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New trust yielding 8 per cent set for launch

20 May 2014

The imminent launch of a trust focusing on the peer-to-peer lending market promises to offer a high yield to investors.

By Thomas McMahon,

News Editor, FE Trustnet

Income-seeking investors should keep an eye on the imminent launch of the P2P Global Investments fund, and innovative portfolio of peer-to-peer loans which is aiming to yield 6 to 8 per cent, according to Charles Tan, investment companies analyst at Cantor Fitzgerald.

Eaglewood Capital Management, an affiliate of hedge fund manager Marshall Wace, is seeking to raise £200m for a new fund to launch by the end of this month investing in so-called peer-to-peer lending.

ALT_TAG Tan (pictured) says the cutting edge nature of the industry it is investing in and the high yield that it offers should see it gather a lot of interest in the coming months.

“There is the argument that you’re throwing good money after bad [by buying consumer loans], but if you think about it in the longer term trend this is disintermediation, the internet, all those things happening now,” he said.

The idea behind the new fund is to buy loans which are made via peer-to-peer and direct lending platforms such as Funding Circle, Zopa and RateSetter.

These sites offer a way for individuals to lend minor amounts to small businesses, stepping in where the banks or other traditional forms of lending won’t.

This offers an alternative source of funding to businesses and a way for investors to make money by buying debt.

The sites are intermediaries only, not taking on the credit risk of lending money, hence the idea of “disintermediation” – cutting out the middlemen, which is a feature that the internet is bringing to a lot of start-up businesses.

The P2P Global Investors fund will buy these loans and receive the interest payments, targeting net returns of between 5 and 15 per cent per annum.

The company will invest primarily in the US and Europe across a range of asset classes and credit risk bands, and will have the ability to invest in the platforms themselves and also in other funds which buy the loans.

It currently intends to invest in the Eaglewood Income Fund, which invests in consumer loans through the Lending Club platform, and has agreements in place with Funding Circle, RateSetter, Zopa and Crossflow Payments.

According to Eaglewood, peer-to-peer lending is now a multi-billion dollar industry internationally, with volumes through major US and UK platforms doubling year-on-year.

Peer-to-peer lending has been regulated in the US since 2008, and became regulated by the FCA on 1 April 2014.

Eaglewood was launched in 2011 and currently runs around $225m in two separate funds focusing on the same area of the market – loans to consumers and small businesses.

The lead managers are Jonathan Barlow, formerly of Weiss Multi-Strategy Advisers, Simon Champ, formerly in equity sales at several investment banks, and Steven Lee, who has a credit research background.

Tan says the new fund will be most naturally compared with the loan funds on the market, most of which are or have been trading on significant premiums. However, the particular focus of this new trust is unique.

TwentyFour Income offers exposure to debt but largely through residential mortgage backed securities and collateralized loan obligations.

The former are securities created from mortgages and the latter can be created from a number of debt instruments, typically from larger businesses, and are sold on by the originators, the banks.


The loans are repackaged and sold in tranches, distributing the various risks and cash flows between each tranche.

Only 1.98 per cent of the portfolio is in consumer loans and only 4.87 per cent in loans to small businesses, however, unlike with the proposed new fund.

Performance on the £332m fund has been strong in recent years, and it is up 16.92 per cent over 12 months.

Performance of trust vs sector over 1yr


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Source: FE Analytics

This has tailed off in the past couple of months, however. It is currently yielding 5.1 per cent but sitting on a 5.9 per cent premium.

NB Global Floating Rate Income and Alcentra European Floating Rate Income offer access to loans tied to inflation, which means that as rates rise the yield should rise with them

Performance of trusts over 1yr


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Source: FE Analytics

NB Global Floating Rate Income yields 3.8 per cent and is trading around par, while Alcentra European Floating Rate Income yields 4.8 per cent on a 2.2 per cent premium.

The NB fund is focused on the US, with 90 per cent of loans derived from that country. It may represent good value given that it has traded on a 3 to 6 per cent premium for most of the past year.


Analysts from Oriel and Winterflood say that there is little prospect for capital growth in these loans this year, however, with total return to come from dividends.

Innes Urquhart, analyst at Winterflood, notes that yields have fallen on the market over the past year as credit spreads have tightened, which may explain why discounts have widened.

The high yield target on the P2P fund may well seem even more attractive in such an environment.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.