L1 Capital, an investment management firm, published its ‘L1 Capital International Fund’ fourth quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly net return of 6.2 % was recorded by the fund for the fourth quarter of 2021, underperforming its benchmark by -0.9%. The benchmark meanwhile had a 7.1% gain for the same period. The Australian dollar appreciated 0.5% against the U.S. dollar and 2.4% against the Euro, detracting from reported Fund and benchmark returns. For the 2021 calendar year, the Fund returned 41.1% (net of fees), outperforming the benchmark by 11.9%. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
L1 Capital International Fund, in its Q4 2021 investor letter, mentioned Open Lending Corporation (NASDAQ: LPRO) and discussed its stance on the firm. Open Lending Corporation is an Austin, Texas-based automated lending services provider with a $2.3 billion market capitalization. LPRO delivered a -17.13% return since the beginning of the year, while its 12-month returns are down by -55.85%. The stock closed at $18.63 per share on February 11, 2022.
Here is what L1 Capital International Fund has to say about Open Lending Corporation in its Q4 2021 investor letter:
“Outside of the Top 10, three companies were divested and initial positions in two companies were added to the portfolio. Both portfolio additions were companies that were promoted from our Bench. Our Bench is a group of companies that have been fully assessed and we are ready to invest, should an attractive opportunity arise. Having a Bench of high-quality investment alternatives to our portfolio is a core aspect of our investment process.
Open Lending was the key disappointment during the quarter, with the share price falling 38% (in USD). The fall in the share price reflected a combination of over-optimism on our part, challenging near-term market conditions, mixed market communications by management and a general market selloff in higher-growth, higher-multiple businesses.
Open Lending provides software and analytics that helps credit unions, banks and the captive finance arms of auto manufacturers with underwriting ‘near-prime’ loans for purchasers of mostly used but also new vehicles. To mitigate credit risk exposure, the loans are underwritten with lender’s protection insurance provided by independent insurance companies. Open Lending does not provide any capital to fund the loans, nor does it guarantee the performance of the loans, but it does share in the profit retained by the insurer which depends on credit performance.
In other words, Open Lending cannot lose money on origination of a loan through its software and analytics platform, but its share of the profit from the loan does depend on how the loan performs. Loan performance has been strong, ahead of base case expectations, reflecting the strength of consumer credit in the U.S. as well as robust used car prices.
The other key driver of Open Lending’s financial performance is how many loans are originated through its platform. Due to acute semiconductor shortages, the number of new cars manufactured and sold in the U.S. has been constrained, with the availability of lower and mid-range cars further pressured as auto manufacturers divert limited semiconductor supplies to higher value, more profitable models. New auto manufacturing constraints have flowed through to used cars, with demand exceeding supply resulting in a sharp increase in average used car prices, pressuring affordability for ‘near-prime’ borrowers.
In addition, excessive auto vehicle demand relative to the supply diminishes the need for auto manufacturers to target borrowers facilitated by Open Lending’s platform. This growth opportunity will be delayed until demand-supply conditions return to more normal levels…” (Click here to see the full text)
Our calculations show that Open Lending Corporation (NASDAQ: LPRO) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. LPRO was in 28 hedge fund portfolios at the end of the third quarter of 2021, compared to 24 funds in the previous quarter. Open Lending Corporation (NASDAQ: LPRO) delivered a -35.30% return in the past 3 months.
In January 2021, we also shared another hedge fund’s views on LPRO in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.
Disclosure: None. This article is originally published at Insider Monkey.
