned in U.S. dollars.

Market Opportunity

Despite continued growth, the online lending sector is still only a small part of the global Consumer and SME credit market, leaving scope for significant future market share gains. The market has seen significant growth over the last ten years. Given the breadth and depth of the market, financial technology lending remains an attractive sector for investments. The financial technology industry is still developing and covers a broad range of financial segments beyond pure lending. Most financial technology focused companies need significant balance sheet capacity to scale, which uniquely positions VPC as a strategically preferred investor.

Regulatory environment

The regulatory environment in the U.S. has generally become more favourable in the past year with respect to financial services. Following the November 2017 resignation of Richard Cordray, the first director of the CFPB, President Trump appointed Office of Management and Budget Director Mick Mulvaney to step into the role as the CFPB's Acting Director (pursuant to federal law, this appointment is limited to 210 days, which means Mulvaney's appointment will expire on or about June 22, 2018; he can continue to serve until a nominee is confirmed by the Senate if President Trump announces such nominee prior to this expiration date). As of the time of this publication, President Trump has not announced a candidate to take over as director of the CFPB on a permanent basis for the statutorily-prescribed 5-year term, but any candidate will need to be confirmed by the U.S. Senate.

In terms of the operation of the CFPB, Acting Director Mulvaney has signalled that the agency will consider the business impact of its rules through a greater reliance on quantitative analysis and will approach its regulatory mandate in accordance with its statutory jurisdiction and scope. Additionally, Mr. Mulvaney recently issued a statement regarding actions that could be taken to increase the accountability of the CFPB, and included recommendations that the CFPB be funded through Congressional appropriations and that any "major" CFPB rules be approved by the U.S. Congress.

In connection with the financial technology charter proposed by the Office of the Comptroller of the Currency in December 2016, the new, Trump-appointed Comptroller has provided general support for the concept. The agency is not yet accepting applications for this type of charter, but the Comptroller's recognition that such a charter will assist in the provision of financial products and services to consumers unserved or underserved by traditional banks demonstrates that these potential new delivery mechanisms are supported by federal banking agency leaders. On a related note, President Trump's pick to chair the Federal Deposit Insurance Corporation, Jelena McWilliams, has indicated support for processing and approving "industrial loan company charters," a type of financial institution that can be owned by non-bank companies and accept deposits. A moratorium on the issuance of such charters expired in 2013, although no new ILC charters have been issued since the expiration.

Impact on the Group of rising rates

The Group's portfolio is well positioned for a rising rate environment as substantially all of its balance sheet investments contain a floating rate interest component. During 2017, The U.S. Federal reserve raised short term interest rates three times, with the benchmark rate ending the year at 1.50%, up from 0.75% on 1 January 2017. As at 31 December 2017, 79% of NAV was allocated to balance sheet investments, which typically generate floating rate income. The marketplace loan portfolio and securitization residuals received fixed rate income, which accounts for 6% of NAV, has a remaining weighted average life of only 14 months enabling capital to be reinvested at floating rates relatively quickly. Rising portfolio interest as U.S. Libor has moved higher was partially offset during the year by increased currency hedging costs as rates in the U.S. and the U.K. have diverged.

Pipeline and execution

As of March 2018, we VPC, the Investment Manager, had committed and invested capital across 45 companies in the financial services sector and we continue to see a strong pipeline of high quality balance sheet investment opportunities. With capacity available from both existing and new Portfolio Companies, we will continue to pursue opportunities that can generate an attractive risk-adjusted return for shareholders and offer further diversification to the portfolio. In addition, we continue to expand our team, now comprised of 45 investment and operational professionals, ensuring best in class experience and technical expertise to maximise these opportunities.

Victory Park Capital Advisors, LLC

Investment Manager

27 April 2018

STRATEGY AND BUSINESS MODEL

DIFFERENTIATED PROPOSITION

During 2017, the Investment Manager has continued to transition the assets of the Company to the "Balance Sheet Model" for providing debt capital to Portfolio Companies (see descriptions below) from the marketplace loan model. Under the Balance Sheet Model, the Company provides a floating rate Credit Facility to the Portfolio Company via a Special-Purpose Vehicle ("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 Company and excess spread, which provides downside protection versus marketplace loans.

As a pioneer 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. VPC primarily invests in financial services companies through delayed draw warehouse facilities.

EARLY ADOPTER ADVANTAGE

Although financial services lenders have operated successfully for decades, the sector has grown in prominence in the past few years, attracting interest from institutional investors. This has been due to a confluence of regulatory challenges for banks, increased use of technology by Portfolio Companies and a low interest rate environment. The Investment Manager has been an active investor in the sector since 2010 and has made investments and commitments across 45 Portfolio Companies, spanning multiple geographies, products and structures, and is continuing to deploy capital into existing and new Portfolio Companies.

