# Volta Finance: Performance, management value and risk insights (LON:VTA)

- Link: https://www.directorstalkinterviews.com/volta-finance-performance-management-value-and-risk-insights-lonvta/4121174525
- Published: 2024-10-17T12:50:07+01:00
- Author: Amilia Stone

**[Volta Finance](https://www.directorstalkinterviews.com/company/volta-finance/vta.as)
Ltd ([LON:VTA](https://www.directorstalkinterviews.com/company/volta-finance/vta.as))**
is the topic of conversation when **Hardman & Co’**s Analyst Mark Thomas caught 
up with DirectorsTalk for an exclusive interview.

**Q1: Your recent report sits behind a disclaimer, what can you tell us about that?**

**A1: **It is just the 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 a simple asset class,
the report should be looked at only by professional/qualified investors.

**Q2: You called your recent piece ‘FY’24: another year of outperformance’, what
can you tell us about it?**

**A2: **Volta Finance’s monthly factsheet to its full year end of July reported 
an NAV total return of 19.7%, while annualised cash receipts were 22% of the July
NAV, consistent with levels seen since mid’22. For 16 consecutive months, it had
generated positive NAV returns.

In this note, we detail the different elements that have driven this performance.
We note both positive markets and incremental value added by the manager. The discount
appears anomalous with such a performance.

The latest monthly factsheet to August continues these themes, making it 17 consecutive
months delivering positive returns, annualised cash returns rising slightly to 23%.
The 2024 year to date return, at +10.9%, is nearly double US and Euro High Yield
indices, which returned +6.3% and 5.6%, respectively.

**Q3: Your note identified two drivers to the performance; positive markets and 
the value added by the manager. Taking markets first, what can you tell us about
them?**

**A3: **CLO markets are often seen as complex or highly technical with a myriad 
of market-specific terminologies. We believe investors should, as always, just follow
the cash. For the CLO market, at heart, cashflows are very simple. CLO structures
invest in a portfolio of loans from which the cash in is driven by corporate borrowers’
payments. The CLO funds this portfolio with equity and a mix of debt, most of which
is better rated than the loan portfolio because of the diversification benefits 
of the structure.

So, looking at why current markets are favourable, cash receipts into CLO structures
have been strong, with low default rates driven by good corporate profitability 
and cashflow, and many borrowers passing on inflation to customers. Additionally,
most loans were floating rate. In addition to interest rates, cash leaving CLO structures
reflects refinancing and resetting opportunities, which have also been favourable,
as we have detailed in previous notes.

So, good dynamics for both cash in and out.

**Q4: And the value added by AXA IM, the manager?**

**A4: **AXA IM adds value with its scale, bringing i) specialist expertise to identify
mis-priced opportunities and manage risk, ii) a broad network with informational
advantages, and iii) business introduction and pricing opportunities. We also highlight
its portfolio construction/asset selection.

We refer investors to our note ‘The benefits of having AXA IM as the manager’, published
on 7 December 2023, for a more detailed review of the benefits that AXA IM brings.

**Q5: What about the risk?**

**A5: **CLO structures have multiple risk-enhancement features. Cash is retained
in SPV/used to repay investment-grade debt if the level of collateral or interest
cover falls below set levels.

AXA IM, Volta Finance’s manager skill in picking good managers was shown early in
the pandemic, when circa 20% of US CLOs saw cash diversion, and Volta had none. 
There are multiple income, risk and concentration tests that maintain that an ongoing
risk profile of SPV is within known parameters. There is less of a maturity mismatch,
with interest and principal repayments from assets matching CLO liabilities. Assets
are backed by good-quality security.

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 scenario were just 1/35th the
level of corporate loans.

Share on: