PEER-TO-PEER lenders could be set for fresh backing from City investors, thanks to a new fintech fund that is eyeing opportunities in the sector.
At a time when investment trusts such as Victory Park Capital Specialty Lending have signalled a shift away from P2P opportunities, Augmentum Fintech’s investment adviser has hinted that P2P lenders could be included in the portfolio.
Augmentum Fintech was launched by Augmentum Capital, a venture capital (VC) firm backed by Lord Rothschild’s RIT Capital Partners, last month. The VC firm already had a 7.4 per cent holding in P2P giant Zopa worth £18.5m that has been transferred into the investment company portfolio and its founder Tim Levene, who is acting as investment adviser to Augmentum Fintech, said that the firm is well geared to the P2P sector.
“P2P is an area we know well as we have backed businesses such as Zopa,” Levene told Peer2Peer Finance News. “There have been a lot of P2P firms or interpretations that we have been involved in, so we do see a lot of it.
“I’d be lying if I said we aren’t looking at a few things. There are a number of interesting propositions in the lending space, we are trying to find businesses that are deemed to be niche propositions where the challenge is scale.
“We are not necessarily just looking for P2P.”
This was below the initial £100m target, but Levene said this was down to investors being unfamiliar with the asset class.
Levene said the fund has institutional backing from RIT Capital Partners as well as Hargreave Hale
and the South Yorkshire Pension Fund but said others would be interested once the fund is bigger.
“Institutions wanted a bigger fund north of £200m; that would have left too much capital,” he said.
“A mistake of some investment trusts is to hold too much cash. We recognise how much capital we require to invest over the next 12 to 18 months.
“If we have spare cash we can return it to shareholders through special dividends or buybacks.
“Our ambition is to grow our net asset value and raise more capital down the line.”
The launch comes at an interesting time amid Brexit negotiations and uncertainty over London’s status as a global fintech hub. The fund aims to invest in fast-growing or high-potential fintech firms primarily in the UK and Europe, and Levene insists London and the UK are still in “pole position” when it comes to fintech due to a supportive government, regulation and investment environment.
He said the fund is seeking capital growth and to realise returns through exits rather than dividend yield. It is targeting 10 per cent growth per year and commits to return up to 50 per cent of gains on disposal. The company will also return cash that is not expected to be substantially deployed within 12 to 18 months.
Adrian Lowcock, investment director at Architas, said that Augmentum Fintech is helping investors reach a previously inaccessible sector.
“Fintech is a growing sector and whilst London is a global leader in the space it is still in its early days,” Lowcock said.
“For most investors this is likely to be one of the few ways to get access to fintech at an early stage.
The advantage of using a trust is the expertise of the management team and the focus on stock selection – this is an area of the market where there will only be a few winners compared to the number of businesses that try.”
However, Lowcock warned that the fund is “high risk” and suitable only for investors willing to take a long-term view.
“Such sector-specific trusts should only amount to a small proportion of an overall portfolio,” he said.
This story appeared in the April issue of Peer2Peer Finance News, now available to read online.