Hot on the heels of paying an eyepopping performance fee, Chrysalis Investments has released an unaudited interim NAV of 208p, which reflects a 13% drop between 31 December 2021 and 21 March 2022.
The company said the decision to commission an independent third party to value six assets, representing 67% of gross portfolio value, was “influenced by the current extraordinary geopolitical events, which have exacerbated recent macroeconomic uncertainty, and have led to some instances of material share price fluctuations of relevant listed peers to the company’s portfolio assets”.
The remaining 33% were “revalued using a valuation methodology comparable to that applied at 31 December 2021”, Chrysalis said.
Jefferies identified the six holdings as “likely to include Klarna, Starling Bank, Wefox, The BrandTech Group and Smart Pensions”, given they were the largest positions at the end of last year.
“While Chrysalis’ shares were already pricing-in write-downs certain to holdings within the portfolio (Klarna’s key competitor Affirm was down 58% over Q1) the expected NAV will help to put the portfolio valuation on a much firmer footing,” Jefferies added.
“Our current estimated NAV becomes 207.9p, to which the shares trade on an 11.1% discount.”
Calculating performance fees over such a short timeframe is controversial
In January it was confirmed that fund managers Nick Williamson and Richard Watts were to personally receive a combined £60.5m in newly issued Chrysalis shares as part of their performance fee.
In total, Chrysalis was on the hook for £112.1m after the 57% growth in the NAV over the year to 30 September 2021.
Calculating performance fees over such a short timeframe is controversial, according to Stifel, and out of step with most private equity fund fees which are calculated over the fund’s life and primarily reflect realised gains.
“With the current Chrysalis arrangement, there is a high risk that the management fee is high one year largely on unrealised gains,” analyst Iain Scouller wrote in a February note.
“The following year may see a reversal in the net asset value (NAV) and price performance, with a possibility that shareholders see negative returns over a two-year period.”
The Chrysalis board confirmed at the start of the year that, “to ensure continued alignment with stakeholders, the board will review fee arrangements, including the performance fee pay out structure in 2022 after consultation with relevant parties”.