The Investment Manager has experience in direct lending, purchasing marketplace loans and selectively investing in equity or equity-like instruments as well as having extensive knowledge of market participants and the complex regulatory requirements needed to operate within the sector. Having access to other significant pools of capital dedicated to investing in the financial services sector enables the Investment Manager to obtain gearing facilities on attractive terms. These are significant advantages for the Company as it navigates through a rapidly growing sector and it is well positioned to capture new opportunities.

PROPRIETARY SOURCING AND STRUCTURING

The Company has exposure to several proprietary investments in Portfolio Companies with attractive risk/reward characteristics that other investors in the sector are typically unable to access. We believe this is due to the Investment Manager's long experience in the sector as an early participant with an extensive sourcing network, having executed transactions partnering with more than 40 leading financial and venture capital sponsors in the specialty lending sector.

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

PORTFOLIO MANAGEMENT

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

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 the gearing providers have no recourse to the Company. Historically, the Company has used the securitisation market to lower its cost of financing.

As the online lending industry continues to grow and become more established, the Investment Manager has been approached by multiple large global banks to offer the Company attractive gearing facilities. Given the breadth of the Investment Manager's portfolio, we believe the Company has a distinct competitive advantage in securing these gearing facilities at attractive rates

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 of the Strategic Report 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, above.

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 April 2018, which related to the three-month period ended 31 December 2017 the Company has distributed 88% of its distributable income earned through the year ended 31 December 2017.

GEARING RATIO

As at 31 December 2017, the look-through gearing ratio was 0.17x for the Company. As disclosed in the investment policy below, 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. The Investment Manager monitors 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, which is another component of the long-term shareholder return. The Board continually monitors the Company's premium or discount and has the ability to issue or buy back shares to limit the volatility of the share price discount or premium. For more information on the Company's authorities in relation to its share capital can be found in the Company's full Annual Report and Financial Statements.

During the trading period, the Ordinary Shares moved in a range of -11.8 per cent. to -22.4 per cent. discount. During the year, the Company continued the buyback programme in light of the significant disparity between the Company's share price and its NAV. During 2017 a total of 10,927,718 shares were bought back at an average price of 78.44 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 strong service. The industry-wide measure for investment trusts is the ongoing charges ratio, which seeks to quantify the ongoing costs of running the Company. The ongoing charges ratio for 2017 was 1.35%, which is consistent with 1.30% in 2016 as referenced above. This measures the annual normal ongoing costs of an investment trust, excluding performance fees, one-off expenses and dealing costs, as a percentage of the average shareholders' funds.

PRINCIPAL RISKS

Given that the Company operates globally, it is exposed to risks that are monitored and actively managed to meet its investment objectives. These include market risks related to interest rates, currencies and general availability of financing as well as credit and liquidity risks given the nature of the instruments in which the Company invests. In addition, the underlying Portfolio Companies are exposed to operational and regulatory risks as 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 ensure 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, which are monitored by the Audit and Valuation Committee on an ongoing basis.

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 risks and the monitoring system are subject to a robust review at least annually. The last review by the Board took place in February 2018.

Although the Board believes that it has a robust framework of internal control in place this can provide only reasonable, and not absolute, assurance against material financial misstatement or loss and is designed to manage, not eliminate, risk.

A summary of the principal risks and uncertainties faced by 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, is set out below:

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 of the loan acquired by the Group through a Portfolio Company. The Group (as a lender member) will receive payments under any loans it acquires through a Portfolio Company only if the corresponding borrower through that Portfolio Company (borrower member) makes payments on the loan.

Consumer loans are unsecured obligations of borrower members. They are not secured by any collateral, not guaranteed or insured by any third party and not backed by any governmental authority in any way. The Portfolio Companies and their designated third-party collection agencies may be limited in their ability to collect on loans.

Small business loans are typically secured by either a blanket lien on business assets, specific collateral and/or a personal guarantee from the proprietor. The Portfolio Companies and their designated third-party collection agencies have various channels of recourse against the relevant collateral which will depend on the specific circumstance of the loan.

MITIGATION

There is inherent credit risk in the Group's investments in credit assets. However, this is typically mitigated by the significant first loss protection provided by the Portfolio Company under the Balance Sheet Model and the excess spread generated by the underlying assets under both models.

The Investment Manager performs a robust analysis during the underwriting process for all new investments of the Group and monitors the eligibility of the collateral at least monthly of the current assets in the Group's portfolio.

The Group will invest across various Portfolio Companies, asset classes, geographies (primarily the U.S. and Europe) and credit bands to ensure diversification and to seek to mitigate concentration risks.

The Board and the Investment Manager review the investment portfolio to ensure it is in line with the investment policy, including restrictions, as outlined below. The Investment Manager monitors performance and underwriting on an ongoing basis.

FINANCING RISK

Financing risk is 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, if an investment's income falls for whatever reason, the use of borrowings will increase the impact of such a fall on the net revenue of the Group's investment and accordingly will have an adverse effect on the ability of the investment to make distributions to the Group.

The Group uses gearing to enhance returns generated by the underlying credit assets and is exposed to the availability of financing at acceptable terms as well as interest rate expenses and other related costs.

MITIGATION

This risk is mitigated by limiting borrowings to ring-fenced SPVs without recourse to the Group and employing gearing in a disciplined manner.

The Group has significantly reduced the gearing to 0.17x through the year as the marketplace loan portfolios were sold and subsequently reinvested into balance sheet investments.

The Board and the Investment Manager review the investment portfolio to ensure it is in line with the investment policy, including restrictions, as outlined below.

LIQUIDTY 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 Company is also exposed to liquidity risk with respect to the requirement to pay margin cash to collateralise forward foreign exchange contracts used for currency hedging purposes.

MITIGATION

The Investment Manager manages the Group's liquidity risk by investing primarily in a diverse portfolio of assets. At 31 December 2017, 1% of the loans have a stated maturity date of less than a year. The Group has no loans with a maturity date of more than five years.

In general, the weighted average maturity profile of the Group's assets is lower than or equal to the term of the Group's corresponding debt facilities which reduces liquidity risk.

The Board and the Investment Manager review the investment portfolio to ensure it is in line with the investment policy, including restrictions, as outlined below. The Board reviews cash flow forecasts to insure the group can meet its liabilities as they fall due.

The Company continuously monitors for fluctuations in currency rates. The Company performs stress tests and liquidity projections to determine how much cash should be held back to meet potential future to obligations to settle margin calls arising from foreign exchange hedging.

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 Company is exposed to price risk arising from the investments held by the Company 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 Company'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 Company holds financial assets and liabilities.

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 ongoing 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 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 Company mitigates its exposure to currency risk by hedging exposure between Pound Sterling and any other currencies in which a significant portion of Company's assets may be denominated.

The Board reviews the price, interest and currency risk with the Investment Manager to ensure that exposure to these risks are appropriately mitigated.

PORTFOLIO COMPANY RISK

The current market in which the 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 Company. Other institutional sources of capital may enter the market in both the U.K., U.S. and other geographies.

MITIGATION

VPC has negotiated a significant number of proprietary capital deployment agreements with its existing balance sheet 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 45 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 balance sheet lending Portfolio Companies.

REGULATORY RISK

As an investment trust, the Company's operations are subject to wide ranging regulations. The financial services sector continues to experience significant regulatory change at national and international levels. Failure to act in accordance with these regulations could cause fines, censure or other losses including taxation or reputational loss.

In order to continue to qualify as an investment trust, the Company must comply with the requirements of Section 1158 of the Corporation Tax Act 2010.

MITIGATION

The Company provides debt capital to Portfolio Companies, which typically must comply with various state and national level regulations. This includes some operating under interim permission and some now regulated from the FCA in the U.K. as well as consumer lending and collections licenses in some U.S. states. This risk is limited via detailed upfront due diligence of Portfolio Companies' regulatory environments performed by the Investment Manager on behalf of the Board.

The Company 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 Directors have also considered Brexit's current and potential impact on the Group. Whilst the portfolio of the Group may not be facing any significant risk, the Group itself faces some uncertainty leading up to Brexit with regards to potential regulatory or tax changes. The majority of the Group's portfolio is denominated in United States Dollar and the Company has entered into derivative contracts to manage the exposure to foreign currency on existing assets. Therefore, the Board has concluded that this event does not represent a principal risk to the Company or the Group.

Discussion on the Company's risk management and internal controls is set out in the full Annual Reports and Accounts.

ENVIRONMENT, HUMAN RIGHTS, EMPLOYEE, SOCIAL AND COMMUNITY ISSUES

The Board recognises the requirement of the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013 to provide details about environmental matters, employees, human rights, social and community issues, including information about any policies it has in relation to these matters and the effectiveness of these polices. As an investment trust, the Company does not have any employees, and most of its activities are performed by other outside organisations. In light of this, the Board considers that the Company does not have a direct impact on the community or environment and, as a result, does not maintain specific policies in relation to these matters. However, in carrying out its investment activities and in relationships with suppliers, the Company aims to conduct itself responsibly, ethically and fairly.

GENDER DIVERSITY

The Board of Directors of the Company comprises four male Directors and one female Director. Further information in relation to the Board's policy on diversity can be found in the full Annual Report and Accounts.

