Investment Trusts  

Lack of regulation poses P2P trusts risk

Lack of regulation poses P2P trusts risk

The rise of investment trusts that pool peer to peer loans has attracted concern because of the lack of regulation in this new area.

The Association of Investment Companies (AIC) this week held a media event to highlight the investment approaches of four companies that pool P2P loans.

The AIC was open about the volatility in the sector by pointing out that in the past year the investment trust run by P2P Global Investments was down 12 per cent and is currently trading on a discount of minus 22 per cent, while Funding Circle SME Income fund is up 12 per cent and is trading at a premium of 5 per cent (both as at 31 January 2017). 

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The Funding Circle SME Income fund is designed for equity income investors who wish to gain exposure to the small business loan class. 

Tom Ware, a chartered financial planner at Churchill Investments, said a lack of knowledge and regulation over this area of investment was one of the biggest risks for investors.

"It is case where technology has outpaced traditional methods and that is potentially what is causing a downside risk," he said. 

"As with all new investments it is difficult to regulate something that has not completely developed yet and this poses extra risk for the investor."

The AIC event highlighted while investors can gain direct exposure to P2P through online lending platforms, a P2P investment company offers diversification, greater safety and ease of access.  

Cormac Leech, principal at Victory Park Capital, managers of VPC Specialty Lending Investments, said: “Investing via an investment trust reduces risk via diversification and also because the fund is managed by an experienced team of investment professionals who complete due diligence and continuously monitor the lending platforms. Investment trusts offer daily liquidity since the fund is listed and trades daily.”

Bill Kassul, principal in Ranger Alternative Management II, the general partner for the Ranger Direct Lending fund, highlighted the high yields found in this space and the consistent returns.

“We continue to seek great investment opportunities, especially in lending arrangements that are secured by borrower assets and collateral,” he said.

david.rowley@ft.com