By Daniel Lanyon on Tuesday 31 July 2018
A veteran multi-asset fund manager offers some advice as to how P2P lenders and other online lending investment platforms can bolster investor confidence.
Funds investing in P2P lending, private debt and other alternative credit assets should improve standards of disclosure and manager track records in order to boost confidence among investors, according to Ian Barrass, the recently retired multi-asset fund manager of the £133m Henderson Alternative Strategies Trust.
In the Henderson Alternative Strategies Trust the manager and his co-manager James de Bunsen mostly look for alternatives-focused funds and investment trusts to build a portfolio that will beat equities over time but with lower volatility and lower correlation to mainstream risk assets. This has led them to consider many of the new trust launches exploiting the seismic explosion in demand for private debt and lending assets.
“Private credit is good place to be, it’s just a question of how you access it. You also have to look out for quick growth, any business that tries to lend too quickly puts itself at great risk,” Barrass told AltFi shortly before retiring.
Over the past four years listed funds, known as investment trusts, that have sought to capitalise on the ballooning market for non-bank lending and alternative forms of credit have grown rapidly in number and size. One of the first P2P Global Investments launched in 2014 and was swiftly joined by VPC Specialty Lending, Ranger Direct Lending, Hadrian’s Wall Secured Investments, Funding Circle SME Income, RM Secured Direct Lending, HoneyComb, SQN Secured Income, GCP Asset Backed Income and more.
They account for the majority of the new listed funds in the stock exchange over this period in fact and have had many high profile backers such as Neil Woodford, Mark Barnett at Invesco Perpetual as well as Gary Potter and Mark Burdett at BMO GAM. Several dozen large asset managers including BlackRock, Axa, M&G, Standard Life, Kames, Legal & General Investment Management, Standard Life, Aberdeen Jupiter Asset Management, J.O Hambro Capital Management, Close Asset Management, Brooks MacDonald and Aviva Investors also invested in some of the portfolios at various points.
Despite being a natural investor in many of these funds Barrass and de Bunsen have largely avoided the space apart from investing in RM Secured Direct Lending since its launch in December 2016.
“There's too little transparency. It is very difficult to do credible DD [due dilligence] on them. Also, one of the problems with the credit sector is that a lot of people who have been in the credit markets long term [lending markets] don’t have attributable track records,” he said.
“It makes it really difficult to see if you have genuinely good lenders operating in these vehicles or for those subcontracting for these vehicles. For all we know some grizzled veteran could have lost hundreds of millions of pounds. There just isn't that same transparency that there is for equity fund managers in terms of track record,” he added.
While several portfolios have performed strongly and paid regularly dividends such as HoneyComb and Funding Circle SME Income but the likes of P2P GI and VPC Specialty Lending have both had to make significant pivots in strategy and engage in aggressive share buybacks as their discounts to net asset value.
Barrass, who has ran the Henderson Alternative Strategies Trust for the past five years until retiring this month, turning around its fortunes following a period of underperformance under former manager SVM, has more than 31 years experience within finance across private equity and portfolio management.
While investors in P2P lending have the AltFi Data UK Lending Index to understand the asset class' historic track record, finding an alternative credit benchmark is difficult and fund managers within the broader investment space don't typically record their own records in the same manner as equity managers tend to do so.
For example, Barass' own fund management track record is easily understoof, and pretty solid, having out performed his peer group by more than 20 percentage points over the past 10 years.
Ian Barrass' returns vs Peer Group over 10yrs
Source: FE Analytics
Barrass also notes that some of the listed specialist credit funds, from their share prices, have underperformed in the most benign credit conditions we have had for several decades.
“God knows what they will be like when things get tougher? We are just going to stay clear. If there is a bounce-back [in performance], so be it.”