The Strategic Report was approved by the Board of Directors on 27 April 2018 and signed on its behalf by:

Andrew Adcock

Chairman

27 April 2018

GOVERNANCE

RESPONSIBILITY FOR FINANCIAL STATEMENTS AND GOING CONCERN STATEMENT

As discussed in Note 2 to the financial statements, the Directors have reviewed the financial projections of the Group from the date of this report, which shows that the Group will be able to generate sufficient cash flows in order to meet its liabilities as they fall due. Accordingly, the Directors are satisfied that the going concern basis remains appropriate for the preparation of the financial statements. The Group also has detailed policies and processes for managing those risks as set out above and included in the Company's full Annual Report and Financial Statements.

VIABILITY STATEMENT

In accordance with provision C2.2.2 of the U.K. Corporate Governance Code, published by the Financial Reporting Council in April 2016, 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 the period up to and including the Company's Annual General Meeting in 2020. This period is appropriate since the Company's Articles of Association (the "Articles") require an ordinary resolution for continuation of the Company to be proposed at the Company's Annual General Meeting in 2020. In addition, as the Company is a long-term investor, the Directors have chosen the period up to and including the Company's Annual General Meeting in 2020 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.

The Directors confirm that they have a reasonable expectation that the Company will continue to operate and meet its liabilities as they fall due for the period up to and including the Company's Annual General Meeting in 2020. In making this assessment, the Directors have taken into consideration each of the principal risks and uncertainties, their mitigants and the impact these might have on the business model, future performance, solvency and liquidity. 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, reasonable sensitivities have been applied to the investment portfolio in stress situations.

The main risk to the Company's continuation is shareholder dissatisfaction through failure to meet the Company's investment objective, through poor investment performance or through the investment policy not being appropriate in prevailing market conditions.

The Board has given this particular consideration when assessing the longer-term viability of the Company. Performance and demand for the Company's shares are not things that can be forecast.

Based on the foregoing analysis, the Directors 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 their assessment.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and Parent Company financial statements in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union. Under company law the 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 the Parent Company and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to:

v select suitable accounting policies and then apply them consistently;

v make judgements and accounting estimates that are reasonable and prudent;

v state whether applicable IFRSs as adopted by the European Union have been followed for the Group financial statements and IFRSs as adopted by the European Union have been followed for the Parent Company financial statements, subject to any material departures disclosed and explained in the financial statements; and

v prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Parent Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, about the group financial statements, Article 4 of the IAS Regulation.

The Directors are also responsible for safeguarding the assets of the Group and the Parent Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

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.

The Directors consider that the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Company's performance, business model and strategy.

Each of the Directors, whose names and functions are listed in the Directors' Report confirm that, to the best of their knowledge:

v the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group;

v the Parent Company financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the company; and

v the Directors' Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

In the case of each Director in office at the date the Directors' Report is approved:

v so far as the director is aware, there is no relevant audit information of which the Group and Company's auditors are unaware; and

v they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the Group and Company's auditors are aware of that information.

For and on behalf of the Board:

Andrew Adcock

Chairman

27 April 2018

NON-STATUTORY ACCOUNTS

The financial information set out below does not constitute the Company's statutory accounts for the year ended 31 December 2017 but is derived from those accounts. Statutory accounts for the year ended 31 December 2017 will be delivered to the Registrar of Companies in due course. The Auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report and (ii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditors' report can be found in the Company's full Annual Report and Financial Statements on the Company's website at https://vpcspecialtylending.com/.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

The total column of this statement represents the Group's statement of comprehensive income, prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies ("AIC"). All items in the above Statement derive from continuing operations.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

The total column of this statement represents the Group's statement of comprehensive income, prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies ("AIC"). All items in the above Statement derive from continuing operations.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED TO 31 DECEMBER 2017

The other distributable reserve and Revenue reserve represent the distributable reserves of the Group.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED TO 31 DECEMBER 2016

The Other distributable reserve and Revenue reserve represent the distributable reserves of the Group.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2017

Signed on behalf of the Board of Directors by:

Andrew Adcock

Chairman

27 April 2018

PARENT COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2017

The Other distributable reserve and Revenue reserve represent the distributable reserves of the Parent Company.

PARENT COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2016

The Other distributable reserve and Revenue reserve represent the distributable reserves of the Parent Company.

PARENT COMPANY STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2017

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

1. GENERAL INFORMATION

The investment objective of VPC Specialty Lending Investments PLC (the "Parent Company") with its subsidiaries (together "the Group") is to generate an attractive total return for shareholders consisting of distributable income and capital growth through investments in specialty lending opportunities. The Parent Company was incorporated in England and Wales on 12 January 2015 with registered number 9385218. The Parent Company commenced its operations on 17 March 2015 and intends to carry on business as an investment trust within the meaning of Chapter 4 of Part 24 of the Corporation Tax Act 2010.

