Prospect Fund Expands Investment Portfolio

Despite widening net losses from realized and unrealized investment downturns, the fund achieved a positive net cash flow and expanded its credit facility.

May 13, 2025

Net income up, but headwinds remain

Interest income more than quadrupled over the prior-year period. For the nine months ending March 31, Prospect generated $6.9 million in investment income, compared to $1.6 million a year ago. The uptick was driven by a larger, more active portfolio and strong performance from non-affiliate floating rate loans.

Still, losses on the investment side held back broader gains. The fund recorded $1.8 million in combined realized and unrealized losses for the period. Net income from operations came in at $452,701 —a recovery from last year’s $2.5 million decline, but still under pressure from market movements and markdowns on select positions.

Portfolio additions drive growth

Prospect’s strategy centers on income-producing credit across the U.S. middle market. The firm continues to add new names to its portfolio, with a clear preference for senior secured loans. By the end of Q3, fair value investments totaled $83.7 million, up from $59.5 million just nine months earlier.

The fund increased exposure across sectors including:

• Healthcare


• Telecom


• Consumer services


• High tech

New deals included investments in Druid City Infusion , Shoes West , and Emerge Intermediate. The portfolio is built to lean heavily into first lien loans, with the goal of producing recurring income while managing risk at the capital structure level.

Prospect also maintained select positions in subordinated structured notes and preferred equity. These investments added incremental yield, although their fair value was modest compared to the overall loan book.

Capital activity and shareholder flows

The fund continued to bring in new capital while returning cash to investors. During the nine-month period, Prospect issued $10 million in new Class A and Class I shares and reinvested $2.1 million through its dividend program. On the other side, $1.4 million was used to repurchase 301,809 Class A shares through three quarterly tender offers.

Share issuance and buybacks were both executed close to net asset value, keeping pricing in line with investor expectations. As of May 12, total shares outstanding included over 9 million Class A shares and a small tranche of Class I shares.

Net asset value steady, with slight pressure

Net assets climbed to $39.9 million, up from $31.3 million in June. But NAV per share declined slightly to $4.47, compared to $4.69 previously. The decline reflects dividend distributions exceeding earnings, as well as net losses in the investment book.

The fund distributed roughly $2.6 million during the nine-month period—mostly from earnings, with a portion classified as return of capital. These distributions continued on a monthly basis, supporting income-oriented investors even amid market volatility.

Leverage increases to support new deployment

To help fund its expanding pipeline, Prospect increased borrowings under its senior secured credit facility to $47.8 million. That’s a $20 million jump from the start of the fiscal year. At quarter-end, the credit facility was fully backed by the firm’s investment portfolio, which serves as collateral.

Even with the higher debt load, the fund’s liquidity position remained strong. Cash and cash equivalents ended the quarter at $20.3 million —up from $15.4 million in June. Interest expense rose to $2.8 million year-to-date, in line with the expanded facility.

Focus areas going forward

Prospect is closely monitoring risk factors tied to credit spreads, interest rate volatility, and market liquidity. While its loan portfolio is built for floating rate environments, changes in borrower fundamentals or market dislocation can impact performance.

The fund is also keeping an eye on geopolitical uncertainty and macroeconomic trends, from U.S.-China trade tensions to inflation pressures across global markets. Structured credit investments, while offering yield, come with complexity and potential for pricing variability.

Looking ahead, Prospect will continue to scale its loan exposure and actively manage the investment book. With new capital flowing in, and a larger footprint in place, the firm appears positioned to stay active in middle-market credit—while keeping an eye on performance and cash flow.