By Daniel Lanyon on Tuesday 31 May 2016
Marketplace lending trusts have had a rough ride of late, but this has only served to make them more attractive according to Cantor Fitzgerald’s Monica Tepes.
Investors should treat the market turmoil surrounding the lending club scandal as a buying opportunity in marketplace lending trusts such as P2P Global Investments and VPC Specialty Lending, according to Monica Tepes (pictured), director of investment company research at Cantor Fitzgerald.
Following the exit of Renaud Laplanche three weeks ago over allegations of misdemeanour, the plummet in market sentiment towards the US-listed marketplace lending platform Lending Club appears to have also knocked back appeal for investors in UK listed trusts that operate in marketplace/P2P lending space.
Lending Club Share price over 1 month
The cadre of investment trusts listed on the London market that include the likes of the £868m P2P Global Investments, £381m VPC Specialty Lending, £157m Ranger Direct Lending, £147m Funding Circle SME Income, £100mm Honeycomb and £53.2m GLI Alternative Finance have all suffered as a result of the recent blow up for the nascent industry seeing their share prices fall.
Data from FE shows that P2P GI is down 8.85 per cent over the past three weeks while VPC is down 7.03 per cent. Ranger and Funding Circle SME Income are also both down although they have seen some recovery in the past week while GLI is marginally down.
Performance of trusts over 2 weeks
Source: FE Analytics
However, Tepes argues these falls are unjustified on the basis of Lending Club’s afflictions and should not impact how the underlying loans are doing within UK listed marketplace and P2P lending funds.
“From my perspective I don’t think that this should have an impact on these portfolios or on their opportunities in the future. I think this is a good buying opportunity. There is a pretty attractive yield on offer,” she said.
“It is still fairly early days for these trusts but so far they haven’t been any negative surprises on the ground. There has been a lot of bad press surrounding P2P over the last few months and I think it is important to differentiate between P2P platforms and also to differentiate between where you are invested.”
“There are good companies and there are bad companies. The important thing is to have a manager that can understand how they work and they can pick the good ones. It is the same with platforms. You could say that is what you pay the mangers for, to undergo the due diligence and identity where there are problems and to avoid them.”
In particular she says this has made P2P Global Investments and VPC Specialty Lending priced on very attractive yields, shown in the table below. Of course a headline yield is not a guarantee of how much a portfolio will pay out in the future.
|Ranger Direct Lending||10.4|
|VPC Speciality Lending||9.3|
|GLI Alternative Finance||8.3|
|P2P Global Investments||6.9|
|Funding Circle SME||n/a|
Source: Association of Investment Companies
Lending Club is the largest platform out of any in UK and the US in terms of market share and the amount of loans it originates and has been a huge beneficiary of increasing institutional demand for exposure to the rapidly growing sector.
However, questions have been raised about its corporate oversight in the wake of the departure of founder and chief executive officer Laplanche due to alleged mis-selling of some of its loans to one institutional investor. Laplanche was also accused of a potential conflict of interest due to an undeclared stake in a fund buying loans from Lending Club. The firm has now been hit with a subpoena by US regulators.
Tepes says while this is clearly serious for equity holders of the stock, it is not necessarily a bellwether for the global P2P/marketplace lending industry and therefore a fall in the price of UK-listed vehicles makes them more attractively priced.
“Platforms’ profitability will depend on how many loans they have originate. However, if you just own loans originated by the platforms and the underwriting has been good and there are no defaults above what you expected then the risk is not with you.”
“However, the majority of the portfolios of the funds that are listed invest in loans originated by the platforms and not the equity. P2P Global Investments does invest with Lending Club but they only buy prime loans and the issue was with neo prime.”
“VPC, meanwhile have said that they never invested and they have no exposure whatsoever, to Lending Club. All of the direct lending funds have been putting out positive gains in net asset value [NAV] each month.”
The below charts shows the performance from the point of view of total return in 2016, with each portfolio rebased from 1 January 2016. VPC is yet to release its figures to May and so shows a shorter track record than the other trusts. The Liberum AltFi Returns index shows the performance of the performance of the UK market as whole.
Performance of trusts in 2016
Source: Altfi Data