BlackRock has emerged as the latest asset manager to have invested a significant amount in peer-to-peer loans.
According to an FT report from Friday – one based upon Bloomberg data – BlackRock was at one time the third largest holder of Funding Circle’s recently floated SME Income Fund, which raised £150m from institutional investors via the London Stock Exchange in late November 2015. BlackRock reportedly purchased £12.7m of shares in December.
The investment is significant in that it marks the first time that BlackRock has offered retail investors exposure to peer-to-peer loans in actively managed products. The Funding Circle SME Income Fund shares are held within the BlackRock Income Strategies trust. BlackRock has previously held a small number of shares in a pair of peer-to-peer investments trusts (presumably P2PGI and VPC’s Specialty Lending Investments) in its equity tracker funds.
BlackRock also managed one of the first securitisations in the marketplace lending space – a $327m bundle of Prosper loans named the Consumer Credit Origination Loan Trust 2015-1 – the first to be formally evaluated by a major rating agency. The top tranche of the deal carried an investment grade rating of Baa3 from Moody’s, while the lower tranche was assigned a rating of Ba3. A Bloomberg report from February this year suggested that Moody’s may be downgrading its assessment of certain parts of the deal, with charge-offs coming in at a higher rate than had been expected.
The Funding Circle SME Income Fund was built for exactly the purpose of affording major institutional investors access to Funding Circle’s global portfolio of SME loans. Following the acquisition of Zencap in October, Funding Circle became a global brand – facilitating small business loans in the UK, US, Germany, the Netherlands and Spain. The SME Income Fund is comprised of loans from across that geographical spectrum.
The endorsement of the world’s largest asset manager may serve as a useful boost for the peer-to-peer lending sector, which has been coming under fire from various angles of late. There have been murmurings of deteriorating asset performance in the US marketplace lending sector. In the UK, former FSA boss Lord Turner called the credit processes of the peer-to-peer platforms into question, declaring that “the losses which will emerge from peer-to-peer lending over the next five to 10 years will make the bankers look like lending geniuses”. BlackRock, in relation to Funding Circle at least, doesn’t seem convinced.
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.