By Daniel Lanyon on Monday 20 June 2016
The latest investment trust offering exposure to the burgeoning P2P/marketplace lending space the Funding Circle SME Income Fund is looking to tap more investor cash in its first C share issue, according to documents released to London Stock Exchange.
The fund, which launched in November last year, is the only investment trust to exclusively buy the loans of just one p2p/marketplace loans platform as well as the first fund structure to have been launched by a marketplace lending platform, Funding Circle.
Near full deployment of its initial capital has prompted the managers of the Funding Circle SME Income fund to look to raise further cash, with the fund approaching 90 per cent full-investment.
This follows the fund revealing it had secured a £100m injection to finance UK SME loans through the Funding Circle marketplace from the European Investment Bank (EIB) allowing it to become fully levered and closer to reaching its target 8-9 per cent dividend yield. A potential equity raise in the form of a C share would reduce the potential leverage provided by the EIB loan.
P2P Global Investments was the last of the P2P/marketplace lending trusts to successfully hit its target C share issue, which it did in last year in July. VPC Speciality Lending failed to raise its minimum target of £200m later last year and Ranger Direct Lending cancelled its own planned C share issue in November. Since the cancellation, it has recently announced plans to tap a Z share issue.
Funding Circle SME Income Fund’s first dividend was also announced at 1p per share, payable in July. This is ahead of the 0.75p expected at its initial public offering (IP0) back in November 2015. Succeeding dividends will be a quarterly rate of 1.5p to 1.75p, which represents a prospective dividend yield of 6.2-7.2 per cent per year based on the current share price.
Funding Circle SME Income targets a total return of 8-9 per cent per annum including a yield of 6-7 per cent with the rest made up from capital growth. It does this through a portfolio of loans to small/medium sized enterprises originated through the Funding Circle platform. It raised £150m at launch in November 2015 and was 81% invested at the end of May.
At this date, the portfolio had exposure to 1,615 loans with a weighted average gross yield of 10.8 per cent. By geography it had 59 per cent of net assets in UK loans, 21 per cent in US, 1 per cent Continental Europe and 19 per cent in cash. Within the UK loans, the largest sector exposures are 32 per cent in Property Development, 14 per cent Wholesale & Retail, 10 per cent Professional & Business Support and 10 per cent Manufacturing & Engineering.
Unlike its peers, the Funding Circle SME Income fund peers by having no management or performance fees at the listed fund level.
“The flip side is that you only have exposure to one platform. So, if something goes wrong there even if the loans are alright then you would expect there will be no income because there is no diversification. The hope is that you will get capital growth from the share price, which makes sense because you want to have a bit of margin of safety,” she said.