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P2P Global Investments C-share issue

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New launch

P2P Global Investments C-share issue

This is the £400 million share issue of London-listed investment company P2P Global Investments. The C-shares will convert into ordinary shares of the company once fully invested to give a combined market value of the company at c. £1 billion. The investment company gives exposure to a highly diversified underlying portfolio of retail consumer and SME loans originated via peer-to-peer and direct lending electronic platforms. The company also takes equity stakes in some peer-to-peer platforms themselves. The issue price is £10 per share and issue costs are 1.3%. Running costs are 1% pa and there is a performance fee of 15% of net assets growth over high-water mark.

The high-water mark ensures a performance fee isn’t paid to the fund manager until the fund’s value surpasses the level at which a performance fee was last paid. This stops extra fees being paid to management when investors could still have lost money.

Timetable

23/07/15              placing and intermediaries offer close at 11am

28/07/15              trading starts in the new C-shares

Bestinvest view

P2P Global Investments is not a peer-to-peer platform. It invests in loans on others’ platforms and also invests in equity stakes in these platforms. Costs are high on individual peer-to-peer loans (around 3%), which are largely bypassed using a fund such as this. The substantial diversification (180,000 individual loans spread across 15 platforms in the US and Europe), combined with their algorithmic trading systems, means that risk should be lower when compared to investors attempting to select individual peer-to-peer loans themselves.

Sector view

Despite Quantitative Easing, national banks in developed markets have not returned to normal, leaving individuals and small companies under-served by the high street banks. A new industry of online lending has evolved. Peer-to-peer (p2p) lending is a fast growing area of finance that matches borrowers and lenders via low-cost online platforms. It covers various debt classes, including consumers, SMEs and corporates, through dis-intermediating more traditional financial institutions such as banks. This allows both borrowers and lenders to achieve attractive interest rates. Platforms access financial data to assess the credit quality of the borrower and so the interest rate varies depending on creditworthiness. Banks no longer have the monopoly on this credit scoring (for example, “FICO” scores are used in the US). Platforms are proliferating around the world, showing the success of this sector. Peer-to-peer loans are now allowed to be held in ISAs.

Investment process

P2P Global Investments invests in consumer loans and SME (small and medium enterprise) loans which have been originated through peer-to-peer platforms. They also aim to have 5-10% equity investment in platforms themselves. They target higher-quality loans with coupons in the range of 5% to 15%, from which the fund targets a 6-8% dividend yield once fully deployed. The manager, Eaglewood, is owned by Marshall Wace, and has access to a large legal team. Therefore, they have robust contracts with banks and platforms. These contracts require them to be electronically connected to the platforms. Their IT and the proximity of their servers to those of platforms mean they have the ability to extract the best loans (that is, those with the highest coupon and lowest credit risks) from the platforms quicker than rivals. Their system goes through all the loans on the platforms, scores them, and adjusts the scores to remove weaker loans. The same process covers consumer and SME loans. Borrowers are scored by platforms (such as the FICO scoring system in the US and Experian in the UK).

Platforms also have credit card usage details on all Americans. They overlay an individual’s behaviour patterns with their income verification to give an affordability score. FICO scores range from 350 to 800 and borrowers are graded from level A1 (the best credit rating) to G5. Different grades are offered different interest rates, for example a typical “C” loan borrower pays 15%. P2P Global Investments will only look at FICO scores above 600, mostly within grades A to C, and will not invest in any of the 10 lowest grades. A typical consumer loan they select: the borrower earns $95,000 pa; loan has an 11% coupon, 3-year life at origination, fully amortising over the loan's life.

Key points

  • 180,000 individual loans
  • high credit score rating
  • highly automated system

Portfolio composition

As at July 2015: 180,000 individual loans across 15 platforms with a total value of c. £500 million. Loan types: 55% US consumer; 15.1% European consumer; 1.25 other consumers; 10.3% European SME, 4.5% US SME. Average coupon 11%, duration 1.4 years; 2.5% to 3% expected default rate. 2.2% equity stakes in platforms.

Fund Launch Date =  28/07/15

Different funds carry varying levels of risk depending on the geographical region and industry sector in which they invest. You should make yourself aware of these specific risks prior to investing.

We aim to provide investors with information to help them make their own investment decisions although this should not be construed as advice or an investment recommendation.

If you are unsure about the suitability of an investment or if you need advice on your specific requirements, we strongly suggest that you consider professional financial advice.

The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change.