Prospect Capital’s (PSEC) portfolio generated an annualized yield of 13.2% across its interest-bearing investments in fiscal 2Q17. This yield represents a 0.4% fall from fiscal 1Q17 and a 0.1% from fiscal 2Q16. The yield excludes capital appreciation and dividend payouts from the company’s equity positions. The yield rose due to increased deployments and lower expenses.
Among peers, Prospect has one of the highest yields. The company’s structure provides flexibility for investing in multiple levels of corporate capital, with a diversified deployment towards secured and structured lending.
As of December 31, 2016, Prospect Capital’s overall portfolio consisted of 123 long-term investments, with a fair value of $5.9 billion. As of December 31, 2014, Prospect had 138 investments, with a total value of $6 billion. These changes reflect the company’s shift toward marginally larger investments, which yield higher returns. Prospect’s industry competitors with considerable assets under management include the following:
- Apollo Global Management (APO): $163 billion
- The Carlyle Group (CG): $194 billion
- KKR & Co. (KKR): $98 billion
Together, these companies make up 1.5% of the Financial Select Sector SPDR ETF (XLF).
Prospect saw net exits in fiscal 2Q17 of $175.5 million to redeploy capital toward structured lending and CLOs (collateralized loan obligations). The company saw some yield expansion in fiscal 2Q17 due to the deployment of funds in select investments in the September quarter. In fiscal 2Q17, its portfolio’s fair value comprised the following proportions of assets:
- 45.9% first-lien debts
- 23.6% second-lien debts
- 18.3% collateralized loan obligation structured credit
- 0.2% small business whole loan
- 0.8% unsecured debt
- 11.2% equity investments
In the next part of this series, we’ll study Prospect Capital’s portfolio-building strategy.