The Group's investment manager is Victory Park Capital Advisors, LLC (the "Investment Manager"), a US Securities and Exchange Commission registered investment adviser. The Investment Manager also acts as the Alternative Investment Fund Manager of the Group under the Alternative Investment Fund Managers Directive ("AIFMD"). The Parent Company is defined as an Alternative Investment Fund and is subject to the relevant articles of the AIFMD.

The Group will invest directly or indirectly into available opportunities, including by making investments in, or acquiring interests held by, third party funds (including those managed by the Investment Manager or its affiliates). Direct investments may include consumer loans, SME loans, advances against corporate trade receivables and/or purchases of corporate trade receivables ("Debt Instruments") originated by platforms which engage with and directly lend to borrowers ("Portfolio Companies"). Such Debt Instruments may be subordinated in nature, or may be second lien, mezzanine or unsecured loans. Indirect investments may include investments in Portfolio Companies (or in structures set up by Portfolio Companies) through the provision of credit facilities ("Credit Facilities"), equity or other instruments. Additionally, the Group's investments in Debt Instruments and Credit Facilities may be made through subsidiaries of the Parent Company or through partnerships or other structures. The Group may also invest in other specialty lending related opportunities through any combination of debt facilities, equity or other instruments.

As at 31 December 2017, the Parent Company held equity in the form of 382,615,665 Ordinary Shares, 370,187,947 Ordinary Shares in issue and 12,427,718 Ordinary Shares in Treasury (31 December 2016: 382,615,665 Ordinary Shares, 381,115,665 Ordinary Shares in issue and 1,500,000 Ordinary Shares in Treasury). The Ordinary Shares are listed on the premium segment of the Official List of the UK Listing Authority and trade on the London Stock Exchange's main market for listed securities.

Northern Trust Hedge Fund Services LLC (the "Administrator") has been appointed as the administrator of the Group. The Administrator is responsible for the Group's general administrative functions, such as the calculation and publication of the Net Asset Value ("NAV") and maintenance of the Group's accounting records.

For any terms not herein defined, refer to Part X of the IPO Prospectus. The Parent Company's IPO Prospectus dated 26 February 2015 is available on the Parent Company's website, https://vpcspecialtylending.com

2. SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies followed by the Group are set out below:

Basis of preparation

The consolidated financial statements present the financial performance of the Group for the year ended 31 December 2017. The consolidated financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"). They comprise standards and interpretations approved by the International Accounting Standards Board and International Financial Reporting Committee, interpretations approved by the International Accounting Standard Committee that remain in effect, to the extent they have been adopted by the European Union. The financial statements are also in compliance with relevant provisions of the Companies Act 2006 as applicable to companies reporting under IFRS.

The financial statements have been prepared on a going concern basis under the historical cost convention, as modified by the valuation of investments and derivative financial instruments at fair value. Having assessed the principal risks, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements. The principal accounting policies adopted are set out below.

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 January 2017 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.

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 in 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 of its investments on the fair value basis of accounting.

Investments in subsidiaries

Investments in subsidiaries are carried at cost less impairment. The Parent Company assesses at each balance sheet date whether, as a result of one or more events that occurred after initial recognition, there is objective evidence that investments in subsidiaries are impaired. Investments in subsidiaries are non-monetary items and therefore the costs of investment in currencies other than Pound Sterling are translated to at the rate of exchange ruling on the date the investment is made.

The total net asset value shown on the Parent Company Statement of Financial Position is therefore greater than the consolidated net asset value shown for the Group by £258,125 as at 31 December 2017 (31 December 2016: less than by £31,259,112).

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 £40,902,993 (31 December 2016: (£19,268,150)).

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 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.

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.

Expenses and finance costs

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

At 31 December 2017, management fees of £1,122,733 (31 December 2016: 1,059,942) have been charged to the capital return of the Group. No management or performance fees were charged to capital at the Parent Company. Refer to Note 10 for further details of the management and performance fees.

All expenses are accounted for on an accruals basis.

Dividends payable to Shareholders

Dividends payable to Shareholders are recognised in the Consolidated Statement of Changes in Equity when they are paid, or have been approved by Shareholders in the case of a final dividend and become a liability to the Parent Company.

Taxation

The tax currently payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Consolidated Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the Consolidated Statement of Financial Position date.

In line with the recommendations of SORP for investment trusts issued by the AIC, the allocation method used to calculate tax relief on expenses presented against capital returns in the supplementary information in the Consolidated Statement of Comprehensive Income is the "marginal basis".

