A quick update on Wednesday’s AltFi Investor Workshop – the first of a new series of focused, educational sessions for institutional investors, hosted by Liberum.
Wednesday’s workshop dealt with the peer-to-business lending sector. Hosted at Liberum’s offices on Ropemaker Street in London, the audience was made up of representatives from a mixture of funds, asset managers, family offices, financial advisors and even a few alternative finance platforms. Below is our speaker list and a selection of highlights from each presenter:
Cormac Leech (Liberum): Cormac provided an insightful analysis of the current state of the peer-to-business lending market and where it might end up in a few years time. Cormac will be echoing some of the key themes from this presentation within his keynote speech at the fast-approaching AltFi Global Summit – so unfortunately we can’t give too much away at this stage!
Simon Champ (P2PGI): Simon is the CEO of the Marshal Wace backed fund P2PGI – which gives its investors exposure to a select range of loan assets originated by some of the UK’s top platforms. Simon gave a big picture overview – comparing the state of the P2P market at the moment to the air travel space when Ryanair and Easyjet were first emerging. It was assumed at that time that these low-cost airlines might capture a small percentage of BA’s market share. The reality is that Ryanair and Easyjet in fact expanded the market enormously – and now both airlines fly tens of millions more flights a year than BA. Simon suggested that we might see a similar situation develop between the peer-to-peer lenders and banks. He also explored the benefits of investing in the space via a vehicle like P2PGI. These benefits include:
The burden of due diligence falls to the fund – and they have very sophisticated processes that most investors won’t be able to match.
P2PGI actually holds some equity in the platforms themselves – meaning more upside for its investors.
The fund has access to riskier, but higher return tranches of loans that are not available to the retail investor.
David de Koning (Funding Circle): David offered a detailed exploration of the famously transparent Funding Circle platform. Perhaps most fascinating was the breakdown of institutional involvement between Funding Circle in the UK and its US subsidiary. 80% of the capital at play on the UK platform is provided by retail investors – although the sum of institutional capital deployed is on the rise. In the US, quite the reverse is true – with 80% of the capital instead supplied by institutions. An interesting question cropped up from an IFA at the end of David’s presentation: I have a number of clients who want to put money to work in the peer-to-business space – what documentation can I show them to justify the investment? What the question highlighted is that even the top platforms have work to do in terms of making their platforms more IFA-friendly.
Rupert Taylor (AltFi Data): We mentioned the “famously transparent” nature of the Funding Circle marketplace, and it’s that transparency that enabled Rupert and the AltFi Data team to conduct an exciting analysis of the Funding Circle loanbook. As Rupert explained in his workshop presentation, of the 15 factors that effect risk for Funding Circle loans – investors seem to be paying attention to just 2: the Funding Circle risk rating, and the size of the loan. However, with a more considered loan selection process, AltFi Data has discovered a methodology for improving returns via the Funding Circle platform by 25%. Read parts 1, 2 and 3 of the study here.
Christian Faes (LendInvest): Christian gave a brief overview of the LendInvest platform – explaining the key features that make it stand out from the crowd. These features include:
The dedicated pool of capital that incubator Montello can deploy to enable the swift underwriting of new loans.
The fact that the platform’s investors have never lost any money – although Christian admits that the platform has had defaults.
According to Christian, the business learned some tough lessons early on in terms of loan selection. Fortunately, these lessons were learnt with relatively small amounts of capital at play. Somewhat surprisingly, the business is already profitable – having made £4-5m in 2014. The platform has not received any equity investment from external parties.
Guy Tolhurst (Intelligent Partnership): Intelligent Partnership is a research driven business that seeks to better acquaint the IFA market with alternative investment products. Guy supplied a short summary of the ways in which peer-to-business lending platforms may need to adapt their strategies in order to better cater for the independent adviser market. Guy also touched on the work that IP is doing with AltFi Data in order to produce due diligence reports on specific platforms within the alternative finance space. Such reports are exactly the sort of documentation that IFAs need in order to more comfortably recommend that their clients invest via one of the many platforms.
David Doust (DirectMoney): DirectMoney is an Australian P2P lending platform in the mould of the UK’s Zopa. Founder and CEO David Doust offered an entertaining talk about the platform – which launched earlier this month. David outlined the regulatory constraints that face platforms in the Australian market, including the necessity to operate as a fund. He gave an overview of the Australian market opportunity for P2P consumer lending and the platform's expansion plans, as well as reporting that DirectMoney’s first few weeks of trading had seen lending volumes that significantly topped their forecasts.
Alternative Income Forum 2019
Join AltFi for its third annual Alternative Income Forum, exploring closed-ended funds (investment trusts) specialising in generating an income using alternative assets such as specialist finance, P2P lending, direct lending, asset leasing and more. Hear from the leading investors and fund managers in this rapidly growing market.