Peer2Peer Finance News October 2021

ISSUE 61 | OCTOBER 2021

The P2P Power 50 2021

It has never been more important to keep up to date with the latest peer-to-peer lending news.

These are extraordinary times and our team is working hard to keep you informed about how the UK’s P2P sector is responding and what new trends are starting to emerge.

If you want to be the first to learn about the latest developments in the world of P2P, please purchase a subscription today.

We offer a range of subscription options, starting at just £1.95 a week.

Please go to www.p2pfinancenews.co.uk/subscribe to buy a subscription today, so that you can enjoy unlimited digital access to P2PFN, with the option of a monthly print magazine.

For more information on subscriptions, including overseas queries, please email tehmeena@p2pfinancenews.co.uk.

EDITOR’S LETTER

03

Published by Royal Crescent Publishing

Green Park House, 15 Stratton St, Mayfair, London W1J 8LQ info@royalcrescentpublishing.co.uk EDITORIAL Suzie Neuwirth Editor-in-Chief suzie@p2pfinancenews.co.uk Kathryn Gaw Contributing Editor kathryn@p2pfinancenews.co.uk Marc Shoffman Senior Reporter marc@p2pfinancenews.co.uk Michael Lloyd Senior Reporter michael@p2pfinancenews.co.uk PRODUCTION Tim Parker Art Director COMMERCIAL Tehmeena Khan Sales and Marketing Manager tehmeena@p2pfinancenews.co.uk SUBSCRIPTIONS AND DISTRIBUTION tehmeena@p2pfinancenews.co.uk Find our website at www.p2pfinancenews.co.uk Printed by 4-Print Limited ©No part of this publication may be reproduced without written permission from the publishers.

Peer2Peer Finance News has been prepared solely for informational purposes, and is not a solicitation of an offer to buy or sell any peer-to-peer finance product, or any other security, product, service or investment. This publication does not purport to contain all relevant information which you may need to take into account before making a decision on any finance or investment matter. The opinions expressed in this publication do not constitute investment advice and independent advice should be sought where appropriate. Neither the information in this publication, nor any opinion contained in this publication constitutes a solicitation or offer to provide any investment advice or service.

T

he annual Power 50 is always one of the most exciting issues of the magazine.

This gives us a chance to commend the stellar achievements of the industry’s movers and shakers, as well as the companies supporting them.

Those who have excelled during the pandemic deserve an additional round of applause – it has not been an easy time to do business – and I’m looking forward to seeing their influence grow over the year ahead as the economy recovers.

There have, of course, been a few changes to the list since last year, reflecting platform closures and management shake-ups.

The influence of the regulator cannot be underestimated, which is why the Financial Conduct Authority’s senior figures have a greater presence in the Power 50 list than ever before.

As our news story on page 5 shows, the industry is currently waiting to find out if it will be faced with even-tougher marketing restrictions.

Congratulations to those who made it on to this year’s Power 50 list and commiserations to those who didn’t – there’s always next year!

SUZIE NEUWIRTH EDITOR-IN-CHIEF

We hope you’re enjoying the latest edition of Peer2Peer Finance News! We have now moved to a paid-for subscription model. If you would like to continue reading the magazine, please go to www.p2pfinancenews. co.uk/subscribe/ to find out about subscription options.

04

NEWS

P2P firms expand into BNPL products FUNDING Circle rolled out its first buy-now-paylater (BNPL) product recently and Zopa is set to launch its own offering soon, suggesting that this could be a new growth area for peer-to-peer lenders.

At a glance, the BNPL space is a perfect fit for P2P. Originally used by online retailers, the service allows shoppers to order clothes or other goods and settle their bill in instalments. The first instalment is generally made 30 days after the

purchase was completed.

Fintech lenders such as Funding Circle are now demonstrating the potential for BNPL options beyond the consumer market. The P2P platform’s FlexiPay facility acts as a BNPL option for business expenses, between the value of £2,000 and £30,000. Funding Circle uses its existing borrower base and credit checking system to ensure that only high-quality borrowers are approved – a model that consumer lender Zopa is also expected to follow.