Under this basis, if taxable income is capable of being offset entirely by expenses presented in the revenue return column of the Consolidated Statement of Comprehensive Income, then no tax relief is transferred to the capital return column.

Investment trusts which have approval as such under section 1158 of the Corporation Taxes 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:

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, the Black Scholes Model and transaction prices.

Gains and losses arising from the changes in the fair values are recognised in the Consolidated Statement of Comprehensive Income.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The Group's loan assets are classified as loans and receivables.

Loans are recognised when the funds are advanced to borrowers. Loans and receivables 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.

Impairment of financial assets

The Group assesses at each balance sheet date whether, as a result of one or more events that occurred after initial recognition, there is objective evidence that a financial asset or group of financial assets is impaired. Evidence of impairment may include:

❖ indications that the borrower or group of borrowers is experiencing significant financial difficulty;

❖ default or delinquency in interest or principal payments; or

❖ debt being restructured to reduce the burden on the borrower.

The Group assesses whether objective evidence of impairment exists either individually for assets that are separately significant or individually or collectively for assets that are not separately significant.

If there is no objective evidence of impairment for an individually assessed asset it is included in a group of assets with similar credit risk characteristics and collectively assessed for impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows discounted at the asset's original effective interest rate. The resultant provisions are deducted from the appropriate asset values in the Consolidated Statement of Financial Position.

The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any differences between loss estimates and actual loss experience.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the provision is adjusted and the amount of the reversal is recognised in the Consolidated Statement of Comprehensive Income.

Where a loan is not recoverable, it is written off against the related provision for loan impairment once all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are reflected against the impairment losses recorded in the Consolidated Statement of Comprehensive Income.

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.

Derivatives are carried at fair value with movements in fair values recorded in the Consolidated Statement of Comprehensive Income. Derivative financial instruments are valued using discounted cash flow models using yield curves that are based on observable market data or are based on valuations obtained from counterparties.

Gains and losses arising from derivative instruments are credited or charged to the Consolidated Statement of Comprehensive Income. Gains and losses of a revenue nature are reflected in the revenue column and gains and losses of a capital nature are reflected in the capital column. Gains and losses on forward foreign exchange contracts are reflected in Foreign exchange gain/(loss) in the Consolidated Statement of Comprehensive Income.

All derivatives are classified as assets where the fair value is positive and liabilities where the fair value is negative. Where there is the legal ability and intention to settle net, then the derivative is classified as a net asset or liability, as appropriate.

Securities sold under agreement to repurchase

The Group entered into an agreement with a third party to sell its ownership of an equity security under an agreement to repurchase the equity security from the third party at a future date. The Group is entitled to receive an amount equal to all income paid or distributed in respect of the equity security to the full extent it would be so entitled if the equity security had not been sold to the third party. The Group is obligated to pay the third party monthly interest.

The underlying value of the repurchase agreement is valued under the sole discretion of the third party. Reductions in the value of the repurchase agreement could require the Group to make margin calls up to the value of the repurchase agreement purchase price. No margin was called during the year. The agreement matures on 30 June 2018 but can be extended for an additional three-month period under the discretion of the Group.

Securities sold under agreements to repurchase are valued based on the maximum of their purchase price or the current broker bid price on the sold security.

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. Refer to Note 19 for further information.

Equity securities

Equity securities are measured at fair value. These securities are considered either Level 1 or Level 3 investments. Further details of the valuation of equity securities are included in Footnote 3.

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 readily convertible to known amounts of cash.

Accrued 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.

Current liabilities

Current liabilities, other than derivatives, 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.

Shares

The Ordinary Shares (the "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 unit is calculated by dividing the equity - net assets attributable to the holder of Shares by the total number of outstanding shares.

Treasury shares have no entitlements to vote and are held by the Company.

Foreign exchange

Transactions in foreign currencies are translated into Pound Sterling at the rate of exchange ruling on the date of each transaction. Monetary assets, liabilities and equity investments in foreign currencies at the Consolidated Statement of Financial Position date are translated into Pound Sterling at the rates of exchange ruling on that date. Profits or losses on exchange, together with differences arising on the translation of foreign currency assets or liabilities, are taken to the capital return column of the Consolidated Statement of Comprehensive Income. Foreign exchange gains and losses arising on investment assets including loans are included within Net gain/(loss) on investments within the capital return column of the Consolidated Statement of Comprehensive Income.

The assets and liabilities of the Group's foreign operations are translated using the exchange rates prevailing at the reporting date. Income and expense items are translated using the average exchange rates during the period. Exchange differences arising from the translation of foreign operations are taken directly as currency translation differences through the Consolidated Statement of Comprehensive Income.

Capital reserves

Capital reserve - arising on investments sold includes:

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

❖ exchange differences on currency balances;

❖ cost of own shares bought back; and

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

Capital reserve - arising on investments held includes:

❖ increases and decreases in the valuation of investments held at the period 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 of 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.

