Investment trusts insist “substantial opportunity” remains in alternative lending

Summary

Two of the biggest alternative lending-focused investment trusts in the UK have insisted there is still life in the sector despite posting returns below their targets during 2017. VPC Specialty Lending (VSL) and P2P Global Investments (P2PGI) released their annual reports on April 27 morning, insisting there were still opportunities for online lending and consumer credit as banks continue to scale back.

Both have been shifting their portfolios away from marketplace peer-to-peer lending and more towards balance sheet investments and secured lending to reduce their discount to net asset values (NAV) and boost returns. VSL reported a NAV return of 3.07 per cent for 2017, up from 0.95 per cent in 2016 but below its eight per cent target.

The investment trust’s chairman Andrew Adcock said the trust had committed and invested capital across 45 companies in the financial services sector and had a strong pipeline of high quality balance sheet investment opportunities.

“The long term structural growth drivers for online lending remain intact,” Adcock said. “Loan volumes should continue to increase as banks continue to scale back the availability of consumer credit, while established online lenders continue to grow, build scale and newer companies establish a presence. The availability of credit information outside banks continues to improve and, through continued technological innovation, online lenders can profitably lend to these under-served small-and-medium sized enterprises and consumers.”

Adcock added that online lenders continue to innovate and provide a better user experience to borrowers.

“Anticipated regulatory crackdowns in both the U.S. and the U.K. have not materialised,” he added. “These growth drivers are likely to sustain the continued progress and development of the online lending sector for many years to come. The company remains well positioned to capture the resulting income opportunity due to its investment manager’s experience and technical expertise.”

The investment trust is trading on a discount to NAV of 12.5 per cent.

Similarly, P2PGI posted NAV total returns of 3.03 per cent for 2017, down from 4.1 per cent in 2016 and below its target of six to eight per cent. It followed a busy 2017 that saw a review of its strategy, a shift from US consumer loans and movement towards secured assets, as well as a management merger with Pollen Capital.

P2PGI chairman Stuart Cruickshank said there is a “substantial opportunity” for non-bank capital to earn attractive risk adjusted returns by targeting under-served specialist asset classes.

“While banks are repositioning, alternative lending models have been facilitated by the development of improved access to data and increased transparency,” he said. “This has led to a levelling of the playing field between banks in terms of information access. This has facilitated strong risk modelling and large datasets to evaluate the creditworthiness and default probability of borrowers, which in turn has permitted high quality entrepreneurial technology leaders to benefit from lower infrastructure costs compared to traditional brick-and-mortar bank.”

P2PGI is currently on a discount to NAV of 17.6 per cent.

Implications

To be determined.

Link

http://www.p2pfinancenews.co.uk/2018/04/27/investment-trusts-insist-substantial-opportunity-remains-in-alternative-lending/

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