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Peer-to-Peer Platform Funds, Full Authorisation and Scale

LendInvest boss Christian Faes shares his views on the state of the peer-to-peer lending space.  

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LendInvest has landed its fair share of headlines in recent months. In June, the platform secured a £22m equity investment from Beijing Kunlun in June. Only last week, LendInvest announced its second consecutive year of profitability. Rumours then began flying – after having originally been propagated by the FT’s Judith Evans – about the platform floating a listed fund, with the intention of raising £150m.

In an effort to tie together these developments, and for insight on the platform’s broader strategy and industry trends, I dropped into LendInvest HQ for an in-depth interview with CEO Christian Faes.

Never has the subject of regulation in alternative finance been hotter. The People’s Bank of China recently published a set of proposals for the regulation of the nation’s sprawling peer-to-peer lending space. Title IV of the JOBS Act came into effect in the US in June, for the first time opening up equity crowdfunding to local retail investors. A multitude of niche markets are beginning to wise up to the importance of a dedicated regulatory framework.

In the UK, the major development of the moment is the impending deadline for full authorisation applications. The specialist consultancy Bovill recently revealed that 26% of the peer-to-peer firms seeking FCA authorisation have subsequently chosen to pull the plug on their efforts.

LendInvest has itself been powering through the authorisation process. Christian has always been vocal about his belief that the FCA’s regulation of the P2P space is fairly “light touch”, and he feels that it will continue to be post-authorisation. The application process, however, has been anything but light touch. In fact, Christian believes that the burdensome nature of this process will likely act as a filtering systems for P2P platforms that are lacking in resources. That point of view certainly seems to have been corroborated by Bovill’s findings.

But a stringent review process alone isn’t fit to the task of instilling best practice across the sector, says Faes. In particular, the LendInvest boss believes that the FCA could be a lot firmer on the matter of requiring a minimum level of due diligence of peer-to-peer lending outfits. LendInvest has always taken pride in its own due diligence protocols, seeing these as a clear differentiator for the platform.

I asked Christian whether the dawn of full authorisation means that we’re unlikely to see a Trustbuddy-like situation develop within the UK market. He said that full authorisation will certainly make it tougher for platforms to commit fraud, but that if a company is determined to behave in a criminal manner, then regulation alone cannot always be expected to prevent them from doing so.

We then moved on the subject of institutional money. I asked Christian for an update on the present composition of the LendInvest marketplace. He revealed that 75% of the platform’s loans are currently funded by institutional investors, with the remaining 25% filled by retail money. On the balance of the LendInvest marketplace heading forwards – bearing in mind the advent of the Innovative Finance ISA, which is set for 6th April 2016 – Christian said:

“I think retail volumes will climb a little with ISA money. But we’re also fielding lots of institutional interest. The balance will depend upon the take-up of certain vehicles that we’re looking to establish. The challenge for us is to achieve as diversified a pool of capital as possible.”

We must assume that the “certain vehicles” reference pertains to the platform’s much-rumoured fund, but Christian declined to confirm. He did, however, weigh in on the Funding Circle SME Income Fund – which intends to raise £150m through an IPO of its own. Christian believes that such vehicles are fundamentally different from the likes of P2PGI and VPC’s Specialty Lending Investments. We’re inclined to agree. The Funding Circle SME Income Fund will provide investors with passive exposure to the platform’s loan book, and hence will charge neither management nor performance fees. It will provide investors with a purely SME, mostly UK-based exposure. It will by no means be a highly leveraged vehicle, with the ability of apply leverage of up to just 25% of the value of its assets under management.

Faes also believes that the various Closed End Funds – P2PGI in particular – have done a fantastic job of identifying the marketplace lending opportunity and executing a strategy, to the point that a queue of institutions are now lining up to provide them with leverage. However, he also feels that the rampant pace at which these funds are currently raising money cannot last forever, and could potentially begin to slow down within a year.

Montello Capital – the real estate fund which originally spun out the LendInvest platform – will now rebrand as LendInvest Capital. LendInvest and Montello had operated as sister companies since the launch of the former in 2013, but the writing has been on the wall for a merging of the two entities for some time. LendInvest merged its lending data with Montello in August 2014. The platform then became the parent company of Montello in June of this year, as part of the Beijing Kunlun equity investment.

The blending of the two companies feels like a natural step in the maturation of the company, which is experiencing growth across the board at the moment. That growth has been reflected in the platform’s recent hiring spree. Christian explained that the emphasis here was on recruiting top talent in the field of technology, with a view to tightening up that vitally important half of the FinTech formula.

Despite now being locked into what may justifiably be called a “scaling” process, Christian believes that the company can nevertheless continue to operate a profitable business model. “We’re the most profitable peer-to-peer company in the world,” said the LendInvest boss, much to the ire of his new head of PR.

Why then raise the recently secured £22m in external funding? Christian said that LendInvest didn’t want to run the risk of being left underfunded. He explained that mortgages are a particularly attractive slice of the consumer lending market, and that he suspects that other non-bank players will begin to circle before long. The £22m will help the company to sure up its already strong market position.

Might the platform also consider the prospect of overseas expansion? “The UK mortgage market is big enough,” says Christian, and whilst he added that LendInvest remains opens to opportunities, he stressed that those opportunities would never be pursued at the expense of the platform’s UK market position.

To finish, how about this IPO that we’ve heard so much about in the pages of the FT? For now, the focus appears to be on getting “IPO ready” – with no clear timing in place (or publicly available) for the listing itself. But make no mistake, the company has set sail on a voyage that will ultimately end in an IPO. It’s now a question of when, not if.  

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Christian Faes

CEO and Co-Founder


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