Chrysalis Investments has cut the value of its Starling stake for a second consecutive quarter.

The London-listed investment trust marked down its holding in the digital bank by 5% to £356m in the second quarter, contributing to a 2.35p per share fall in Chrysalis' net asset value.

Starling accounts for just over 56% of Chrysalis' total portfolio value, making it by far the trust's largest single position, meaning that even modest valuation adjustments have an outsized effect on the trust's overall performance.

Chrysalis said the main reason for the write-down was a decline in valuation multiples across the "upper quartile" of its peer group, which tracks high-growth fintechs and digital banks. While traditional UK bank stocks rose 12.5% over the period and the broader peer group gained 6.5%, valuations for the top-tier fintechs contracted, which in turn reduced Starling's paper valuation. Because Starling is a private company, Chrysalis revalues its stake quarterly by applying these market multiples, meaning the trust's NAV can fluctuate even when the underlying business is growing.

The trust said investors have reduced their exposure to high-growth stocks in recent months, moving into more defensive equities amid market volatility triggered by the conflict in the Middle East. The shift mirrors a broader rotation across public and private markets that has weighed on fintech valuations since interest rates began rising in 2022.

The latest adjustment follows a previous 14% markdown earlier this year, when Chrysalis reduced the value of its Starling stake to £374.7m.

In February, City AM reported that Starling founder Anne Boden had reduced her stake in the fintech during a secondary share sale.

Chrysalis sells part of Klarna stake to clear debt

Chrysalis said Starling's profit growth had "exceeded expectations" and that it remained "excited regarding the forecast trajectory," adding that this would become "the key determinant of future valuation."

Starling posted a £217m pre-tax profit in the last year, down from £223m, after revenue weakened on falling interest rates and the digital bank continued investing in its software-as-a-service arm. The decline in profit underscores the sensitivity of digital bank earnings to interest rate cycles, as net interest margins remain a key revenue driver for deposit-taking fintechs.

The trust also confirmed that it had sold part of its Klarna holding in order to raise cash and repay debt. Klarna represents just under a tenth of Chrysalis' portfolio.

During the quarter, Chrysalis sold £6.6m of stock at about $17.73 per share, followed by a further $8m after the quarter end. The company said the proceeds would be used to pay off its £17.8m of outstanding debt.

As of 30 June, Chrysalis still held a £57m stake in Klarna. That followed a 54% markdown of the holding to £41m at the end of March, after the Swedish fintech's bruising IPO in September last year.

Klarna shares are down more than 55% from their debut, to $18.94.