BL Magazine

Finance
P2P makes its
next move
Words:
Dave Waller
THE PAST SEVEN years haven’t exactly
been the best time to be an SME seeking
funds. Since the financial crisis, banks
and other traditional lenders have
tightened their lending criteria and
avenues have become closed off as
regulators restrict lending activities to
help stabilise the economy.
Against this backdrop, the surging
appeal of peer-to-peer (P2P) lending
comes as no surprise – while the banks
may not be in a position to dish
out the dosh, plenty of other folk are.
The P2P model is largely credited to
Zopa, a London-based platform that
launched back in 2005 and has now
lent more than £1bn. The basic model
of P2P is that online platforms allow
individuals and businesses seeking capital
to go direct to members of the public,
who in turn get a good return for their
lending (much better than the paltry
interest rates that are available from
deposit accounts).
Zopa has since been joined by a host
of rival platforms, including Funding
Circle, through which 11,000 businesses
have borrowed a total of more than
£890 million in the UK alone.
Overall, P2P lending to British
firms exceeded £1.2bn in 2014, with
a 90 per cent increase in the number
of UK companies borrowing through
such platforms, according to the
Peer-to-Peer Finance Association.
“There’s strength and wisdom in
the crowd,” says Angus Dent, CEO
of ArchOver, a UK-based P2P lending
platform, as an explanation for P2P’s
success. “Borrowing becomes easier for
the borrower, while we build in several
layers of security for lenders.”
Of course, such revolutionary models
rarely remain static for long, and the
P2P concept has now expanded beyond
one-to-one lending through the creation
of P2P investment trusts, which manage
a selection of loans on the investors’
behalf. By investing in a range of P2P
platforms, these offer exposure to a greater
number of loans than if investors used a
standard P2P model.
They may also offer exposure to debt
that may not be directly accessible through
P2P lenders, and they have a potentially
low correlation to equities – which could
make for an attractive risk profile. Plus,
with dedicated teams to choose the loans,
it saves investors doing their own due
diligence on the underlying loans and
platforms, which can be both tricky
and time-consuming.
This is a relatively new asset class,
perhaps more accurately labelled ‘direct
lending’ – it’s hard to see an investment
trust as a peer, but the P2P title has stuck
because the process remains intermediaryfree.
While retail investors were targeted
first, it’s now largely the preserve of
institutional investors such as pension
funds – which means far greater fund
volumes and chunkier deals.
BRANCHING OUT
At the time of writing, there are
five investment trusts in this space.
The largest, P2P Global Investments,
launched in May 2014 and has so far
raised around £800 million. Victory Park
Capital and Ranger Direct Lending are
US companies that launched in March
2015 and have raised about £200 million
and £135 million respectively to date.
But the Channel Islands are involved as
well, first through GLI Finance, which has
a Guernsey-based P2P investment trust
that has allocated a £52 million fund
across 19 platforms.
“We’re director of all of them, so we
have full oversight of the businesses,”
says Andrew Whelan, GLI’s Director of
Lending. “We’re intimate with them,
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