A US private equity firm is hatching plans to raise £200m on the London Stock Exchange to invest in the growing number of peer-to-peer lending websites in the UK.
Victory Park Capital Advisors is following the lead of Mayfair hedge fund Marshall Wace to enter what they hope will be a lucrative source of new loans. City sources said Jefferies stockbrokers is helping advise on the possible float, with other US investors expected to follow.
Until recently, peer-to-peer lending in Britain has mostly consisted of members of the public making small deposits which are then lent out to small businesses or individuals. Platforms like Zopa and Funding Circle check the borrowers’ creditworthiness and act as a conduit for the people offering the loans.
Over the past year, however, institutional investors have been joining as lenders too.
In the US, hedge funds, banks and other mainstream institutions have been in the market for years, attracted by the healthy returns on offer. Yields are higher than traditional banks because of the platforms’ low overheads.
Victory Park, which declined to comment, has been keen to expand in the UK. It recently struck a deal with Assetz Capital to lend up to £150m to its customers.
Marshall Wace launched P2P Global Investments on the London stock market last year, raising £200m. The project proved so successful that it added a further £250m in a further fundraiser last month. Victory Park’s project is thought to be a direct copycat: similarly structured as an investment trust.
Reports in the US suggest Victory Park is targeting an 8 per cent dividend yield from its fund compared with the Marshall Wace vehicle’s 6-8 per cent.
Critics of institutional investors getting involved in what was something of a cottage industry are concerned too much money will pressurise the lending platforms to relax underwriting standards in order to get more loans out of the door. They also fear that the institutions will be offered better performing loans than retail investors.
But Giles Andrews, chief executive of Zopa, said both fears were unjustified: "Institutional investors are not daft: the fact that they want to come here is a good reflection on what we do. We’d be delighted to partner with them."
Institutional investment was less "lumpy" than that from the public and could play a big part in helping companies like his to grow, he said. While institutional loans have to be kept separate from retail ones for regulatory reasons, he said, those destined for institutional investors at Zopa are picked entirely at random.
Other analysts are concerned that a flood of capital into the market may struggle to find enough borrowers to go to. While peer to peer lending is increasing rapidly, it remains a small proportion of overall borrowing in the UK.Reuse content