Educating the adviser community
Peer2Peer Finance News was delighted to host the P2P Lending Zone at this year’s VCT & EIS Investor Forum, where an array of expert panelists enlightened the audience about the benefits of the P2P industry
WHY ARE SOME financial advisers wary about recommending peer-to-peer lending? That is a question that many in the P2P industry have asked and one that Peer2Peer Finance News hoped to address at this year’s VCT & EIS Investor Forum. We hosted a P2P Lending Zone at the event for the very first time, giving peer-to-peer lenders the opportunity to speak in detail about the sector to a room full of financial advisers, wealth planners and sophisticated investors.
A big thank you to our sponsors RateSetter, Somo, Relendex, ASMX, Octopus Investments and FutureBricks, and of course to our event partners Angel News, who hosted the VCT & EIS Investor Forum.
Our first panel of the day focused on debunking the myths around P2P lending.
Mario Lupori, chief investments officer at RateSetter, kicked off the proceedings, addressing one of the most common concerns about P2P: what happens if a borrower does not repay their loan?
“[Loans] have got a very good track record of being a good investment,” he explained. “If you can price for defaults, you can price for risk. If you predict risk, you can price risk. If you can price it, you can get a return.” However, he noted the wide diversity of business models in the market and suggested that advisers and investors consider the platform’s liquidity, track record of credit management and diversification of loans.
There was a debate on the panel about whether P2P is an asset class. Charlie Taylor, head of Octopus Choice, said that he saw this a “red herring” among advisers. “It’s not an asset class, it’s more a technology and to have to categorise it collectively as an asset class, I think misses out on the investment opportunities and ignores the important differences between business models,” he added.
Conversely, Jeffrey Mushens, technical policy director at The Investing and Saving Alliance and RateSetter’s Lupori both said they thought P2P is an asset class, with Mushens calling for it to become a normal addition to an investor’s portfolio alongside equities and bonds.
The panel also discussed the importance of managing expectations on liquidity. David Bradley-Ward, chief executive of blockchain-powered secondary market ASMX, said he thought that liquidity “is going to become more of an issue” and suggested that platforms should embrace technology to boost liquidity, as well as working with other partners such as institutions, traders, brokers and debt investors.
Our second panel of the day focused on P2P property lending.
Arya Taware, chief executive of FutureBricks, explained how P2P property lenders like her firm were filling a gap in the market for small- and medium-sized housebuilders that typically struggle to access mainstream finance. From an investor standpoint, she noted that retail investors are able to benefit from higher returns than you would get from a bank account and with less volatility than stocks and shares.
Fellow panelists Michael Lynn, chief executive of Relendex, Louis Alexander, chief executive of Somo and Peter Swinburn, commercial property lawyer at Clarke Wilmott, all highlighted the attractiveness of loans secured on property.
“When you lend over residential bricks and mortar or buy to let, worst-case scenario, you get your money back if you have to repossess the property,” said Alexander. “It provides a high level of comfort and security for investors.”
So what should investors and advisers look for within the P2P property space? The type of security is important, Taware explained. “Is it first charge or second charge? What’s your risk appetite? What’s the loan to value?” she said. “It’s also important to look at the track record of the borrower. The more information given by the platform, the more informed a decision you can make.”
Swinburn noted that certain parts of the property market are more challenging than others. “Retail is very, very tough,” he said. “Offices – depending on where you are in the country – is a tough gig at the moment.
“I think you need to be very careful with what you’re investing in. You need to spend a bit of time looking at what due diligence has been done and what the financial metrics look like. “Valuation is obviously crucial, establishing what the yield and return is going to be and understanding what due diligence has been undertaken on the asset beforehand to make sure you know what you’re firing at.” Alexander said that investors and advisers should give careful consideration to the background of the people running the business.
“I don’t want to dwell too much on Lendy, but when they started, they started on boats and then they moved into property and for me, their modus operandi was caveat emptor, stick anything on the platform, investors will go for it because it’s property backed, but they didn’t in my opinion know what they were doing when it came to property investment,” he said.
Meanwhile, Lynn added that retail investors are missing an opportunity if they don’t participate in the better-quality P2P platforms. “The institutions are funding P2P platforms behind the scenes every day, on a large scale,” he said. “Zopa and Funding Circle, two of the largest platforms, are 50 per cent funded by institutions.
If these institutions thought that, as an asset class, this was not an acceptable destination for their funds, they would not be participating in this area. “They go for diversification, so I would suggest to every retail investor, diversify by platform and type of loan, and that will work out for you in terms of a risk-adjusted return.”