And last month, Fintex Capital, the fintech investment firm dedicated to alternative credit, launched its own suite of BNPL products, showing the appeal of BNPL for the alternative lending market.

According to a review by the Financial Conduct Authority, the use of BNPL products nearly quadrupled in 2020 and is now at £2.7bn, with five million people using these products since the beginning of the coronavirus pandemic.

The scale of this market has already tempted neobanks such as Monzo and Revolut, as well as payment providers such as PayPal. However, P2P lenders could be discouraged by the prospect of upcoming regulation. The City watchdog has a remit to protect consumers and its research into BNPL schemes has found significant potential for consumer harm, suggesting that BNPL regulation is almost certainly coming.

EstateGuru gears up for UK launch in 2022 ESTATEGURU is preparing to launch into the UK at the start of next year.

The European peer-topeer property lending platform, which has funded €424.4m (£365m) to date, is currently recruiting a team in the UK and is preparing its first project.

Marek Partel, chief executive and cofounder of EstateGuru, said the UK is “an important milestone in [EstateGuru’s] long-term growth strategy” and that the firm is planning to open offices in Manchester and London.

“The UK is a very

competitive market, but it is also a very large and steadily growing market so we believe that there is room for EstateGuru,” Partel said.

“We provide fast and flexible access to funding

for small- and mediumsized enterprises and a very good risk/return ratio for our investors. We have an excellent track record of over eight years in multiple countries across Europe already.”

EstateGuru gained regulatory permissions in the UK in 2019 but paused its expansion plans due to the pandemic.

After raising €5.8m from its series A funding round last month, it is ready to restart its UK market entrance process, said Partel.

Other European P2P platforms are eyeing the UK market, including Estonia’s Income.

Meanwhile, Latviaheadquartered Mintos is not open to UK investors but added UK litigation funder Fenchurch Legal as a borrowing company on its European marketplace in July.

NEWS

05

Months-long wait for clarity on ‘high-risk’ investments PEER-TO-PEER lenders may have to wait until the end of the year to find out if they will be included in a regulatory clampdown on financial promotions.

The City watchdog published a three-year strategy last month to enhance consumer protections, particularly for what it views as highrisk investments including P2P lending.

The Financial Conduct Authority’s (FCA) analysis said six per cent of adults invested in highrisk products during the pandemic, while 45 per cent of self-directed investors said they did not realise the risks.

The regulator said it is aiming for a 50 per cent reduction in the number of consumers putting money into high-risk investments who indicate a low risk tolerance or demonstrate the characteristics of vulnerability, by 2025.

Mike Carter, head of platform lending at trade body the 36H Group, said the sector will await publication of a promised discussion paper on these issues in the fourth quarter of this year to see what is being proposed.

But Stuart Law, chief executive of Assetz Capital,

is hopeful that P2P lending won’t be hit with drastic changes.

“P2P lending is not in the same space as most of the other ‘high-risk’ investments the FCA lists and is heavily regulated already,” he said.

“Whilst other sectors may be badly hit by these

proposed changes, and correctly so, we trust that well-run and compliant P2P companies will be allowed to continue as before, benefitting investors with good levels of return versus the managed risks and without any material reduction in investor numbers.”

Brian Bartaby, chief executive of Proplend, also urged the FCA not to lump P2P lending in with unregulated products such as cryptocurrencies and contracts for difference.

“Conceptually we have no issues with the FCA strengthening firms’ financial promotions approval requirements to ensure that investors fully understand all risks,” he said.

“But we struggle to understand their sweeping statement around halving the number of consumers investing in high-risk investments by 2025.”

Property lenders optimistic as house prices return to pre-Covid levels HISTORICALLY low mortgage rates and the extended stamp duty holiday have helped the UK’s property market recover to pre-pandemic levels within record time, creating more opportunities for peerto-peer property lenders.

Stuart Law, chief executive of Assetz

Capital, told Peer2Peer Finance News that the pandemic-induced property surge has protected property lending by creating more security for lenders.

Meanwhile, Jatin Ondhia, founder and chief executive of Shojin Property Partners, noted

that the “severe shortage of housing” is not going to go away quickly, creating opportunities for the most resilient platforms.

