The news raises questions about the peer-to-peer model
Thursday 11 Apr 2019 Author: Tom Sieber

Peer-to-peer (P2P) lender Funding Circle (FCH) is set to close its Funding Circle SME Income Fund (FCIF) following a consultation with the investment trust’s shareholders.

This development has put shares in Funding Circle under pressure at 321.5p and is arguably reflective of wider problems in the P2P industry.

Launched in November 2015, Funding Circle SME Income targeted an annual dividend of between 6% and 7% and a total return of between 8% and 9% from a portfolio of P2P loans to small businesses.

However, returns have deteriorated, the trust cut its dividend in 2018 and impairments have started to increase. The annualised shareholder total return since inception is just 0.18% according to Canaccord Genuity.

Canaccord says: ‘We believe Funding Circle SME has failed because, despite what has been a relatively benign environment, the returns have fallen well short of targeted returns.

‘It has nothing to do with the structure, which has at least provided a monthly window on performance. Furthermore, this begs questions about the investment process and the effectiveness of the credit analysis.’

The broker adds that is concerned about what might happen to the P2P space in a more challenging economic environment.

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