PEER-TO-PEER investment trusts have taken some time to get going.
Despite starting strong, the likes of P2P Global Investments (P2PGI), VPC Specialty Lending, Honeycomb Investment Trust and Ranger Direct Lending (now called RDL Realisation) have stuttered in recent years.
RDL Realisation and Funding Circle’s dedicated trust – Funding Circle SME Income – are both in the midst of a wind-down, but other P2P investment trusts are starting to show signs of a recovery.
According to its most recent monthly report, VPC Specialty Lending returned a 2.4 per cent NAV in the month of June, while P2PGI bounced delivered 0.48 per cent NAV per share, bringing its year to date return to 2.54 per cent. Meanwhile, Honeycomb reported a massive 7.9 per cent NAV return per share on an annualised basis during the second quarter of 2019.
It is worth noting that these strong returns come just one month after fund manager Neil Woodford made a hasty withdrawal from both P2PGI and VPC, amid a liquidity crisis at his own fund.
Woodford had had a 13 per cent stake in P2PGI, and a 16.6 per cent stake in VPC. However, despite a slight downturn in the wake of the Woodford disruption, both trusts bounced back quickly and decisively.
Woodford still owns a 26 per cent share in Honeycomb, and analysts at Numis have warned that he is likely to withdraw this stake sooner rather than later. However, given Honeycomb’s recent performance, this withdrawal would likely hurt Woodford more than it would hurt the trust itself.
Now in its fourth year of operation, Honeycomb has won over many investors with its steady growth and diversified portfolio of property, business and consumer loans. At the time of writing, it has delivered a return since inception of 29.02 per cent, and it is currently trading at a premium of 8.8 per cent.
By contrast, P2PGI had returned a 23.52 per cent NAV since inception at the end of June, while VPC had returned 22.26 per cent.
Read more: Neil Woodford: It’s not us, it’s you
As three of the longest-running investment trusts in the space, the fortunes of VPC, P2PGI and Honeycomb can tell us a lot about external interest in alternative lending, through a trio of perspectives.
Approximately half of Honeycomb’s portfolio is invested in consumer loans with the rest consisting of equity investments and property. In its latest newsletter, the trust’s managers said that they believe that “consumer, property and SME loans are asset classes that have the potential to provide attractive returns for investors on a risk-adjusted basis.”
VPC holds just one per cent of its £299m portfolio in marketplace loans, with the majority of funds invested in balance sheet lending and equity. Meanwhile, P2PGI is in the process of running out its last few remaining P2P loans, as it shifts its focus towards balance sheet loans, primarily in the US.
By finding their niches and maintaining strategically slow growth, each of these trusts has been able to deliver double-digit returns even in the face of large-scale withdrawals, and a changing alternative finance market.
Read more: Ranger Direct Lending: What really happened