“The pandemic was the first real test for the P2P market, and every platform had to take a long, hard look at their own risk controls to

ensure that they and their investors were not over-exposed to risk,” Ondhia said.

“This led to a closure of some platforms that were not assessing or managing risk correctly, however for others it proved their resilience and strengthened their position.”

The home of peer-to-peer lending.

Earn up to 4.1% p.a. target interest tax-free with our IFISA. Capital at Risk This tax year (2020/21) you can invest up to £20,000 into an ISA, protecting your income from tax, both now and in the future.

Our Innovative Finance ISA (IFISA) is an investment that gives you the opportunity to lend to UK businesses, whilst earning fairer rates of interest tax-free.

Fairer growth for all.

0800 470 0430 assetzcapital.co.uk/invest As with most forms of investment, peer-to-peer lending carries a degree of risk to your capital; in this case, if the borrower is unable to repay their loan.

At Assetz Capital, we seek to reduce this risk to our investors by taking asset security on every loan. Investment Account target interest rates should be considered along with the relevant Investment Account expected defaults & losses information. Past performance does not guarantee future performance.

Investment in peer-to-peer loans is not protected by the Financial Services Compensation Scheme. We recommend that prospective lenders read the Key Investor Information pages before investing.

Assetz SME Capital Limited is a company registered in England and Wales with company number 08007287. Assetz SME Capital Ltd is authorised and regulated by the Financial Conduct Authority (Reg No: 724996). ’Assetz Capital’ is a trading name of Assetz SME Capital Ltd. Assetz SME Capital is registered with the Office of the Information Commissioner (Reg No: Z3338899) for data protection purposes.

JOINT VENTURE

07

When doing social good makes good investment sense

S

OCIAL IMPACT INVESTING can generate inflation-beating, long-term returns while also performing social good. This is the philosophy that drives property investment platform Assetz Exchange as it celebrates more than a year in business.

“Our primary objective is to provide stable, long-term property investments for our investors,” says Peter Read (pictured), managing director and co-founder of Assetz Exchange.

“We have found that property investments in the social housing sector enjoy these qualities whilst also having the advantage of providing a beneficial impact for vulnerable people in society.”

Assetz Exchange was launched in 2019 as a way to enable retail investors to create their own customised yet diversified property portfolios quickly and cheaply.

Income from property has long attracted investors, but rising costs, administrative fees and the end of some tax breaks has eaten into these returns. In the summer of 2020, Assetz Exchange spotted an opportunity to deliver better longterm returns than conventional buy-to-let, by investing in properties for use as social housing, which can be leased to charities on corporate leases over five to 10 years.

During the lease, the charity or housing associations are usually responsible for the majority of repairs, maintenance and insurance, which means that investor yields are not eroded through wear and tear. They also make good long-term partners, with leases often being renewed. In the event that a lease is terminated, investors can choose to sell the

property in order to realise funds.

But for many investors, the added benefit is the ability to invest in projects which have a social purpose.

“If they can directly channel their money to something that does good at the same time as providing a return, then that's a massive positive and a key factor in their decision to allocate funds to Assetz Exchange,” says Read.

To date, Assetz Exchange has seen the majority of its investors join due to word of mouth, but Read has noticed an increase in the number of investors who are actively seeking out socially conscious investments.

However, he is adamant that the platform is not paying lip service to the environmental, social and governance trend.

“We are different from other social impact funds out there,” he says.

“There is full transparency with us and we are proud of the working relationships we build with the care providers. Investors can log on and see the full history of every one of our properties at any time and they know the social purpose of each property.”

This transparency is extremely important to the platform and Read believes that it sets Assetz Exchange

apart from its competitors in this emerging space.

“People have realized that there are good returns to be made from supplying housing used for supported living, and there is a bit of a feeding frenzy going on at the moment,” he says.

“It's attracting a lot of investment, but often on terms that are not sustainable for all the parties involved in the provision of good quality care. By contrast we provide housing to our charity partners on more flexible leases that puts them in a better place to accommodate changes to the care environment.”

