Octopus Investments has entered into the world of online lending.
Octopus Investments – the UK fund management company that manages over £5.5 billion in assets for over 50,000 clients – has launched a new peer-to-peer lending product by the name of “Octopus Choice”. Investors will be offered the opportunity to invest in a discretionary managed portfolio of asset-backed loans. These loans will be secured against residential property – an area in which Octopus is well versed. The company’s property lending business, Dragonfly Property Finance, has made nearly 3,500 loans worth around £1.9bn in total since launching in 2009 – with a loss rate of less than 0.1% to date.
In an interesting spin – and perhaps in answer to qualms about the current lack of skin-in-game involved in peer-to-peer lending – Octopus will invest in each and every loans alongside its investors, on a “first loss” basis. This is not dissimilar in style to the model that was originally brought to market by Wellesley & Co. Octopus will hold 5% of every loan originated by the platform.
The key selling point of Octopus Choice, however, is that the product has been tailor-made for IFAs. Octopus is calling the product the first “meaningful move” by a peer-to-peer platform to engage with financial advisers. Intelligent Partnership produced a survey in December which would appear to corroborate that claim. The headline findings revealed that 27% of alternative finance platforms had no plan in place for marketing to IFAs. Just 7% of the advisers surveyed realised that the many different moving parts of the alternative finance industry are now regulated, while a mere 13% were aware that some of the peer-to-peer lending platforms use provision funds as a means of guarding against investor losses.
Octopus is not the only fund management firm to consider the launch of a peer-to-peer lending product. A Hargreaves Lansdown operation has been talked about since December 2014, and is said to be launching in autumn this year. The Innovative Finance ISA – which officially launched on April 6th – is likely the major impetus behind these developments. The already premium returns on offer via P2P, shorn of income tax, appears to be too great a lure to ignore.
Bear in mind, however, that Octopus Choice currently holds interim permissions under the 36H rules, and as such will not yet be able to facilitate IFISA investments. Octopus will need to play the same kind of waiting game that the UK’s existing peer-to-peer platforms have been forced to play.
Simon Rogerson, CEO of Octopus Investments, offered comment:
“The growth of peer-to-peer lending shows no sign of stopping, and the sector presents a powerful opportunity for financial advisers to add value to their clients. But it’s currently being overlooked – and we want to change this. By working with the adviser community, we hope to help advisers play a central role in shaping the market as it continues to grow, developing a product that solves real needs for their clients."
“Because over the past few years, we’ve been hearing advisers ask the same question: how can I help my clients generate better returns than savings accounts, without over-exposing them to the ups and downs of the stock market? We think Octopus Choice offers an attractive solution, which can empower more and more people to make their money work harder for them.”