Is there still life left in P2P investment trusts?
PEER-TO-PEER investment trusts are increasingly getting a boost by moving away from marketplace and direct lending platforms, but investors may be starting to lose patience.
When the first peer-to-peer focused investment trust, P2P Global Investments (P2PGI), launched in 2014, there was much fanfare about a regulated way of accessing the alternative lending sector while platforms within the industry were set for a boost from incoming institutional funding.
The idea behind an investment trust for alternative lending and P2P is simple enough. A listed fund raises money from investors that is then diversified across a range of platforms around the world by either investing in the businesses or the loans.
This in theory should provide less risk for an investor compared with lending directly on a P2P platform.
But four years on from the launch of P2PGI, the investment trust has admitted in its 2017 annual report that historic performance was ”more volatile than we would like.”
It has tried to combat this by focusing more on secured assets than marketplace lending and with share buybacks and a management merger in attempts to reduce its discount to net asset value (NAV).
P2PGI has struggled to hit its annual target of six to eight per cent returns, with its NAV growing 3.03 per cent last year. But it is not alone.
Victory Park Capital (VPC) Specialty Lending Investments, which launched in March 2015, said in November 2016 that it was winding down its P2P portfolio in favour of balance sheet loans in efforts to boost its performance and reduce its
It has also underperformed its aim of eight per cent a year so far, with an NAV total return of 3.07 per cent in 2017.
Both have reported more positive returns since the turn of the year, with VPC showing a boost in performance from its shift to balance sheet investments.
But P2PGI still sits at a discount to NAV of 17.5 per cent and VPC is at 12.5 per cent.
Read more: P2P trusts reap rewards by changing focus
Analysts have backed both their turnaround plans, but a warning has emerged from other rivals that investors could be getting fed up with underperformance.
Ranger Direct Lending (RDL), launched in May 2015, and focusing primarily on US P2P and alrernative lending, has faced calls from shareholder Oaktree Capital Management to close the investment trust amid its “persistent trading discount to NAV” and difficulties in reaching target returns.
RDL has been hit by legal proceedings regarding its investment in bankrupt lender Argon Credit as well as poor performance in its P2P holdings and it is in the process of seeking a new investment manager to boost performance.
It has rejected the calls but still sits on a discount to NAV of 14 per cent, while its NAV was down 2.95 per cent in 2017.
A discount isn’t always a bad thing, in fact it may be a buying opportunity if there are signs of improvement and that is what these three main players of the P2P and alternative lending investment trust world are trying to achieve.
Some may take comfort in the performance of Honeycomb Investment Trust, which backs alternative lenders but doesn’t have exposure to P2P and isn’t suffering with discounts.
Launched in 2016, it is trading on a premium to NAV of 11.1 per cent and had total NAV returns of 9.8 per cent in 2017, just below its 10 per cent annual target. Its management Pollen Capital has also merged with MW Eaglewood to run the P2PGI fund.
The golden rule with all investment is time. Financial advisers and investment managers often say performance should only be judged over a three to five-year horizon.
By this definition, many of the P2P and alternative finance focused investment trusts are still in their infancy, the question is how far from marketplace and direct lending do they have to move for decent returns and how much time and patience investors are willing to provide?