FUNDING Circle’s listed investment trust is in talks with the British Business Bank (BBB) about providing further funding through the peer-to-peer platform.
It comes as the Funding Circle SME Income Fund (FCIF) reported its net asset value (NAV) had increased from £308m to £165m in the year to March 2018, while its NAV total return was 14.9 per cent.
FCIF highlighted a structured finance transaction with Citibank to fund loans through the Funding Circle platform as one of its major deals last year, and also revealed it was in talks with the BBB about providing up to £150m of funding.
The investment trust’s annual report said it was in discussions with Funding Circle and the BBB about a project to provide financing to small- and medium-sized enterprises (SMEs) through the Funding Circle UK lending platform.
“It is envisaged that (FCIF) may participate in this financing project, subject to approval by the board,” it said.
“The BBB would contribute up to £150m of senior financing pro rata with FCIF’s junior participation.”
The results also provided an update on its decision to cut its dividend target due to increasing currency hedging costs, revealing that some investors had suggested focusing the fund solely on the UK.
Instead, FCIF has decided to reallocate some capital from the US towards the UK and continental Europe.
“Once complete, the relative exposures of the company will be adjusted away from the US by an amount representing up to 10 per cent of the total portfolio,” it said.
“The board sees this as an appropriate and proportionate tactical response to its 12 month forward expectations taking into account monetary policy effects.”
Richard Boléat, chairman of FCIF, said the fund had delivered a “differentiated and attractive product” for investors.
“We significantly grew the size of the fund following a successful C-share issue and are seeking to increase the scale of our lending,” he said.
“Funding Circle and the company are in discussions with the British Business Bank about a project to provide financing to UK SMEs via the Funding Circle UK lending platform.
“Notwithstanding the recently updated forward guidance, the company remains in a strong position to provide shareholders with a sustainable and attractive level of dividend income from its diversified pool of loans to small businesses.”
Commenting on the results, analysts Numis said a change to a UK-focused vehicle would have simplified the structure but backed the board’s decision to maintain diversity.
“It is positive to see that the British Business Bank looks set to back Funding Circle with a new leverage facility in which FCIF will be able to participate,” Numis said.
“Maintaining leverage at close to 50 per cent appears key for the fund to meet its return targets.”