14 November, 2016

Funding Circle SME Income Fund Performs Despite Global Pressures

Funding Circle SME Income Fund Performs Despite Global Pressures

The chairman of the Funding Circle SME Income Fund has said there is “no likelihood” of a ‘hard Brexit’ or the US election result having a negative effect on the fund, as the fund’s six-month performance report continued to show positive growth.

Launched in November 2015, in the six months to the end of September, the fund posted a total comprehensive income of £5.37 million. In the period from the fund’s inception to March 31, this figure sat at £1.28m. The fund is designed to attract more institutional capital onto the Funding Circle platform. This aligns with Funding Circle’s strategy of gaining a diverse mix of retail, institutional and platform fund vehicles, and government investors.

As the Funding Circle SME Income Fund’s first year of trading comes to a close in two weeks, this news marks one of several successful developments over its short tenure.

When floated on the London Stock Exchange (LSE) nearly one year ago, the SME Income Fund managed to raise £150m in investment. More than 90% of which has been deployed to-date directly into loans originated through the Funding Circle P2P platform.

While other P2P platforms do deal in SME lending, the Funding Circle fund model was the first of its kind and the only investment vehicle of its type currently trading. Following in Funding Circle’s footsteps, Zopa is also promoting its P2P loans to institutional investors by structuring its loans appropriately. Specifically, Deutsche Bank helped Zopa achieve a securitisation; a bond backed by consumer loans originated through the Zopa platform.

In June, it was announced that the Funding Circle fund had secured a partnership with the European Investment Bank (part of the EIB Group), which saw it gain £25m of investment and a further £100m capital injection to be invested directly across the Funding Circle P2P platform.

Just two months previous to the announcement, the EIB Group was involved in a landmark first European marketplace lending securitisation, where the European Investment Fund (also part of the EIB Group) guaranteed a deal which saw alternative investment manager KLS Diversified sell part of its senior tranche to German investment bank, KfW.

This deal added further weight to EIB’s partnership with Funding Circle – one which overall is expected to unlock £200m worth of new loans across the marketplace lender’s platform in the next seven years.

The value of the fund’s assets currently sits at £165m, while the market capitalisation is £167m – meaning the fund is performing at a premium of 1.2%.

As businesses face economic uncertainty in the wake of the Brexit vote and market commentators are predicting ramifications from the shock US election result, Richard Boleat, chair of the Funding Circle SME Income Fund, reassured investors.

The Board does not see the impact of either the Republican victory in the US presidential election or a ‘hard Brexit’, being the two key geopolitical risks applicable to our key markets, as being likely to have a material short term effect on our return performance or credit risk.Macroeconomic conditions in the UK and the US, being the company’s key geographical exposures, remain reasonably benign, and we see no likelihood of a material change in monetary policy or economic conditions in the short term, consistent with the views of other commentators and analysts.