InvestmentsAug 22 2017

Peer-to-peer lender launches model portfolio-type rivals

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Peer-to-peer lender launches model portfolio-type rivals

Peer-to-peer lending platform Funding Circle has confirmed investors using its service will no longer be permitted to chose the companies in which they invest, and instead will be placed in a risk rated portfolio.

Funding Circle was launched as a platform that allows individual investors to select the companies to which they want to lend money.

The company announced today (22 August) that this will soon end, and instead investors on the platform will be offered a choice to invest into one of two portfolios of loans on the platform.

The 'balanced' portfolio will target a return of 7.5 per cent. The 'cautious' portfolio will target a return of 4.8 per cent.

The risk profile of the individual loans is determined by Funding Circle, as decided by the in-house credit assessment team, before being placed into the risk portfolio they deem appropriate.

Funding Circle has 60,000 active investors on the platform, with the average loan being £70,000. 

Investing in a portfolio of loans may offer investors who have a smaller pot of capital the opportunity for greater diversification.

The changes mean Funding Circle’s model is now much closer to being a model portfolio service, than a traditional peer to peer lending operation.

Peer to peer was, at inception, designed to offer investors the chance to deploy capital into small, unlisted businesses they may not otherwise have a way of accessing, but with more transparency than is offered by investing into a collective investment, where a manager chooses the investments.

The rise of P2P lending followed the financial crisis in 2008, and the ensuing credit crunch, which saw banks pull back from lending to smaller companies, leaving them without access to funding.

In exchange, investors suffering rock bottom interest rates on their savings were offered an alternative paying much higher rates, though at a risk to their capital.

Funding Circle believe their new model offers transparency because the individual investor can see all of companies to which they have lent money.

Not all unit trusts or investment trusts disclose on a regular basis the full portfolio of investments. The monthly factsheets produced by fund houses typically show just the top-ten holdings.

Not all investors in the portfolios offered by Funding Circle will be in the same assets.

This is because the loans on the platform have different dates to maturity.

James Meekings, co-founder and UK managing director at Funding Circle said: “These changes will make lending at Funding Circle simpler, better, fairer.

"We want to create a level playing field for all investors and ensure everyone has the same opportunity to lend to UK businesses. With the choice of two lending options, investors will be able to choose a return that suits their risk appetite.”