Investors in marketplace lending investment trusts, such as the likes of GLI Alternative Finance and P2P Global Investments, should see their discounts recover in the coming years, according to Andrew Whelan, chief executive officer of GLI Finance.
There are currently five investment trusts listed on the London stock market that focus on marketplace lending or Peer to Peer lending, the process of connecting borrowers and investors online through a host of platforms such as Funding Circle,Zopa and Lending Club.
These are in order of size: P2P Global Investments (£868m), VPC Specialty Lending (£381m), Ranger Direct Lending (£157m), Funding Circle SME Income (£147m) and GLI Alternative Finance (£53.2m).
Not only the biggest, P2PGI also has the longest track record, having floated on the London market back in May 2014.Within six months it soared in popularity and moved to a whopping premium to net asset value (NAV) of 17.99 per cent but, like the other four ITs, it has suffered from a recent decline in market sentiment and is now on a hefty discount. This is shown in table below.
FundDiscount (%)P2P Global Investments14VPC Speciality Lending12Ranger Direct Lending10.4Funding Circle SME Income4.4GLI Alternative Finance5
Source: AIC
Whelan says the move to discounts for the investment trusts is less to do with deteriorating credit quality and more to do with a decline in investor sentiment.
“They are all trading at big discounts because of all of the fear and what is unknown. It is the fear. It is the known unknowns that are creating all the problems. That is not going to be resolved in the immediate future. It will just be a natural element of nothing comes out so people start to feel more comfortable again and start allocating again,” he said.
“I don't see any major blow ups in those,” he added.
However, he says there are other challenges for these trusts beyond the usual worries touted by investors of late such as the twin threats of a China led crisis and recession in the US, as well as a growing market concern that central banks are losing their grip on markets.
“What you have now is uncertainty. You have a nascent industry that is growing and you have a loan book and that will go through a maturity profile. It is three years since that last profile, so you are starting to see issues in the loan book. That then leads to pricing being reflective. That is a big issue at the moment,” Whelan said.
“There have been a huge amount of loans being taken on in the last 1- 2 years, of 3 year average loans. That is what people are starting to worry about. It is only at the end that you realise there are real problems.”
Of course, investors in marketplace lending vehicles have also recently been hit with a tumultuous few weeks due to market fallout from the shock departure of US-based Lending Club chief executive officer Renaud Laplanche, who has been accused of impropriety. As a consequence Lending Club was hit with a subpoena by US financial regulators.
The leading US marketplace lender, by loan book size, has seen its share price plummet of late. It is down more than 60 per cent over the past two weeks.
Performance of share price since IPO
Source: Google
The GLI Alternative Finance IT is managed by Amberton Asset Management - which is in turn half owned by Whelan’s firm GLI Finance. Having launched in September 2015, it’s one of the newest of the five investment trusts. The fund invests principally via online platforms in a range of SME loan assets. Its assets are deployed across three jurisdictions: the US, UK and some Sub-Saharan Africa exposure with a variety of durational tilts.
It has 51.8 per cent in SME loans, 15.3 per cent in property loans, 15.2 per cent in renewable energy and the rest split between cash and other debt instruments. About two-thirds of its exposure is to the UK. The Fund pays a monthly dividend and is targeting an outright income level of 8 per cent over a rolling twelve-month period.
Whelan also recently outlined his masterplan for GLI Finance – the firm – which involves reducing its holdings in some platforms in a bid to concentrate on a smaller batch of companies involved in the alternative lending space.