Just under half of the properties on the Assetz Exchange platform are now tenanted by charities and registered providers that use them to deliver high-quality care to vulnerable people. These properties typically deliver net yields of approximately five per cent that are linked to inflation. This proportion will continue to grow as word has spread in the care community about Assetz Exchange’s flexible approach. As a result, the company has a substantial pipeline of new properties for the final quarter of this year.

08

POWER 50

The Peer2Peer Finance News

Power 50 2021

Words by Michael Lloyd and Marc Shoffman

T

HE 2021 PEER2PEER Finance News Power 50 recognises the most influential individuals in the peer-to-peer lending sector who have propelled its growth over an undoubtedly challenging year.

The list shines a spotlight on the individuals that head the fastest growing and largest platforms as well as those that are rife with innovation. It also acknowledges the regulators and government officials that continue to shape the sector, alongside lawyers, industry commentators and authors of hardhitting reports.

We give a particular mention to the top 10 most influential individuals who have made the most significant impact on the industry.

Two faces from the Financial

Conduct Authority (FCA) made it into the Top 10 for the first time: chief executive Nikhil Rathi and Andrew Kay, head of department, retail lending. This reflects the pivotal role that regulation plays in the sector, at a time when the FCA is increasing its scrutiny of ‘high-risk’ investments.

British Business Bank chief executive Catherine Lewis La Torre also features in the Top 10, in a year that state-backed support schemes have been administered and deployed by some platforms, such as Funding Circle and Assetz Capital.

Meanwhile, there were several new names in this year’s Power 50 list, reflecting the continued growth of the industry.

These included platform bosses such as EasyMoney’s Andrew de Candole, Leap Lending’s Fawzi

Kyriakos-Saad, Lendwise’s Rishi Zaveri and Shojin Property Partners’ Jatin Ondhia.

Other new entrants include Janine Hirt, who took over as chief executive of trade body Innovate Finance from Charlotte Crosswell, and the authors of two prestigious reports that made their mark, Ron Kalifa and Dame Elizabeth Gloster.

Outside of the Power 50 list of individuals, we also note the rising stars who are starting to have an impact on the P2P sector and firms of influence, which include trade bodies, law firms, business advisory groups, analysts and government bodies that aid the sector’s growth.

There are no rankings, aside from the special mention given to the Top 10, so the list is compiled in alphabetical order.

POWER 50

Mike Carter, Head of platform lending, 36H Group Carter has become the face of P2P lending to policymakers and regulators.

He has been busy representing TOP platforms through the 36H Group to 10 show how they can help with the economic recovery. The group, which sits within fintech trade body Innovate Finance, played a key role this time round in plans for a successor scheme to the coronavirus business interruption loan scheme (CBILS). Unlike the early days of CBILS, it is notable that P2P lenders were quickly invited to take part in the recovery loan scheme.

Lisa Jacobs, UK managing director, Funding Circle Jacobs replaced Funding Circle cofounder James Meekings as TOP UK managing director in 2019 10 and is set to step into the shoes of Samir Desai when he departs from the chief executive role next year. She has helped Funding Circle become an integral part of the UK government’s coronavirus response by taking part in its emergency lending schemes and there are now plans for more products such as credit cards and supply chain finance.

09

Bruce Davis, Managing director, Abundance Investment It may not be easy going green but Davis has been ahead of the game with climate-friendly products on offer TOP through Abundance Investment, 10 years before the government even thought about green bonds. The platform has pioneered community municipal bonds that have helped fund more than £2m of renewable local authority projects. Through his role as a director of the UK Crowdfunding Association, Davis has also been instrumental in representing the sector’s response to proposals for tougher regulations.

Andrew Kay, Head of department, retail lending, Financial Conduct Authority Kay heads up the City watchdog’s retail lending supervision activities so he is TOP responsible for ensuring that P2P 10 lending platforms abide by the rules.

This year he wrote to the boards of P2P platforms to tell them they should price their secondary market transactions fairly and to prioritise liquidity monitoring as a part of their wind-down plans. This followed the City regulator publishing proposals to strengthen its financial promotion rules for high-risk investments.

