Infographic Created by Orchard Platform

Billions to the Crowd Taps Appetite for Alt Asset Investing

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August 31, 2015

The quick growth and growing confidence in lending platforms and equity crowdfunding is attracting more capital from professional and institutional investors. Milestones announced this summer illustrate these two trends. Zopa, the UK-based pioneer in peer to peer lending, announced on its blog that it hit the milestone of GBP 1 billion in loans.

 

Elsewhere, Citywire reports that P2P Global Investments, which is a British trust (backed by the hedge fund Marshall Wace, according to the FT ) that has a strategy of buying loans from  major peer-to-peer (P2P) lending platforms, such as Funding Circle, RateSetter and Zopa, has raised in the past year almost GBP 870 mn or USD 1.4 billion.

 

Citywire said that P2P Global Investments is one of several trusts set up by managers in the UK to create new  fund products that tap into the P2P lending platforms opportunity.

 

Creating Own Funds

 

At the same time, there are reports (one from CNBC here) that equity financing crowd platforms, such as CircleUp, and lending platforms, such as FundingCircle, are creating their own dedicated closed funds, following the LendingClub’s example.  Furthermore, a number of p2p platforms are offering application programming interfaces (APIs) to cater to the needs of professional investors and aggregators, according to academic research published in Communications of the Association for Information Systems.

 

These activities are prompting some insiders to call it a new alternative “asset class”. Campden FB, which covers family office trends and news, used the term in a feature on the risks and benefits of investing in peer-to-peer loans, quoting Ranger Speciality Income Fund’s Bill Kassul who said that some family offices are entering the fray through managed investment vehicles as a flavor of private debt with competitive yield. The article concluded that supply of peer to peer loans is limited and not likely to meet the demand and also cautions that it has yet to go through a cycle.

 

Orchard Platform, which is a P2P aggregator and analytics providers, created a useful graphic here that is a snapshot of the growing number of players and stakeholders in online lending. It is interesting because it represents just one type of crowdinvesting . There are a variety of other financing models in operation. Certain other countries where regulators are managing to keep pace with emerging fintech trends have enabled new platforms and early adoption.

 

Clearly activity has picked up and diversified with emerging platforms for small business loans, solar farms, and real estate since we last reported on it (See Luxembourg Family Office in Rush to P2P Lending ). And yet although the trends are impressive, the amount of loans and equity transactions are still tiny compared to existing and established alternative asset classes.

 

A Slice of a Slice of a Slice

 

We asked Preqin’s press contact, Nicholas Jelfs about the trend. He replied in an email that Preqin doesn’t track  specifically crowd lending funds trends, but noted that if there is growing institutional investor interest, then it would likely be part of a much bigger trend, namely the growth of the private debt market since the financial crisis. “Private debt is certainly an area that has seen enormous investor attention in recent years, and we anticipate it to grow and develop further,” said Jelfs. (See our report on Preqin’s later Alternative Asset Allocation survey).

 

Private debt includes mezzanine finance, distressed debt and direct lending. Direct lending teams provide various types of debt packages, mainly to small and medium sized companies.

 

As of the end of July 2015, an aggregate USD 46 bn was raised during the year across the entire private debt segment. The entire segment is on track to surpass last year’s USD 69 bn raised, according to Preqin’s latest report about private debt fund manager outlook. The report also notes that there is tough competition for deals, suggesting that there is more capital than deals.

 

Another Emerging Trend

 

Are there any new trends emerging in Alternative Assets? According to Jelfs, Preqin data shows that alternative assets related to natural resources are heating up.  “This area of alternative assets, covering the energy sector, mining, agriculture and more, has seen a lot of growth in the past year or so, particularly off the back of volatile commodity prices, and Preqin has witnessed strong growth in investor activity and fundraising,” Jelfs told DealMarket Digest, adding that it is anticipated that this sort of alternative asset will become a more “integral part” of investor portfolios because it is seen as an inflation hedge, exhibiting low correlation to other asset classes.

 

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