THE PEER-TO-PEER sector may be more associated with loans but its investors are becoming equally attracted to bonds.
Crowd bonds, such as those offered by Abundance and Downing, are already popular among investors and these platforms have reported a boost in activity since the product was made eligible for the Innovative Finance ISA (IFISA) in November 2016.
Downing launched two regular access £10m crowd bonds, offering initial interest rates of three per cent per year, in July.
Julia Groves, Downing partner and head of crowdfunding, said investors are attracted by the extra due diligence associated with bonds and the Financial Services Compensation Scheme (FSCS) investment protection, as these are MIFID-regulated products.
“Crowd bond platforms offer fewer but larger investments, bringing greater single investment risk but allowing the platform to carry out more in-depth due diligence due to the larger size of investments,” she said.
“P2P platforms do carry out credit assessments on each loan, in many cases with ‘ratings’ given based on perceived risk. But crucially, in contrast to crowd bond platforms, there’s no obligation to disclose to consumers why, or how, this rating was given, and every platform has their own criteria.”
Providers more typically associated with P2P have also issued their own bonds. Jake Wombwell-Povey, chief executive of Goji, which provides administration for several P2P platforms and offers its own Lending Bond offering a five per cent return, says these types of assets are more understandable for financial advisers.
“Bonds are attractive as they enable you to decouple the investor from the borrowing,” said Wombwell-Povey.
Additionally, LendInvest raised £50m last month in an oversubscribed bond listing that was open to retail investors.