P2P Equity Versus Yields – Be Careful What You Wish For

Be careful what you wish for. Investors seeking to exposure to the equity (share) value of the peer-to-peer (P2P) alternative-finance sector have been able to get in early via investment trusts committed to the area. The experience of the early adopters however has not been a comfortable one.

The explanation is simple. Some P2P platforms have opted for growth as a priority over security. At Money&Co. we have taken the route of slower growth – and a loan portfolio that is among the very best in the sector, with a default rate of under 0.25 per cent er annum since loan facilitation went public in April 2014.

Our lenders have averaged over 8 per cent gross (we take a one per cent fee) over this period.

Citywire reports on the difficulties of investment managers with capital in P2P. Here’s an extract of a recent article.

Fund managers Mark Barnett and Neil Woodford and other investors in P2P Global Investments (P2P) are having to be patient as the turnaround in the UK’s first listed peer-to-peer lending fund takes longer than expected.

Annual results published yesterday showed the £632 million investment trust delivered a 5.21% return on net assets last year, up from 3% in 2017 when Pollen Street Capital, manager of rival Honeycomb (HONY), took over the struggling loan portfolio.

That performance masked the disappointment of the company not hitting its dividend target, however. In November 2017 P2P, which lends shareholders’ capital through lending platforms, set a target of paying a covered 15p per share dividend by half way through 2018.

In the end P2P, in which Barnett and Woodford hold stakes of 33% and 14% respectively, paid total dividends of 48p per share. This was up from 47p the year before, but at a quarterly rate of 12p. Worse, the first three dividends of the year were uncovered by earnings although the fourth quarter payment was covered by reserves and offers a comparatively high yield of 5.8%, according to Numis Securities.

8% Yield Loans -Latest

  • The latest tranche of the Seascape offering has just been released to market. The offer is for £250,000, with a fixed-rate yield of 8 per cent. The term of the loan of five years. It’s eight per cent subscribed at the time of writing.
  • The £150,000 property-backed loan, North-East Property Investment, has a fixed-rate yield of eight per cent over three years. It’s 72 per cent subscribed at the time of writing.

As ever, we’ve made our best efforts in due diligence and credit analysis before awarding this loan an A rating. However, we cannot warrant that the representations of the borrower are true – though clearly we believe them to be so.

  • Please remember there is always an element of risk, and capital loaned is at risk. See risk warnings at the foot of this article, on our Home page and in FAQs on site.

A Process Guide To Innovative Finance ISA Investment

Money&Co. lenders have achieved an average return of more than 8 per cent gross (before we deduct our one per cent fee). That figure is the result of almost £15 million of loans facilitated on the site, as we bring individuals looking for a good return on capital together with carefully vetted small companies seeking funds for growth. Bear in mind that lenders’ capital is at risk. Read warnings on site before committing capital.

All loans on site are eligible to be held in a Money&Co. Innovative Finance Individual Savings Account (IFISA), up to the annual ISA limit of £20,000. Such loans offer lenders tax-free income. Our offering is an Innovative Finance ISA (IFISA) that can hold the peer-to-peer (P2P) business loans that Money&Co. facilitates. For the purposes of this article, the terms ISA and IFISA are interchangeable.

So here’s our guide to the process:

  • Step 1: Register as a lender. Go to the login page, and go through the process that the law requires us to effect. This means we have to do basic checks on you to comply with money-laundering and other security requirements.
  • Step 2: Put money into your account. This is best done by electronic transfer. We can also process paper cheques drawn in favour of Denmark Square Limited, the parent company of Money&Co.
  • Step 3: Buy loans in the loan market. Once you’ve put cash in your account it will sit there – and it won’t earn interest until you’ve bought a piece of a loan. It’s this final step that requires lenders and IFISA investors to be pro-active. Just choose some loans – all loans on the Money&Co. site can be held in an IFISA – and your money will start earning tax-free interest.

The ISA allowance for 2019/20 is unchanged from last tax year at £20,000, allowing a married couple to put £40,000 into a tax-free environment. Over three years, an investment of this scale in two Money&Co. Innovative Finance ISAs would generate £8,400 of income completely free of tax. We’re assuming a 7 per cent return, net of charges and free of tax here.

Once you have made your initial commitment, you might then consider diversifying – buying a spread of loans. To do this, you can go into the “loans for sale” market. All loans bought in this market also qualify for IFISA tax benefits.

Risk: Security, Access, Yield

Do consider not just the return, but the security and the ease of access to your investment. We write regularly about these three key factors. Here’s one of several earlier articles on security, access and yield.


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Disclaimer: Money&Co.™ is the trading name of Denmark Square Limited, Company Number 08561817, registered in England & Wales, authorised and regulated by the Financial Conduct Authority (FCA). The company is identified on the Financial Services Register under Reference Number 727325. The registered office is 58 Glentham Road, Barnes, London, SW13 9JJ where the register of Directors may be inspected. Denmark Square Limited (ISA manager reference number Z1932) manages the Money&Co. Innovative Finance ISA.