FUNDING Circle is set to begin a managed wind-down of its dedicated investment trust, the Funding Circle SME Income Fund (FCIF), once it gets the green light from shareholders.
The FTSE 250-listed peer-to-peer business lender said last month that shareholders had backed plans to stop investing in new assets and begin the process of returning capital to investors.
FCIF will convene an extraordinary general meeting (EGM) on 11 June at which it is recommending shareholders vote in favour of the resolutions to start the wind-down.
The board said it wants to return capital to shareholders in a timely manner, while maximising the value it can get from the company’s investments.
It is asking shareholders to approve the appointment of Funding Circle Global Partners Limited, the company’s corporate services provider, to sell off the investment portfolio.
It also wants to change the name of the trust to SME Credit Realisation Fund Limited.
Shares will remain listed and tradable as long as practicable during the wind-down, the board said. It will switch from its current strategy of making regular share repurchases to a quarterly redemption cycle. As the proceeds from asset sales build up, the directors will have the discretion to return capital to shareholders on a pro rata basis, and can make ad hoc returns if there is excess cash.
It will maintain quarterly dividend payments of 5.25p per share until at least the period to 31 March 2020, which is expected to be partially uncovered by income. The board said this will reduce the amount of capital available for distribution to shareholders at each compulsory redemption and on the eventual liquidation of the company.
If shareholders approve the wind-down at the EGM, the trust’s shares will no longer be available to retail investors.
Numis, which is acting as financial adviser and broker to the trust, said the trust has delivered NAV total returns of 15.5 per cent (4.3 per cent per annum) since inception in 2015, compared to the expected returns at launch of six to seven per cent per annum.
“Returns have been hit by a variety of factors including: lower than expected returns from the US portfolio, particularly due to the cost of hedging US exposure into sterling; high operating costs, including expenses from structuring multiple leverage facilities; and higher than expected defaults on 2016/2017 cohorts,” Numis said. “The implementation of the [new accountancy reporting standards] IFRS 9 also increased operational costs.”
The investment trust is believed to have gradually represented less investment on the Funding Circle platform in recent years as it has attracted other institutional backers.
Samir Desai, chief executive of Funding Circle, said last month the platform is set to launch two new institutional products in the UK.
This includes a UK private direct lending fund, structured in a similar way to the recently launched continental Europe private direct lending fund.
It intends to raise more than £200m from UK institutional investors over the next few years.
Funding Circle will also launch a UK bond product and is in discussions with the British Business Bank to use the £150m it previously provided FCIF.