FUNDING Circle’s dedicated investment trust is set to close, raising questions about the future of peer-to-peer lending-focused funds.
While P2P platforms themselves have demonstrated impressive growth in recent years, investment trusts have been scaling back their exposure to the sector following poor performance.
Victory Park Capital (VPC) Specialty Lending Investments has been winding down its P2P portfolio in favour of balance sheet loans.
Meanwhile, the sector’s first dedicated fund, P2P Global Investments, has been moving towards different forms of asset-backed finance.
It was revealed in April that its legacy Zopa portfolio was dragging on returns.
The Funding Circle SME Income Fund said last month that it is set to close amid rising hedging costs and the impact of new IFRS accountancy reporting requirements.
“I have always believed P2P will develop into a mature and successful industry, however there have been concerns, which I share, that it is still a young and relatively untested sector,” said Adrian Lowcock, head of personal investing at fund platform Willis Owen.
“If big institutional investors are withdrawing then they are likely concerned the return no longer justifies the risk.”
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However, Neil Faulkner, co-founder of P2P analysis firm 4th Way, argued that many P2P platforms are now doing the job that these funds were set up to do.
“Many P2P platforms already provide easy diversification, which is the key role of investment trusts, OEICs and unit trusts,” Faulkner said.
“So, the closure of the Funding Circle SME Income Fund is no great loss to retail investors, while institutional investors are also doing fine by taking part in the industry in other ways. Investment trusts come with additional volatility risks too.”
This article featured in the May issue of Peer2Peer Finance News, now available to read online.