By Daniel Lanyon on 11th October 2018
Research conducted by AltFi has found that investors have been rewarded for holding exposure to lending originated from peer-to-peer platforms.
More than 90 per cent of UK funds investing in bond and direct property have underperformed the UK P2P lending market over the past three years, according to exclusive research from AltFi.
While there are several important differences between investing in open-ended mutual funds and directly with p2p platforms, including different liquidity criteria, speed of capital deployment and daily pricing, the figures are stark.
Looking at the numbers between 30 June 2015 and 30 June 2018, the most up to date comparable data, we can see the UK net returns to investors over the three years are 18.92 per cent for P2P lending. This number is calculated after fees and represents a market share weighted investment across the major platforms. This is measured by The AltFi Data UK Lending Returns Index.
A handy explainer of the index:
“[It] measures the returns available from tech enabled lending in the UK. Index values are published as an annualised return, measuring what an equal time-weighted exposure to every loan originated by the participating platforms would have generated over the preceding 12 month period. The return has been calculated after fees and is expressed net of losses. Index calculations are based on loan level data from: Funding Circle, Market Invoice, RateSetter, and Zopa.”
Taking the figure of 18.92 per cent and comparing it with the net returns - capital appreciation plus income payouts after fees - for mainstream bond and direct property funds in the Investment Association's universe it is clear P2P has performed strongly for investors in the vast majority of cases.
There are 214 bonds funds within the IA’s universe across the IA Sterling Strategic Bond, IA Sterling Corporate Bond, IA Sterling High Yield and IA UK Gilts sectors with comparable track records. The IA Direct Property also has 14 further funds with long enough track records. These total £189bn of investors’ assets.
Data from FE Analytics show that to make it into the top decile of funds within this pool of 228 funds a portfolio would need a return of more than 18.91 per cent.
During this period where investors’ appetite for income bearing assets has continued to strengthen, P2P lending has also seen a swelling in assets. According to AltFi Data, UK P2P lenders originated just over £1.1bn of loans in H1 2015. In the intervening three years the market has nearly tripled. In H1 2018 they have originated over £3bn.
P2P lending has outperformed many well known and large funds over this period including the £23bn M&G Optimal Income fund which returned just 12.26 per cent over the period.
The £62m Pimco GIS Income fund was the best performer over this period with a net return of 37.34 per cent.
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.