A recent report released by the ratings agency Standard & Poors, says that the growing involvement of institutional funds is set to boost the peer-to-peer (P2P) industry.
It noted the five securitisations in the UK P2P sector to date from Funding Circle and Zopa, and says it expects to see more throughout Europe this year and beyond.
S&P identified a risk that because many platforms generate revenue from loan origination and servicing fees, rather than the interest and fees collected on loans, less attention may be paid to underwriting standards and loan quality than may be applied by a traditional lender.
However, the increasing number of purely institutional products and FCA changes to the way market place lending can be promoted could see fewer opportunities for retail investors as platforms seek to expand their universe of investors.
Funding Circle is winding down its dedicated investment trust and hoping to attract £200m with two institutional products – a UK private direct lending fund and a UK bond product; Assetz Capital has launched an institutional fund that ‘further expands the universe of investors that can access the Assetz Capital marketplace, alongside our valued retail lenders,’ according to chief executive Stuart Law.
fewer opportunities for retail investors as platforms seek to expand their universe of investors
Institutional flows into P2P have grown over the past few years, allowing platforms to diversify their sources of funding and secure bigger loan volumes; ethical crowd bonds platform Abundance has also dipped into the institutional pot, but co-founder and director Bruce Davis told Peer2Peer Finance News that he hopes an influx of institutional investors could ultimately benefit everyday investors.
‘We’ve always grown through retail investors and our whole philosophy is built around the retail investor,’ he said. ‘We’re not against the idea of institutional investors coming in but only because that would enable us to do more projects and therefore offer more choice for our retail investors.
‘We can see a real benefit there. We certainly wouldn’t want institutional investors to be taking the lion’s share of any particular project but rather being an enabler – someone who is helping create the market for our listed securities and working alongside the retail.’
ThinCats has raised more than £700m from institutions over the past two years, compared with £100m from retail investors, and believes that individuals can be reassured by the added due diligence which comes with institutional investment.
Time will tell how retail investors will respond; there is a train of thought that with institutional investment comes a potentially higher risk appetite, increasing the risk of high profile failures and thereby damaging sentiment towards the P2P sector.’