Volta Finance Limited (LON:VTA) is the topic of conversation when Hardman & Co’s Financial Analyst Mark Thomas caught up with DirectorsTalk for an exclusive interview.
Q1: Can you just remind us why the report sits behind a disclaimer?
A1: It’s a very standard disclaimer that many investment companies have. In essence, for regulatory reasons, there are some countries, like the US, where the report should not be read. In the UK, because CLOs are not seen as a simple asset class, the report should really be looked at only by professional and qualified investors. It’s a very standard disclaimer and absolutely nothing to worry about.
Q2: Your report is called ‘Liquid Access to Outperforming Private Credit’, can you just tell us what that’s about?
A2: In this report, what we did was highlight what Volta Finance brings to its investors.
In particular, we noted the multi-currency, multi-exchange, liquid access it provides all investors to. Investors can then get access to the illiquid but attractive CLO market, which is private credit with its good risk-adjusted returns. Secondly, it gives access to an outperforming manager of that expertise-dependent asset class.
Now, private credit has been one of the hot asset classes of 2025, but with investment largely restricted to large institutional investors.
Volta’s European and LSE, Euro and sterling listings give retail investors and smaller wealth managers liquidity to that market. They also offers portfolio diversification and a high uncovered dividend yield.
Q3: Could you give us a bit more colour, though, on the liquid access that you highlighted?
A3: Barely a day seems to go by now without launch of a new private credit fund or a new initiative or commentary about that market’s growth and its attractiveness.
In our view, the best element of that market is where there is intellectual value added as well as just economic capital provided. Where an experienced manager in a specific niche brings incremental risk reward optimisation, and where there are long term relationships rather than simply a series of transactions.
Now, Volta’s CLO investments fit all of these criteria, making its model especially attractive in what is a hot market.
As I mentioned, the Board has ensured that investors have multiple options in terms of exchange and currency denomination in order to trade the shares in a liquid manner and exchange-traded equity brings liquidity to all investors to this illiquid asset class.
Q4: You mentioned diversification, how does it diversify investors’ portfolios?
A4: If we look at a range of different asset classes, Volta’s returns have no correlation with benchmark bond indices, even though it’s a private credit market. Over the long term, it has outperformed UK and European equity markets, but it provides investors with a more stable dividend income and less volatile capital gains.
So, the mix of returns provides it with diversification compared with equity markets.
Q5: OK, what can you tell me about the yield?
A5: Volta’s near 9% dividend yield comes from a clearly stated policy, which is to pay quarterly an equivalent to 8% of NAV annualised, so 2% of the NAV per quarter. The current cash generation is nearly two and a half times the dividend payout, which provides a good cushion for the dividend sustainability. It also means there should be a growing dividend because the retained element of that grows the NAV, and so the dividend which is based off the NAV should also grow.
Q6: Finally, Mark, what can you tell me about risks?
A6: CLO has obviously been credit-related risk, but CLO structures have multiple risk enhancement features. AXA IM, Volta Finance’s manager, skill in picking good managers, was shown early in the pandemic when nearly 20% of US CLOs saw a cash diversion trigger, which is a safety trigger, but Volta had none. The end result is shown by the absence of any CLO investment grade defaults between 2012 and 2021, and losses under the Fed stress test scenarios are just one-thirty-fifth of corporate loans. With all those caveats though, the key risk remains credit.
