Barings Participation Investors : 2022 Annual Report - Barings Participation Investors

2022

Barings

PARTICIPATION INVESTORS

2022 Annual Report

BARINGS PARTICIPATION INVESTORS

Barings Participation Investors (the "Trust") is a closed-end management investment company, first offered to the public in 1988, whose shares are traded on the New York Stock Exchange under the trading symbol "MPV". The Trust's share price can be found in the financial section of newspapers under either the New York Stock Exchange listings or Closed-End Fund Listings.

INVESTMENT OBJECTIVE & STRATEGIES

The Trust's investment objective is to maintain a portfolio of securities providing a current yield and, when available, an opportunity for capital gains. The Trust's principal investments are privately placed, below-investment grade, long-term debt obligations including bank loans and mezzanine debt instruments. Such private placement securities may, in some cases, be accompanied by equity features such as common stock, preferred stock, warrants, conversion rights, or other equity features. The Trust typically purchases these investments, which are not publicly tradable, directly from their issuers in private placement transactions. These investments are typically made to small or middle market companies. In addition, the Trust may invest, subject to certain limitations, in marketable debt securities (including high yield and/or investment grade securities) and marketable common stock. Below- investment grade or high yield securities have predominantly speculative characteristics with respect to the capacity of the issuer to pay interest and repay capital.

The Trust distributes substantially all of its net income to shareholders each year. Accordingly, the Trust pays dividends to shareholders four times per year. The Trust pays dividends to its shareholders in cash, unless the shareholder elects to participate in the Dividend Reinvestment and Share Purchase Plan.

In this report, you will find a complete listing of the Trust's holdings. We encourage you to read this section carefully for a better understanding of the Trust. We cordially invite all shareholders to attend the Trust's Annual Meeting of Shareholders, which will be held on May 18, 2023 at 8:00 A.M. (Eastern Time) in Charlotte, North Carolina, and virtually at the following website. https://www.viewproxy.com/barings/broadridgevsm/

PROXY VOTING POLICIES & PROCEDURES; PROXY VOTING RECORD

The Trustees of the Trust have delegated proxy voting responsibilities relating to the voting of securities held by the Trust to Barings LLC ("Barings"). A description of Barings'

proxy	voting	policies	and	procedures	is available
(1)	without	charge,	upon	request, by	calling, toll-

free 1-866-399-1516; (2) on the Trust's website at http:// www.barings.com/mpv; and (3) on the U.S. Securities and Exchange Commission's ("SEC") website at http://www.sec. gov. Information regarding how the Trust voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, 2022 is available (1) on the Trust's website at http://www.barings.com/mpv; and (2) on the SEC's website at http://www.sec.gov.

FORM N-PORT

The Trust files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on part F of Form N-PORT. This information is available (i) on the

SEC's website at http://www.sec.gov; and (ii) at the SEC's Public Reference Room in Washington, DC (which information on their operation may be obtained by calling 1-800- SEC-0330).A complete schedule of portfolio holdings as of each quarter-endis available on the Trust's website at http:// www.barings.com/mpv or upon request by calling, toll-free, 1-866-399-1516.

LEGAL MATTERS

The Trust has entered into contractual arrangements with an investment adviser, transfer agent and custodian (collectively "service providers") who each provide services to the Trust. Shareholders are not parties to, or intended beneficiaries of, these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the Trust.

Under the Trust's Bylaws, any claims asserted against or on behalf of the Trust, including claims against Trustees and officers must be brought in courts located within the Commonwealth of Massachusetts.

The Trust's registration statement and this shareholder report are not contracts between the Trust and its shareholders and do not give rise to any contractual rights or obligations or any shareholder rights other than any rights conferred explicitly by federal or state securities laws that may not be waived.

BARINGS PARTICIPATION INVESTORS

c / o Barings LLC

300 South Tryon St., Suite 2500 Charlotte, NC 28202 1-866-399-1516 http://www.barings.com/mpv

ADVISER

Barings LLC

300 South Tryon St., Suite 2500

Charlotte, NC 28202

INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM

KPMG LLP

New York, NY 10154

COUNSEL TO THE TRUST

Ropes & Gray LLP

Boston, Massachusetts 02111

CUSTODIAN

State Street Bank and Trust Company

Boston, MA 02110

TRANSFER AGENT & REGISTRAR

SS&C Global Investor & Distribution Solutions, Inc., formerly known as DST Systems, Inc. ("SS&C GIDS")

P.O. Box 219086

Kansas City, MO 64121-90861-800-647-7374

Barings Participation Investors

2022 Annual Report

PORTFOLIO COMPOSITION AS OF 12/31/2022*

Public Bank Loans	Public Debt		Cash & Short-
	Term
1.6%	0.4%	Public Equity	Investments
Cash & Short-
Term		0.1%	2.7%

Investments	Private Bank Loans		Floating Rate
2.7%	Fixed Rate
Private Debt	74.5%	11.7%	73.1%
9.1%		Equity
		12.6%
Private /
Restricted
Equity
11.7%

	PORTFOLIO COMPOSITION AS OF 12/31/2021*
Public Debt	Public Equity	Cash & Short-
1.5%
Term
	0.4%
Public Bank Loans	Investments
3.3%	Private Bank Loans	10.3%	Fixed Rate
Private /	57.5%	Equity	21.5%
Restricted		9.2%
Equity
8.8%

Cash & Short- Term Investments 10.3%

Floating Rate

Private Debt59.0% 18.2%

• Based on market value of total investments

In July 2017, the head of the U.K. Financial Conduct Authority (the "FCA"), announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021. In March 2021, the FCA confirmed that all LIBOR settings will either cease to be provided by any administrator or no longer be representative: (a) immediately after December 31, 2021, in the case of sterling, euro, Swiss franc, and Japanese yen, and the one week and two month U.S. dollar settings; and (b) immediately after June 30, 2023, in the case of the remaining U.S. dollar settings. In addition, as a result of supervisory guidance from U.S. regulators, some U.S. regulated entities will cease to enter into new LIBOR contracts after January 1, 2022. At this time, no consensus exists as to what rate or rates will become accepted alternatives to LIBOR, although the Alternative Reference Rates Committee, a steering committee convened by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York and comprised of large U.S. financial institutions, has recommended the use of the Secured Overnight Financing Rate, SOFR. There are many uncertainties regarding a transition from LIBOR to SOFR or any other alternative benchmark rate that may be established, including, but not limited to, the timing of any such transition, the need to amend all contracts with LIBOR as the referenced rate and, given the inherent differences between LIBOR and SOFR or any other alternative benchmark rate, how any transition may impact the cost and performance of impacted securities, variable rate debt and derivative financial instruments. In addition, SOFR or another alternative benchmark rate may fail to gain market acceptance, which could adversely affect the return on, value of and market for securities, variable rate debt and derivative financial instruments linked to such rates. The effects of a transition from LIBOR to SOFR or any other alternative benchmark rate on the Trust's cost of capital and net investment income cannot yet be determined definitively. All of the Trust's loan agreements with the Trust's portfolio companies include fallback language in the event that LIBOR becomes unavailable.

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Barings Participation Investors

2022 Annual Report

This language generally either includes a clearly defined alternative reference rate after LIBOR's discontinuation or provides that the administrative agent may identify a replacement reference rate, typically with the consent of (or prior consultation with) the borrower. In certain cases, the administrative agent will be required to obtain the consent of either a majority of the lenders under the facility, or the consent of each lender, prior to identifying a replacement reference rate. In addition, any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market value for or value of any LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to the Trust and could have a material adverse effect on the Trust's business, financial condition and results of operations.

Hypothetical growth of $10,000 Investment (unaudited)

$20,000																																		$18,715
$18,000
$16,000
$14,000																																		$14,843
$12,000
$10,000
$8,000
$6,000
		3					3		4					5					6		17			8	19				20			1			2
	1				1		201				1				1				01					2		2
0				0					0				0			20			20			0	0			20
2					/2						2					/2						2			2		2
/								/			/								/			/	/			/		/				31/
1				1			1		1				1			1		1	2/31		1		/31
/				/3				/3			/3					3				3			3			3
1													/				2/			/			/						/
			2				12		2				2					2		2			12			2
			1						1					1					1		1			1	1						1
				Barings Corporate Investors						Bloomberg Barclays U.S. Corporate High Yield Index

Average Annual Returns December 31, 2022	1 Year	5 Year	10 Year
Barings Participation Investors	(10.57%)	4.22%	6.49%
Bloomberg Barclays U.S. Corporate High Yield Index	(11.19%)	2.31%	4.03%

Data for Barings Participation Investors (the "Trust") represents returns based on the change in the Trust's market price assuming the reinvestment of all dividends and distributions. Past performance is no guarantee of future results.

The graph and table do not reflect the deduction of taxes that a shareholder would pay on distributions from the Trust or the sale of shares.

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Barings Participation Investors

2022 Annual Report

TO OUR SHAREHOLDERS

I am pleased to share with you the Trust's Annual Report for the year ended December 31, 2022.

PORTFOLIO PERFORMANCE

The Trust's net total portfolio rate of return for 2022 was 4.42%, as measured by the change in net asset value assuming the reinvestment of all dividends and distributions. The Trust's total net assets were $158,923,575 or $14.99 per share, as of December 31, 2022. This compares to $161,080,475 or $15.19 per share, as of December 31, 2021. The Trust paid a quarterly dividend of $0.20 per share the first two quarters of 2022, $0.22 for the third quarter, and $0.24 for the fourth quarter, for a total annual dividend of $0.86 per share, representing a 7.5% increase to the 2021 dividend. The Trust paid a quarterly dividend of $0.20 per share for each of the four quarters of 2021, for a total annual dividend of $0.80 per share. Net taxable investment income for 2022 was $1.01 per share, including approximately $0.02 per share of non-recurring income, compared to 2021 net taxable investment income of $0.89 per share, which included approximately $0.12 per share of non-recurring income.

The Trust's stock price decreased 16.76% during 2022, from $14.80 as of December 31, 2021 to $12.32 as of December 31, 2022. The Trust's stock price of $12.32 as of December 31, 2022 equates to a 17.8% discount to the December 31, 2022 net asset value per share of $14.99. The Trust's average quarter-end premium/discount for the 3-,5-, 10- and 15- year periods ended December 31, 2022 was -12.1%,-1.9%, 0.2%, and 3.5%, respectively.

The table below lists the average annual net returns of the Trust's portfolio, based on the change in net assets and assuming the reinvestment of all dividends and distributions. Average annual returns of the Bloomberg Barclays U.S. Corporate High Yield Index for the 1-,3-,5-, 10- and 25-year periods ended December 31, 2022 and the Credit Suisse Leveraged Loan Index for the 1-, 3- and 5-year periods ended December 31, 2022 are provided for comparison purposes only.

	The Trust	Bloomberg Barclays US	Credit Suisse Leveraged
	Corporate HY Index	Loan Index
1 Year	4.42%	(11.19)%	(1.06)%
3 Years	8.80%	0.05%	2.34%
5 Years	8.37%	2.31%	3.24%
10 Years	9.55%	4.03%
25 Years	10.81%	5.86%

Past performance is no guarantee of future results

PORTFOLIO ACTIVITY

Consistent with the stated Investment Objective of the Trust, we continue to search for relative value, identifying investments that provide current yield as well as those with opportunities for capital gains. The Trust closed six new private placement investments and 17 add-on investments in existing portfolio companies totaling $3.3 million during the fourth quarter. For the year, the Trust closed 29 new private placement investments and 58 add-on investments in existing portfolio companies. The add-on investments include additional term loans and equity co-investment as well as drawdowns on revolvers and delayed draw term loans. A brief description of these investments can be found in the Consolidated Schedule of Investments. The total amount invested by the Trust in private placement investments in 2022 was $23.6 million, which was significantly lower than the $149.1 million of private placement investments made by the Trust in 2021. The lower investment amount can be attributed to fewer realizations in 2022.

Several macroeconomic risks continued during the quarter amid an uncertain environment for investors across the broader capital markets. Concerns, previously focused on COVID-19 and disrupted supply chains, swiftly shifted to inflation, the hiking of interest rates by central banks and the likelihood of a recession. While there continues to be levels of uncertainty and volatility we have not seen for some time, we take comfort that as bottom-uplong-term investors we invest in high quality companies, in defensive sectors which we believe will perform through economic cycles (and volatile periods such as these). Both credit quality and capital structure of portfolio companies are key factors in our analysis, along with the quality of the ownership and management groups. As fundamental long-term investors, we believe it is imperative to remain disciplined and underwrite capital structures which will remain sound through economic cycles (and varying interest rate environments). We also seek to maintain a high level of portfolio diversification overall, looking at both industry and individual credit concentration. From a return perspective, the floating rate loans that constitute a majority of the portfolio provide some protection and higher returns in an inflationary environment. The North American Private

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