By Daniel Lanyon on Wednesday 12 October 2016
Many theories are touted as to what will prompt the "inevitable" wall of retail money into the p2p market but critics should note many retail investors already have exposure whether they know so or not.
September was the biggest month for p2p origination in the UK in term of loan volumes, according to research by AltFi Data, helping to steer the industry back towards growth following on from a difficult year in 2016 so far.
For many of the preceding months, its growth seemed on hold – perhaps even in question – as several scandals alongside a broadly-risk off period for markets seemed to hold back new cash.
While this brought into question the nascent industry’s adoption by more and retail investors, it belies a whole new level of investors brought into the p2p market in recent years who have some exposure through equity income fund managers.
In the past five years the growth rate of p2p has been stellar with origination volumes almost doubling each year suggesting over the medium term it could grow to be much, much larger. Some industry bulls have even predicted that a large majority of retail income investors could have a significant level of portfolio exposure within a decade.
While there has been overt growth in the number of users of p2p in the UK in recent years, little is known in concrete terms as to how many investors there are in the UK with exposure. AltFi, nonetheless, undertook some research in April last year that put the figure at somewhere between 90,000 and 110,000 active users.
To reach this number we look at how many active users the major platforms had at the time including Funding Circle, Zopa, Ratesetter, ThinCats, LandBay, MarketInvoice, LendInvest and Lending Works. As some of these active accounts would represent a crossover of investors this was accounted for in estimations.
Since then, however, the amount of investor cash in funds that hold p2p exposure has skyrocketed and been held by some very popular funds held by retail investors. The largest of these are the P2P £860m P2P Global Investments fund and the £390m VPC Speciality Lending fund.
These closed-ended portfolios buy loans that have been originated by platforms and then the income is passed on to shareholders of the funds with target yields between 5-10 per cent.
Two of the most widely held and respected fund managers in UK equities own about half of these two portfolios between them: Neil Woodford and Mark Barnett.
Woodford has many tens of thousands of investors in his £9.4bn CF Woodford Equity Income fund, according a spokesman, although the exact number is very hard to pin down as so many hold his fund through other platforms such as Hargreaves Lansdown.
Woodford is bullish on P2P/marketplace lending and also owns an unquoted positon in P2P platform RateSetter.
Woodford’s equity income fund is also very popular with some of the largest fund of funds such as the Jupiter Merlin team headed by John Chatfeild-Roberts. Woodford also runs several segregated mandates that mirror his main fund for private clients including St James’s Place which total several billion pounds.
Invesco Perpetual’s Mark Barnett, head of UK equities at Invesco Perpetual – a position Woodford held until leaving the firm two years ago to set up his own shop, holds the two portfolios in his £11bn Invesco Perpetual High Income and £6bn Invesco Perpetual Income funds.
He also runs several other funds as well as segregated mandates and investment trusts that total several billion pounds and it is reasonable to expect that the total number of underlying investors also runs into the many tens of thousands.
The £162m Funding Circle SME Income fund as well as the £223m Ranger Direct Lending fund, the £80m Hadrian’s Wall fund £53.2m SME Loan fund all have some underlying retail investors as well and can be put into the same bracket as the two other investment trusts although the latter three are technically exposed to direct lending platforms rather than p2p.
Again, there is likely to be some crossover with investors, but not much and as Woodford and Barnett are not usually held together by investors, evident by the money that quickly followed Woodford when he left Invesco Perpetual and Barnett took over his funds the likely approximate number keeps rising.
Of course there could be further crossover between those holding Woodford and/or Barnett as well having some money directly in the platforms but the number is clearly in the hundreds of thousands that have some, albeit marginal, exposure!