Funding Circle, the SME peer-to-peer lender, announced that a fee-free investment trust will go live after the summer, according to CityWire‘s Gavin Lumsden. This will be the first fund launch from a lending platform and the company hopes the ‘no charge’ proposition will enable it to emulate some of the success of P2P Global Investments which has raised £870 million since launch last year.
“Sources familiar with the launch, which is being led by Goldman Sachs and Numis Securities, have confirmed that investors in the Funding Circle SME Income fund will pay no annual management fee or a performance fee,” reported Lumsden. “However, like all lender-investors on Funding Circle the fund will pay a 1% annual servicing fee to use the platform, so there will be an underlying charge. The fund will effectively be a new source of capital for Funding Circle to lend to borrowers. To date it has lent over £741 million to British businesses with money from over 41,000 private investors. The no-charge fund structure will make the investment trust cheaper than other direct lending funds which levy annual charges, performance fees and who pay to source loans from a range of direct lending and peer to peer platforms.”
The three existing direct lending funds – P2P Global Investments, Ranger Direct Lending and VPC Specialty Lending – all charge 1% of gross assets, which includes the money raised from investors plus the debt, or gearing, used to enhance returns. They also charge performance fees: P2P and VPC take a 15% cut of returns when they beat their benchmark while Ranger takes 10%.
The sector’s other fund, GLI Finance, is transforming itself into a manager of direct lending funds and an investor in lending platforms. It is in the middle of launching GLI Alternative Finance, its own closed-ended fund, on the stock market.
Funding Circle’s investment trust hopes to distinguish itself further by not using gearing although it will aim to pay a 6-7% annual dividend. The other funds currently yield between 5.5% and 9.5% which has made them attractive to income investors, although there are questions over the amount of credit risk they involve, commented Lumsden. The new fund will focus on loans to small businesses, mostly in the UK but also in the US. The rival funds combine consumer with business lending. Funding Circle raised $150 million (£100 million) from institutional investors earlier this year, including Baillie Gifford’s top performing global investment trust, Scottish Mortgage.