Until Funding Circle went public, alternative lending-focused investment trusts were the only way to access peer-to-peer loans on the stock exchange.
The first P2P-linked investment trust – P2P Global Investments (P2PGI) – was launched in 2014, promising inflation-beating returns by investing across a diverse portfolio of P2P loans from the likes of Zopa and Funding Circle.
But over the past six years, P2P investment trusts have faced challenges. P2PGI struggled to meet its target returns and shifted its focus towards balance sheet and secured lending, and then rebranded to Pollen Street Secured Lending (PSSL) to reflect its new strategy. Last month, Honeycomb Investment Trust offered to merge with PSSL, creating a £1.5bn entity that could qualify for inclusion on the FTSE 250.
Honeycomb’s takeover bid has been roundly rejected, and Waterfall Asset Management has been named as PSSL’s preferred successor, with the asset manager offering to wind down the trust instead. This would leave just three major players in the P2P investment trust space: VPC Specialty Lending (VSL), GLI Finance, and Honeycomb.
Just a couple of years ago there were twice as many alternative finance-focused trusts on the market, but the market has changed considerably in a short period of time. RDL Realisation (formerly Ranger Direct Lending) and Funding Circle SME Income have both gone into wind-down, while VSL has been fielding shareholder concerns around the long-term viability of the trust.
By the end of June 2020, PSSL had delivered 0.73 per cent net asset value (NAV) for the year to date, but a faltering share price and uncertain management future has made it the target of several takeover attempts. Only Honeycomb has been able to maintain steady NAV returns this year by investing in a range of consumer, property and SME loans. There is a very real possibility that there could be just one P2P investment trust left on the market within the coming year.
Perhaps this reflects the growing popularity of direct P2P investments among retail and institutional investors alike. Or maybe the investment trust model has simply outlived its use.