10

POWER 50

Stuart Law, Cofounder and chief executive, Assetz Capital Law has successfully steered Assetz Capital through the coronavirus crisis and, like Funding Circle, has helped TOP to support small businesses during the 10 pandemic through its participation in government loan schemes. Furthermore, it recently emerged that the platform made a profit of £2.6m in its latest full-year results – its largest annual profit to date – proving that it can not only survive but thrive in challenging conditions.

RateSetter’s exit from P2P lending left a gap in the ‘big three’ and Law seems committed to fill this space.

Atuksha Poonwassie, Managing director, Simple Crowdfunding Poonwassie runs the established property investment platform Simple Crowdfunding and is a director of TOP the UK Crowdfunding Association (UKCFA).

10 Having paused new lending during the pandemic, Simple Crowdfunding took the opportunity to re-jig its proposition and is now readying to launch a new product range for lenders. In her role at the trade body, she helped the UKCFA to research investor views on the sector and lobby against regulatory proposals for stricter marketing restrictions and appropriateness tests.

Catherine Lewis La Torre, Chief executive, British Business Bank Lewis La Torre became interim head of the state development lender in TOP September 2020 and was 10 subsequently appointed permanent chief executive. She has overseen the bank at a crucial time, as it was tasked with the roll-out of various government loan schemes to support businesses during the pandemic. With a number of P2P platforms accredited to the schemes, Lewis La Torre’s influence on the sector has grown over the past year.

Nikhil Rathi, Chief executive, Financial Conduct Authority Rathi took over the reins from interim chief executive Christopher Woolard in September 2020, at a challenging time for the City TOP regulator. Facing a torrent of criticism 10 from its mishandling of the London Capital & Finance (LCF) collapse, Rathi has led change at the FCA and is implementing recommendations from the Gloster report into the LCF scandal. While his influence on the P2P sector will be slightly further removed than those working under him, it is undeniable that Rathi’s oversight will set the tone for the regulator’s approach.

POWER 50

Gwyneth Nurse, Director of financial services, the Treasury Nurse has been director of financial services at the Treasury since 2015, making her the public face of TOP government policy in this sector. During 10 her tenure, she has seen the P2P sector’s transition into a regulated industry and the launch of the Innovative Finance ISA. She previously held senior roles in the Treasury’s banking and credit team and its assets, savings and wealth team. Prior to that, she worked at HMRC, giving her vital experience to oversee consumer investments such as P2P.

Natasha Wear, Chief executive, Zopa P2P The world’s oldest P2P lender may not get as much press as its newlylaunched banking brand these days but Wear has been TOP busy keeping the P2P lending side 10 of the business going during the Covid-19 crisis. Zopa has continued lending during the pandemic and is still in demand from investors but has launched a waiting list so it can prioritise existing customers.

Wear is a regular on fintech powerlists and is expected to play a key role in the platform’s plans for an initial public offering in the coming years.

11

n Brian Bartaby Co-founder & managing director, Proplend Commercial property has faced challenges during the pandemic due to the closure of high street shops and the shift to remote working, but Brian Bartaby has been quick to adapt to new conditions. His commercial property-focused platform has found opportunities in growing areas such as warehouses and impressively managed to narrow its losses last year while making all interest lender repayments in full. n Lee Birkett Founder & chief executive, JustUs Birkett has had a busy year, running his P2P platform JustUs and financial products comparison app Moneybrain, which has its own cryptocurrency, BiPs. Not one to rest on his laurels, Birkett is planning to launch an owneroccupied residential mortgage product later this year – unheard of in the P2P space – and is readying to expand JustUs into the US in 2022. Investors have backed his vision with the platform raising £1.2m through the future fund which it is looking to convert into equity. n David Bradley-Ward Chief executive, Ablrate and ASMX Bradley-Ward runs asset-backed lending platform Ablrate but you’re just as likely to hear him speaking about the benefits of blockchain thanks to his newest venture, ASMX. Since launching ASMX in October 2020, the blockchain-backed secondary market has completed over 90,000 trades worth over £11.6m. And football fans can now spot Ablrate’s logo at Reading Football Club after the platform became an associated partner at the club. n Mike Bristow Co-founder & chief executive, CrowdProperty Bristow has led the P2P property development lending platform from strength to strength. The business has been profitable since October 2019, and continued lending throughout the crisis. This year CrowdProperty has launched into Australia, secured a £300m institutional funding line and closed a £1.8m equity fundraising round, surpassing its £800,000 target.

