Funding Circle has struck a deal with KLS Diversified Asset Management, a New York based specialist fixed-income firm, to lend £132 million to small British businesses.
There are plans to securitize the loans by packaging them into bonds; this opens up the investment to a wider range of investors. Securitization of P2P products is gaining in popularity in the US but this would be one of the first times a UK platform had its loans securitized. In October Eaglewood Capital Management completed a $75 million securitization of peer-to-peer loans that were originated by Lending Club.
KLS also aim to start talks with credit rating agencies to rate the resulting bonds. This is a big step and it would give the investment instruments official credibility. Last month SoFi closed its second S&P rated securitization.
Funding Circle said the deal “opens up investing” to a range of larger institutional investors.
Samir Desai, chief executive of the platform, said:
“In the UK, Funding Circle now has more than 35,000 individuals, the government-backed British Business Bank and other institutional lenders all helping businesses access the finance they need to grow.”
AltFi data have recently discussed the impact the deployment of institutional capital will have on investor returns. By analysing the Funding Circle’s growth in origination of whole loans, typically favoured by institutional investors, they found that contrary to expectations investors are enjoying near record gross interest rates.
The UK market is starting to attract more institutional investors. However, it is lagging far behind the US where on the larger platforms there are far more institutional investors than retail ones. For example, 80% of the investors in Lending Club loans are from institutions. But in the future the UK platforms don’t need to just look at involving British institutional investors, as this Funding Circle deal suggests, international investors are very interested in the UK P2P sector.