DUBLIN: Funding Circle Holding Plc, a UK-based peer-to-peer lender, is making a foray into the world of private debt.
The firm’s new investment vehicle has already attracted a commitment of £30mil from Merseyside Pension Fund, according to a statement.
The eight-year closed-end fund will target annual net returns of 5.5%-6.5%.
The lending platform operator’s chief capital officer Sachin Patel said there is no set target for how much the firm aims to garner for its UK Economic Impact Fund but a statement in April said it intends to raise more than £200mil from institutional investors over the next few years.
“This is the first time that a platform lender has actually launched a private debt vehicle, or a private debt business,” said Patel, in an interview.
By co-opting the closed fund structure used by the private credit market, Funding Circle hopes to take its existing product: loans to small businesses funded by individual investors, to a much larger institutional market.
The vehicle will allow pension funds, insurers and other institutions to funnel their money into much smaller businesses, saving them the trouble of having to deal with thousands of individual loans, said Patel.
Funding Circle’s vehicle won’t be competing with the private debt market’s bigger players as loans will be extended to businesses that are much smaller in size. Funding Circle’s average loan is £70,000, compared with the £30mil to £250mil pound range more typical for direct lenders.
The lending platform operator, which advertises heavily on London’s underground rail network, connects small businesses in need of debt financing with investors via a platform that can be accessed by anyone with cash to invest.
Money raised for the new fund will be invested passively into the same UK deals offered to the platform’s other investors, said Patel.
The new vehicle will officially sign in its first wave of investors sometime in the next two weeks, he said.
The firm is also pitching the vehicle to investors with an emphasis on environmental, social, and governance issues with a focus on the economic upside for the UK economy generated by its lending.
It is no coincidence that it is a local authority pension fund anchoring the vehicle.
Earlier this year, Funding Circle wound down the Funding Circle SME Income Fund, citing rising default rates that was exacerbated by the fund’s leverage facilities.
The costs of hedging its various currency exposures - the fund invested in US loans as well as the European jurisdictions where Funding Circle has a presence - also reduced returns, said Patel.
“Now we’ve launched this U.K.-only sterling fund, and we hope to launch various regional flavors of funds in the local currency, so investors can then build their own global portfolios according to their own limits,” said Patel. — Bloomberg
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