12

POWER 50

n Andrew de Candole Chief executive, EasyMoney This is Andrew de Candole’s first time on the list. He launched EasyMoney back in 2018 and last year steered the P2P property lending platform to profitability with a zero per cent default rate for loans originated in 2020, 2019 and 2018. EasyMoney achieved an operating profit of £57,184 last year, taking the company’s total profit for the 2020 financial year to £269,005.

veteran Farnish previously headed up the former trade body the Peer-to-Peer Finance Association and is now applying her experience at Zopa. She plays a vital and influential role in ensuring that Zopa’s P2P business continues to grow alongside Zopa Bank. n Neil Faulkner Managing director and head of research, 4th Way Faulkner, who was previously a spokesperson for stock analysis website The Motley Fool, set up P2P ratings and research firm 4th Way in 2014. The new Power 50 entrant has grown his company into a closely-watched source of P2P data and information for both industry professionals and investors looking for advice on the sector. n Dame Elizabeth Gloster Author, the Gloster Report Dame Elizabeth Gloster has made the list for the first time due to her pivotal role in investigating the City watchdog’s regulation of collapsed mini-bond provider London Capital & Finance (LCF). The Gloster report highlighted several regulatory failings which may have contributed to the LCF debacle and made recommendations to the regulator, many of which have now been taken into account.

n Samir Desai Co-founder & chief executive, Funding Circle Desai (pictured) announced last month that he would be stepping down as chief executive at the end of the year, after 12 years at the helm of the P2P business lending giant. He certainly leaves on a high – the platform just unveiled better-than-expected first-half results, with adjusted core earnings and operating profit both beating previous guidance. Funding Circle has played a major part in the government’s loan schemes during the pandemic, further cementing its place in the alternative lending landscape. n Christine Farnish P2P chair & non-executive director, Zopa Zopa may be becoming better known for its digital bank but it’s still the oldest P2P lending platform. P2P

n Debbie Gupta Director of consumer investments, Financial Conduct Authority Gupta sets the strategy for retail investments and is seen as one of the most influential people at the regulator when it comes to P2P lending and crowdfunding.

Earlier this year, she penned a letter to the bosses of equity crowdfunding platforms about the key risks the regulator sees in the market, warning that consumers are still making “inappropriate” investments despite existing marketing restrictions. n Rito Haldar Co-founder, Unbolted Haldar has led Unbolted through the crisis, launching a secondary market last year and this year has been lending more against contemporary art. In November last year, along with fellow Unbolted co-founder Aswin Parameswaran, Haldar launched OnStep Homes, a P2P finance-backed shared ownership scheme that gives people a way to invest in residential property while supporting first-time buyers.

POWER 50

n Chris Hancock Founder & chief executive, Crowd2Fund Hancock’s business finance platform Crowd2Fund paused its lending at the start of the pandemic but reopened for loan applications in September 2020.

The platform narrowed its losses in its last financial year and is now gearing up for further growth. The company plans on launching a new website later this year as part of its Reboot Britain campaign and is preparing to launch into other Commonwealth markets. n Nicholas Harding Co-founder & chief executive, Lending Works After a tricky 2020 in which Lending Works paused lending and introduced negative interest rates, the P2P consumer lending platform is seeing improvement this year. At the start of January, Lending Works resumed new lending with tightened creditworthiness and affordability criteria. n Alison Harwood Head of London branch, Varengold Bank Harwood runs the London office of the German bank, which has swiftly become the go-to funding partner for P2P lending and marketplace platforms looking to scale up, such as Assetz Capital. In June, the bank told its investors that it expects to see “strong growth” in earnings for the fiscal year 2021. n Nicola Horlick Chief executive, Money&Co The ‘City superwoman’ has led a prestigious career, from private equity and fund management to launching P2P lending platform Money&Co in 2013. Undeterred by the pandemic, Horlick had diversified into different niches during the Covid crisis, including litigation RISING STARS We have chosen three individuals who we predict will have a growing influence on the P2P lending sector over the coming year.

