John Mould, chief executive of ThinCats, explains how an influx of institutional money could lift up all P2P borrowers and lenders…
INSTITUTIONAL INVESTING has become more commonplace in the peer-to-peer sector, but business lending platform ThinCats has been well ahead of this trend.
Over the past 18 months, the platform has raised more than £700m in institutional capital from the likes of Insight Investment, BAE Systems Pensions, ESO Capital and Waterfall Asset Management and most recently the British Business Bank via its British Business Investments subsidiary. This is in addition to its existing £100m in retail investment.
With £800m to fund small- and medium-sized enterprise (SME) loans across the UK, ThinCats is starting off 2019 in an enviable position. And chief executive John Mould believes that this is all down to the platform’s ability to win over investors of all stripes.
“The reason why we could secure that funding is because the funders feel that SME-secured loans are a good asset class,” says Mould. “There are reasonable returns available, plus it helps the economy of the UK.”
It is the economic benefits that really appeal to institutional investors, adds Mould, “and the fact that they believe in it makes our job easier.”
To this end, ThinCats views itself as an intermediary which can effectively match SMEs with lenders by utilising its unique underlying technology and the vast experience of its staff.
“We have quite a few individuals who have been asset managers in various financial services organisations for some time,” says Mould. “So, the institutions look at us and think yes, we trust these people to look after our money. We look after our clients’ money like it was our own.”
Trust is the key factor here. ThinCats’ institutional investors do not make individual credit decisions. Instead, they give ThinCats a mandate to invest based on each institution’s specific investment criteria.
This institutional backing has allowed ThinCats to increase its ability to originate loans with higher values. The platform previously offered SME loans up to the value of £3m, but now it has the capacity to lend anything from £250,000 to £10m or higher. For borrowers, interest rates start at around five per cent.
And for individual investors, there is another benefit to investing in a platform which is backed by institutional funding. Where retail investors co-invest alongside institutional investors in the same loans, they invest under the same terms.
“From a retail investor point of view, this is brilliant because it allows them to get access to loans they otherwise wouldn’t have got,” says Mould. “And they don’t have to do any due diligence on us as a platform because these institutions have already done their own rigorous due diligence and they send in auditors for regular monitoring. If it’s good enough for the institution, it’s good enough for the retail investor.”
Mould believes that the rise in institutional investment could “fundamentally change the funding landscape in the UK”. When ThinCats’ own experience with institutional money has allowed it to offer larger loans and higher quality investments to lenders, it is hard to disagree with this view.