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

Estimates and assumptions used in preparing the consolidated financial statements are reviewed on an ongoing basis and are based on historical experience and various other factors that are believed to be reasonable under the circumstances.

The results of these estimates and assumptions form the basis of making judgments about carrying values of assets and liabilities that are not readily apparent from other sources.

Estimates and assumptions made in the valuation of unquoted investments and investments for which there is no active market may cause material adjustment to the carrying value of those assets and liabilities. These are valued in accordance with the techniques set out above.

The assessment of impairment of the financial assets held at amortised cost requires the use of accounting estimates and assumptions that could cause material adjustment to the carrying value of those investments. The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group. The significant estimates and assumptions for the loan loss reserve are derived from the historical performance of the Group's loans. Information about significant areas of estimation uncertainty and critical judgments in relation to the impairment of investments are described in Note 9.

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 it consolidated. Further details of the Parent Company's subsidiaries are included in Note 17.

Accounting standards issued but not yet effective

The following new standards are not applicable to this financial information but may have an impact when they become effective:

IFRS 15, 'Revenue from Contracts with Customers', requires revenue to be recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring services to a customer. This standard is effective from 1 January 2019. The adoption of this standard is not expected to have a significant impact on the Group's financial statements.

IFRS 9, 'Financial Instruments', introduces new requirements for classification and measurement, impairment and hedge accounting. This standard is effective from 1 January 2018. The adoption of IFRS 9 results in an impairment model that is more forward looking than that which is currently in place under IAS 39. In the longer term it is expected that the adoption of the standard will increase the total level of impairment allowance as financial assets will be assessed for impairment at least to the extent that an impairment is expected to arise within the following 12 month period and this impairment amount recognised within the financial statements. Further details on the implementation of IFRS 9 are below.

IFRS 9 financial instruments

IFRS 9 will be implemented in the financial statements for the year ending 31 December 2018 and will replace IAS 39 Financial Instruments: Recognition and Measurement. It includes requirements for the classification and measurement of financial instruments, impairment of financial assets and hedge accounting.

The principal requirements of IFRS 9 are as follows:

Classification and measurement

The classification and measurement of financial assets will depend on how these are managed (the entity's business model) and their contractual cash flow characteristics. These factors determine whether the financial assets are measured at amortised cost, fair value through other comprehensive income ('FVOCI') or fair value through profit or loss ('FVPL'). The combined effect of the application of the business model and the contractual cash flow characteristics tests may result in some differences in the population of financial assets measured at amortised cost or fair value compared with IAS 39. In addition, on transition to IFRS 9 entities are required to revoke previous designations of financial assets and financial liabilities measured at fair value through profit or loss where the accounting mismatch no longer exists and are permitted to revoke such designations where accounting mismatches continue to exist.

Impairment of financial assets

IFRS 9 changes the basis of recognition of impairment on financial assets from an incurred loss to an expected credit loss (ECL) approach for amortised cost and FVOCI financial assets. This introduces a number of new concepts and changes to the approach to provisioning compared with the current methodology under IAS 39:

❖ Expected credit losses are based on an assessment of the probability of default, loss given default and exposure at default, discounted to give a net present value. The estimation of ECL should be unbiased and probability weighted, taking into account all reasonable and supportable information, including forward looking economic assumptions and a range of possible outcomes. IFRS 9 has the effect of bringing forward recognition of impairment losses relative to IAS 39 which requires provisions to be recognised only when there is objective evidence of credit impairment.

❖ On initial recognition, and for financial assets where there has not been a significant increase in credit risk since the date of advance, IFRS 9 provisions will be made for expected credit default events within the next 12 months.

❖ A key feature of IFRS 9 compared with existing approaches under IAS 39 is that where a loan has experienced a significant increase in credit risk since initial recognition, even though this may not lead to a conclusion that the loan is credit impaired, provisions will be made based on the expected credit losses over the full life of the loan. This change to lifetime loss provisions for significantly credit deteriorated assets is expected to lead to increases in impairment provisions, and to increased volatility in provisions, although the size of the change will depend on a number of factors, including the composition of asset portfolios and the view of the economic outlook at the date of implementation.

❖ For assets where there is evidence of credit impairment, provisions will be made under IFRS 9 on the basis of lifetime expected credit losses, taking account of forward looking economic assumptions and a range of possible outcomes and these provisions will be re-assessed on an ongoing basis. Under IAS 39 provisions are based on the asset's carrying value and the present value of the estimated future cash flows.

