Closed-end funds have seen lower originations over the past few quarters on increased competition for deployment of funds in quality paper offerings. Prospect Capital (PSEC) made portfolio investments of $347.0 million in the September quarter, which is a substantial rise over $53.0 million in the prior year’s quarter.
The company is expected to see higher net originations over the next few quarters with a preference for follow-on investments. It has increased exposure in existing portfolio companies since it has an existing track record of generating strong cash flows.
In fiscal 1Q17, Prospect Capital deployed a total of $347.0 million. Investments were made with the following breakdown:
The company’s exits in the form of repayments, sales, and scheduled amortization payments stood at $114.0 million. Its net investment expanded to $232.8 million. As of September 30, 2016, Prospect’s control investments at fair value made up 30.6% of its total portfolio, which was in line with its previous few quarters’ targeted holdings.
The year-over-year revenue growth of Prospect’s competitors are as follows:
Together, these companies make up 1.4% of the Financial Select Sector SPDR ETF (XLF).
Prospect Capital’s investments in financial services are yielding 15.0%–25.0%, which is higher than the company’s average yields. Prospect expects to increase its exposure in the upcoming quarters since the Fed’s rate hike could help it have higher yields.
Prospect and other closed-end funds are focusing on more retail offerings as employment and wages improve. Retail offerings also carry higher yields and lower risk.
The company’s major strategies for fund deployment include sponsored and non-sponsored transactions, real estate investments, structured credit investments, non-controlled agented and syndicated lending, control investments, and online lending. The company is also expanding its book through a call center initiative, which should reduce risk with higher consumer credit and improve yields.
In the next part of the series, we’ll take a look at Prospect Capital’s focus on real estate and online lending.