Chrysalis Investments (CHRY ) has booked a significant drop in the valuation of top holding Klarna but registered more positive news on Starling Bank, with the fund’s managers making a renewed attempt to draw a line under this year’s heavy losses in their latest investor update.

The £737m closed-end fund, whose portfolio of early-stage and mostly private companies is managed by Jupiter’s Richard Watts and Nick Williamson, confirmed its net asset value (NAV) had dropped 11% over the first quarter as markets turned against tech and growth stocks.

The latest full portfolio valuation came in at 211.8p per share as of the end of March, incorporating new funding events at holdings including Klarna and Starling, leaving the trust’s shares trading on a whopping 41% discount after closing at 124.4p on Tuesday.

The full first-quarter figures actually marked a slight improvement since an unscheduled 13% cut to the valuation of the formerly high-flying and premium-rated trust’s six largest holdings last month, which put Chrysalis’s NAV at 208p per share on 21 March, down from 237.9p at the end of last year.

While still sitting on gains since launching at 100p in November 2018, Watts and Williamson are left with a mountain to climb to attain the trust’s former heights with the shares having halved over six months.

‘Listed market valuations have remained under pressure, a trend which started in September 2021 and has continued into the current quarter, reflecting uncertainty over a number of key variables including economic growth, interest rates and inflation,’ the managers said.

According to the latest update, their stake in Klarna has been written down by at least a third based on a valuation of around $30bn (£24bn), in line with the Swedish company’s latest fundraising, which was reported last Friday. The buy-now-pay-later business, which was valued at $46bn last June, also reportedly let go 10% of its workforce this week.

Klarna, which now constitutes an 18.9% weighting in Chrysalis’s portfolio, down from 23.8%, has faced some turbulence after growing at lightning speed during the Covid pandemic. But the update emphasised the company is making progress on a number of ‘key’ statistics.

The fintech business has 147 million active users worldwide, double the number in 2017, and a US customer base that has grown fivefold since 2019. Watts and Williamson also emphasised the differences in the model with listed US peer Affirm, whose shares are down more than 85% since November, especially Klarna’s easier access to funding via customer deposits as a regulated bank.

Starling, on the other hand, saw a modest increase in its valuation based on an April funding round which valued the digital bank at £2.5bn, nearly double the year before and pushing it to the top of the portfolio at a 21.1% weighting.

That was accompanied by statistics showing it accounts for 7.5% of the UK small and medium-sized enterprise banking market, about half the market share of Barclays (BARC) according to the Chrysalis managers, despite launching only five years ago.

‘Significant valuation certainty’

‘The pressure on the valuations of growth companies in global stock markets that commenced in the previous quarter continued, and in many cases increased,’ the pair wrote in the update.

However, Watts and Williamson argued that the recent funding rounds for Klarna and Starling ‘should give investors significant valuation certainty regarding a material part of the portfolio’, as together they account for nearly 40% of assets, providing something of a backstop for the trust’s sliding shares.

Otherwise, the pair expressed confidence in their holdings getting on track, estimating revenue growth is running at 80% a year on a blended basis, though said they would adopt a ‘conservative’ strategy and focus on supporting their investments in a challenging environment.

‘We are very pleased with the robust rates of revenue growth… we are seeing across the portfolio, as we believe it will be the key determinant of future NAV performance,’ they wrote.

Other revalued holdings include tech company Brandtech Group, now making up an 8.6% weighting, which saw an upward revision supported by revenue and profit growth that has continued at ‘exceptionally strong levels’, both on an absolute basis, and in comparison to listed peers.

Cybersecurity company Deep Instinct and data company InfoSum, which have 2.6% and 2.7% weightings respectively, both saw writedowns in valuation, mainly owing to weakness in listed peers.

Former fund favourite e-commerce group THG (THG), which Watts’ Jupiter UK Mid Cap fund also holds, and fintech company Wise (WISE) saw share price falls of 60% and 35%, respectively.

The managers said they remain ‘optimistic over the prospects for continued growth’ at Wise but sold part of their stake in March at approximately 500 pence per share, raising £12.2m, in order to add to Starling.

In total, the quarter to March 2022 saw a net realisation of approximately £70m, including the sale of Embark to Lloyds (LLOY). After that period ended, an investment of £10m was made in Starling’s £130.5m fundraise. The managers are currently sitting on £62m in cash.