Hedge accounting

The hedge accounting requirements of IFRS 9 are designed to create a stronger link with financial risk management. A separate financial reporting standard will be developed on accounting for dynamic risk management (macro hedge accounting) and IFRS 9 allows the option to continue to apply the existing hedge accounting requirements of IAS 39 until this is implemented. Therefore, no changes are currently being implemented to hedge accounting policies and methodologies.

Impact of IFRS 9

The requirements of IFRS 9 'Financial Instruments' will be adopted from 1 January 2018. The classification and measurement and impairment requirements are applied retrospectively by adjusting the opening balance sheet at the date of initial application, with no requirement to restate comparative periods. The Group does not intend to restate comparatives. For the consolidated financial statements of the Group, adoption is expected to reduce net assets at 1 January 2018 by 1.11% of the Group's 31 December 2017 NAV. The implementation is not expected to give change to the classification of the reserves.

Below is a breakdown of the reserves of the Group as at 31 December 2017 under the IFRS 9 reporting standard.

These estimates are based on accounting policies, assumptions, judgements and estimation techniques that remain subject to change until the Group finalises its financial statements for the year ending 31 December 2018.

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. 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, recent transactions or the Black Scholes pricing model.

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. The assumptions incorporated in the valuation methodologies used to estimate the enterprise value consists 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.

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.

Options and warrants to purchase or sell shares of privately held companies are valued based on the estimated market value of the underlying common shares using the Black Scholes pricing model, which may be adjusted to reflect the associated risks. Options and warrants to purchase or sell shares of privately held companies that are significantly out of the money may be valued at the fixed option or warrant price.

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 2017:

The following table analyses the fair value hierarchy of the Group's assets and liabilities measured at fair value at 31 December 2016:

The following table analyses the fair value hierarchy of the Parent Company's assets and liabilities measured at fair value at 31 December 2017:

The following table analyses the fair value hierarchy of the Parent Company's assets and liabilities measured at fair value at 31 December 2016:

There was movement of one position between Level 2 and Level 1 fair value measurements during the year ended 31 December 2017. There were no transfers into and out of Level 3 fair value measurements for either the Parent Company or the Group during the year ended 31 December 2017.

The following table presents the movement in Level 3 positions for the year ended 31 December 2017 for the Group:

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 2016 for the Group:

The following table presents the movement in Level 3 positions for the period ended 31 December 2017 for the Parent Company:

The following table presents the movement in Level 3 positions for the period ended 31 December 2016 for the Parent Company:

Quantitative information regarding the unobservable inputs for Level 3 positions is given below:

The investments in funds consist of investments in Larkdale III, L.P. and VPC Offshore Unleveraged Private Debt Fund, L.P. These are valued based on the NAV as calculated at the balance sheet date. No adjustments have been deemed necessary to the NAV as it reflects the fair value of the underlying investments, as such no specific unobservable inputs have been identified. The NAVs are sensitive to movements in interest rates due to the funds' underlying investment in loans.

If the price per share from recent transactions of the equity securities valued based on market comparables increased / decreased by five per cent. it would have resulted in an increase / decrease to the total value of those equity securities of £522,405 which would affect the Net gain / (loss) on investments within the capital return column of the Consolidated Statement of Comprehensive Income.

If the discount rate of the equity securities valued based on discounted cash flows increased / decreased by two per cent. it would have resulted in an increase / decrease to the total value of those equity securities of £210,346 which would affect the Net gain / (loss) on investments within the capital return column of the Consolidated Statement of Comprehensive Income.

If the projected cumulative losses of the equity securities valued based on discounted cash flows increase / decreased by one per cent. it would have resulted in an decrease / increase to the total value of those equity securities of £849,160 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 five per cent. it would have resulted in an increase / decrease in the total value the investments in funds and equity securities of £2,611,075 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 2017 but for which fair value is disclosed. The carrying value has been used where it is a reasonable approximation of fair value:

The following table presents the fair value of the Parent Company's assets and liabilities not measured at fair value through profit and loss at 31 December 2017 but for which fair value is disclosed. The carrying value has been used where it 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 (the Group currently does not designate any derivatives as hedges for hedge accounting purposes as described under IAS 39). Derivative instruments are also used for trading purposes where the Investment Manager believes this would be more effective than investing directly in the underlying financial instruments. The only derivative contracts that the Group currently holds or issues are forward foreign exchange contracts.

The Group measures its derivative instruments on a fair value basis. See Note 2 for the valuation policy for financial instruments.

Forward contracts

Forward contracts entered into represent a firm commitment to buy or sell an underlying asset, or currency at a specified value and point in time based upon an agreed or contracted quantity. The realised/unrealised gain or loss is equal to the difference between the value of the contract at the onset and the value of the contract at settlement date/year end date and is included in the Consolidated Statement of Comprehensive Income.

As at 31 December 2017, 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: