Barings Participation Investors : 2023 Annual Report - Barings Participation Investors

2023

Barings

PARTICIPATION INVESTORS

2023 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 16, 2024, 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, 2023, 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

2023 Annual Report

	PORTFOLIO COMPOSITION AS OF 12/31/2023*
Public Bank Loans	Public Debt	Cash
Cash 0.5%	3.5%
0.3%
3.5%	Public Equity
	Equity
		0.0%
Private Debt			12.3%
6.0%
Private /
Restricted			Fixed Rate
Equity			13.1%
12.3%

Floating Rate 71.1%

Private Bank Loans 77.4%

PORTFOLIO COMPOSITION AS OF 12/31/2022*

	Public Bank Loans	Public Debt
Cash	1.6%	0.4%	Cash
2.7%		Public Equity	2.7%
		Equity
		0.1%
		11.7%
Private Debt
9.1%			Fixed Rate
			12.6%

Private / Restricted Equity 11.7%

Private Bank Loans	Floating Rate
73.0%
74.4%

• Based on market value of total investments and cash balances

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

2023 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)

$30,000
$28,000										$25,802
$26,000
$24,000
$22,000
$20,000
$18,000
$16,000
$14,000										$15,672
$12,000
$10,000
$8,000
1/1/2014	12/31/2014	12/31/2015	12/31/2016	12/31/2017	12/31/2018	12/31/2019	12/31/2020	12/31/2021	12/31/2022	12/31/2023
	Barings Participation Investors	Bloomberg Barclays U.S. Corporate High Yield Index

Average Annual Returns December 31, 2023	1 Year	5 Year	10 Year
Barings Participation Investors	38.51%	8.29%	10.03%
Bloomberg Barclays U.S. Corporate High Yield Index	13.44%	5.37%	4.60%

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

2023 Annual Report

TO OUR SHAREHOLDERS

I am pleased to share with you the Trust's Annual Report for the year ended December 31, 2023.

PORTFOLIO PERFORMANCE

The Trust's net total portfolio rate of return for 2023 was 12.46%, as measured by the change in net asset value assuming the reinvestment of all dividends and distributions. The Trust's total net assets were $163,366,715 or $15.41 per share, as of December 31, 2023. This compares to $158,923,575 or $14.99 per share, as of December 31, 2022. The Trust paid a quarterly dividend of $0.28 per share for the first quarter, $0.32 for the second quarter, $0.34 for the third quarter, and $0.35 for the fourth quarter of 2023, for a total annual dividend of $1.29 per share, representing a 50% increase to the 2022 dividend. The Trust paid a quarterly dividend of $0.20 per share for 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. Net taxable investment income for 2023 was $1.53 per share, including approximately $0.02 per share of non-recurring income, compared to 2022 net taxable investment income of $1.01 per share, which included approximately $0.02 per share of non-recurring income.

The Trust's stock price increased 26.62% during 2023, from $12.32 as of December 31, 2022 to $15.60 as of December 31, 2023. The Trust's stock price of $15.60 as of December 31, 2023 equates to a 1.23% premium to the December 31, 2023 net asset value per share of $15.41. The Trust's average quarter-end premium for the 3-,5-, and 10-year periods ended December 31, 2023 was -12.4%,-6.0% and -1.75%, 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, 2023 and the Credit Suisse Leveraged Loan Index for the 1-, 3- and 5-year periods ended December 31, 2023 are provided for comparison purposes only.

	The Trust	Bloomberg Barclays US	Credit Suisse Leveraged
	Corporate HY Index	Loan Index
1 Year	12.46%	13.44%	13.04%
3 Years	11.16%	1.98%	5.64%
5 Years	10.23%	5.37%	5.56%
10 Years	9.61%	4.60%
25 Years	10.84%	6.32%

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 23 add-on investments in existing portfolio companies totaling $4.7 million during the fourth quarter. For the year, the Trust closed 20 new private placement investments and 39 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 2023 was $13.8 million, which was lower than the $23.6 million of private placement investments made by the Trust in 2022. The lower investment amount can be attributed to fewer realizations as well as a softer M&A market in 2023.

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 the timing of interest rate cuts by the Fed, as they balanced the risk of reigniting inflation with causing 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- up long-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 Finance team continues to see good investment opportunities, and while the

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Barings Participation Investors

2023 Annual Report

activity, by number of investments and volume, was lower than the prior corresponding period, the quality of the investment opportunities remains high.

As market conventions have largely migrated to all senior capital structures, the Trust's flexible Investment Objective has allowed for continued investing in small to middle market companies. As of December 31, 2023, 68% of the Trust's investment portfolio is in first lien senior secured loans which provides strong risk adjusted returns for the Trust given the senior position in the capital stack. These investments have proven resilient to date. Junior debt comprised 15% of the Trust's portfolio and we will continue to invest in junior debt when the capital structure and risk adjusted return is deemed appropriate. Equity co-investments alongside the debt investments (13% of the Trust's portfolio) provide an opportunity for the Trust to realize capital gains in the future. Realized capital gains are typically retained to increase the earnings capacity of the Trust.

The Trust maintains liquidity based on available cash balances of $6.4 million or 3.4% of total assets, and low leverage profile at 0.12x as of December 31, 2023. Given the migration of the portfolio towards more senior secured investments, the Trust arranged for a $15.0 million committed revolving credit facility with MassMutual (See Note 4). This facility coupled with the current cash balance provides liquidity to support our current portfolio companies as well as invest in new portfolio companies. As always, the Trust continues to benefit from strong relationships with our carefully chosen financial sponsor partners. These relationships provide clear benefits to the portfolio companies including potential access to additional capital if needed and strategic thinking to compliment a company's management team. High-quality and timely information about portfolio companies, which is only available in a private market setting, allows us to work constructively with financial sponsors and maximize the portfolio companies' long-term health and value.

We had 13 companies exit from the Trust's portfolio during 2023. This level of exit activity in the Trust's portfolio was significantly below recent years as realization levels have ranged from 18-32 exits annually since 2014. In 4 of these exits, the Trust realized a positive return on its investment. This lower level of realization activity in 2023 highlights the impact of the macroeconomic risks on the middle market M&A and debt markets.

During 2023, the Trust had 9 portfolio companies fully or partially pre-pay their debt obligations. These transactions, in which the debt instruments held by the Trust were fully or partially prepaid, are generally driven by performing companies being sold to either a strategic or financial buyer or those seeking to take advantage of lower interest rates and the abundance of debt capital. Unless replaced by new private debt investments, these prepayments reduce net investment income. With the higher base rates, the level of refinancing activity the portfolio has experienced slowed in 2023 compared to prior years.

OUTLOOK FOR 2024

Two of the bigger questions in 2024 involve the Fed and the economy. Specifically, when will the Fed begin to lower interest rates and will they lower them before the U.S. experiences a recession. Recent expectations called for a first cut in March. However, given the higher than expected PPI and CPI numbers released in February, there is a risk of "higher for longer" interest rates, with June now looking like the target for a first cut. While most supply chains appear to have normalized, the question now becomes, can the economy withstand a prolonged period of high interest rates without falling into a recession. When constructing portfolios, we focus on investing in high-quality businesses which are leaders in their space and offer defensive characteristics which will allow them to perform through the cycle. In addition, our underwriting process includes forward-looking analysis that incorporates rising rates, higher input prices and increased labor costs, with a focus on their impact to interest coverage and other relevant ratios. Additionally, as the Trust portfolio has migrated to a higher percentage of first lien assets, our position as lender is further strengthened by the fact that we are lead or co-lead on over 80% of our first lien loans. As a lead or co-lead, we can influence the credit documents to ensure that we have appropriate protections and remedies in the event of any covenant violation or specific 'ask" from the borrower or sponsor. Therefore, while segments of the broader economy may be affected by potential supply chain issues, increasing raw material and energy costs and labor shortages, we remain confident in our underwriting process and the current diversified portfolio to perform through the cycle.

As we enter 2024, default rates remain at relatively low levels, there appears to be plenty of both private equity and private debt capacity. While we expect the M&A activity to remain a bit subdued throughout the first quarter, our pipeline of investment opportunities remains relatively stable and healthy. However, as mentioned above, the dynamics within that market have been, and are expected to remain, aggressive. Rest assured that regardless of market conditions, we will continue to employ on behalf of the Trust the same investment philosophy that has served it well since its inception: investing in companies that we believe have a strong business proposition, solid cash flow and experienced, ethical management. We believe this philosophy, along with Barings' seasoned investment-management team, positions the Trust well to meet its long-term investment objectives.

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Barings Participation Investors

2023 Annual Report

In closing, we believe it is always appropriate to provide views on the Trust's long-term dividend policy which is to say, 'we believe that long-term dividends should be a reflection of long-term core earnings power.' Significant growth in net investment income, due primarily to increases in base rates for our floating rate holdings and quality credit selection, has lead the Board of Trustees to declare an increase each of the past six dividends, further benefiting shareholders. The Trust's 2023 net investment income of $1.50 per share, net of taxes, fully supported the full year dividend of $1.29 per share In 2024, we do anticipate the earnings power to remain stable as long as the base rates remain elevated.

As always, I would like to thank you for your continued interest in and support of Barings Participation Investors. I look forward to seeing you at the Trust's annual shareholder meeting on Thursday, May 16, 2024.

Sincerely,

Christina Emery

President

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Barings Participation Investors

2023 Annual Report

2023	Record	Total		Ordinary		Short-Term		Long-Term
Dividends	Date	Paid		Income		Gains		Gains
Regular	5/31/2023 $	0.2800	$	0.2800	$	-	$	-
Regular	8/28/2023	0.3200		0.3200		-		-
Regular	11/6/2023	0.3400		0.3400		-		-
Regular	12/29/2023	0.3500		0.3500		-		-
	$	1.2900	$	1.2900	$	-	$	-

The Trust did not have distributable net long-term gains in 2023.

Annual	Qualified for Dividend	Qualified Dividends**	Interest Earned on
Dividend	Received Deduction*	U.S. Gov't. Obligations
Amount per	Percent	Amount per	Percent	Amount per	Percent	Amount per
Share	Share	Share	Share
$1.29	4.0134%	$0.0518	4.0134%	$0.0518	0%	$0.0000

• Not available to individual shareholders

• Qualified dividends are reported in Box 1b on IRS Form 1099-Div for 2023

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BARINGS PARTICIPATION INVESTORS
Financial Report
Consolidated Statement of Assets and Liabilities	8
Consolidated Statement of Operations	9
Consolidated Statement of Cash Flows	10
Consolidated Statements of Changes in Net Assets	11
Consolidated Financial Highlights	12
Consolidated Schedule of Investments	13-37
Notes to Consolidated Financial Statements	38-50
Report of Independent Registered Public Accounting Firm	51
Interested Trustees	52-53
Independent Trustees	54-55
Officers of the Trust	56-57

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CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES	Barings Participation Investors
December 31, 2023	2023 Annual Report
Assets:
Investments
(See Consolidated Schedule of Investments)
Corporate restricted securities - private placement investments at fair value
(Cost - $165,830,455)	$	173,231,561
Corporate restricted securities - rule 144A securities at fair value
(Cost - $5,959,802)			5,830,650
Corporate public securities at fair value
(Cost - $1,854,712 )			1,513,765
Total investments (Cost - $173,644,969)			180,575,976
Cash			6,478,597
Foreign currencies (Cost - $6,830)			6,549
Dividend and interest receivable			2,788,295
Receivable for investments sold			107,098
Escrow receivable for investment sold			293,416
Other assets			228,175
Total assets			190,478,106
Liabilities:
Note payable			15,000,000
Credit facility (net of deferred financing fees)			6,573,545
Dividend payable			3,710,595
Deferred tax liability			282,774
Investment advisory fee payable			741,598
Tax payable			450,000
Interest payable			228,231
Accrued expenses			124,648
Total liabilities			27,111,391
Commitments and Contingencies (See Note 7)
Total net assets	$	163,366,715
Net Assets:
Common shares, par value $.01 per share	$	106,017
Additional paid-in capital			144,171,005
Total distributable earnings			19,089,693
Total net assets	$	163,366,715
Common shares issued and outstanding (14,787,750 authorized)			10,601,700
Net asset value per share	$	15.41

See Notes to Consolidated Financial Statements

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