By Sam Griffiths on Wednesday 11 February 2015
Last October we published an analysis article investigating the deployment of institutional capital on Funding Circle. At the time we promised to keep a close eye on the situation and, true to our word, here’s an update 4 months on. The chart below shows the split of loans funded each month in terms of fractional loans (the majority of which tend to be bought by individual investors) and whole loans, which we believe are almost exclusively bought by institutional investors.
Since the IPO of P2P Global Investments in May 2014, there has been a massive increase in the amount of institutional capital funding whole loans issued on the Funding Circle platform. The proportion of whole loans funded grew on a monthly basis and reached a peak of 39% in November 2014. As can be seen from the chart above, however, this upwards trend appears to have been halted, or at least paused. In the two months since November, the whole loan:fractional loan split has remained static at 2:3. This is despite an overall drop off in volume over the Christmas period.
Perhaps Funding Circle is attempting to control and balance the influx of institutional capital into its marketplace with its more steadily growing retail investor base? Whilst institutional funding has been welcomed by platforms as a ready source of capital supporting growing borrower demand, some commentators have noted the equal importance of a strong retail investor base for marketplace lending as it is said to be more ‘sticky’ in the long-term.
With P2P GI’s recent £250m C share issue, and the announcement that Victory Park plan to float a £200m P2P fund, it is likely that the leveling off of the proportion of institutional capital in the marketplace is just a temporary phenomenon. There will be increased pressure for the percentage of capital provided by the institutional investor to increase once again in the near term. As ever, we’ll keep our watching this situation and let you know how Funding Circle respond.