Rob Pasco, chief executive and founder, Plend Fred Bristol, chief executive and founder, Brickowner Daniel Grimes, director and owner, Connective Lending

13

finance, music loans, TV and film rights. Horlick has previously highlighted how the platform was already lending with caution prior to the crisis due to Brexitinduced economic concerns.

n Janine Hirt Chief executive, Innovate Finance Hirt (pictured) took over the reins of the fintech trade body when Charlotte Crosswell stepped down as chief executive on 1 May. Since then, Hirt has been looking to produce data to showcase the sector’s resilience and has been representing P2P as part of discussions with the regulators and government about the post-Brexit regulatory regime. n Jaidev Janardana Group chief executive, Zopa Janardana joined Zopa in October 2014 as chief operating officer and was promoted to the top role in 2015. He has led the group during a period of strong growth at the P2P platform and the launch of its digital bank, and is now driving forward its plans for an initial public offering. n Ron Kalifa Author, The Kalifa Review Ron Kalifa has made the Power 50 list for the first time following his influential report into the fintech sector.

The Kalifa Review, published in February, said that increased government support, growth funding and regulatory sandboxes could lead the UK to the top of the global fintech league table. Since then, Chancellor Rishi Sunak has vowed to implement many of the recommendations and the first fintech accelerator has launched in Wales.

14

POWER 50

n Cormac Leech Chief executive, AxiaFunder Leech has overseen further growth at his litigation crowdfunding platform this year, funding its first international case, launching a secondary market and moving to a limited partnership investment model that is more tax efficient. n Stuart Lunn Founder & chief executive, LendingCrowd Our only Scottish P2P entrant, Lunn steered the helm at the business lending platform while it was busy deploying funds through the coronavirus business interruption loan scheme. Despite the pandemic, LendingCrowd’s actual default rate last year was between 1.02 per cent (on its lowest risk A+ loans) and 5.63 per cent (on its highest-risk C+ loans). n Filip Karadaghi Co-founder & managing director, LandlordInvest Karadaghi (pictured) runs bridging finance specialist LandlordInvest, which was also one of the earliest Innovative Finance ISA providers. The platform, which has ensured its investors earned average returns of 10.5 per cent over the past four years, expects to double its revenue in 2021. It also has plans to partner with another P2P platform on deals, in an exciting sign of collaboration in the sector. n Narinder Khattoare Chief executive, Kuflink Khattoare has said that Kuflink “is in a strong position” this year, which is demonstrated by the fact that the P2P property lending platform moved into profitability for the first time during the pandemic. Kuflink surpassed the £100m lending milestone earlier this year and has introduced many new features such as a mobile app and instant bank transfers using open banking. n Fawzi Kyriakos-Saad Chief executive, Leap Lending Kyriakos-Saad has been promoted from the rising stars category in last year’s Power 50 to reach the top 50 this time. The P2P consumer lending platform, which requires its borrowers to share their bank transaction data via open banking, launched in December 2019 and survived the Covid crisis, even introducing an Innovative Finance ISA in May last year.

n Michael Lynn Founder & chief executive, Relendex Lynn has continued to lead the P2P property lending platform to new heights. Not only did Relenex achieve a £135,760 profit in the 12 months to 31 January 2021, but it is now targeting the selfinvested personal pension market through its new associated company Farringdon Portfolio. n Charlotte Marsh Managing director, ArchOver Marsh has steered the P2P business lending platform during the Covid crisis, while overseeing its growth.

Despite the pandemic, ArchOver narrowed its losses in 2020, only had one borrower in default, saw annual growth in its lender base and adopted open banking. In March this year, Marsh announced the platform saw its busiest week in terms of enquiries for over a year. n Yann Murciano Founder & chief executive, Blend Network Murciano has been at the helm of the P2P property lending platform since its launch in 2016, following a decade at Morgan Stanley. This year, Blend Network has gained approval for direct authorisation from the City regulator and launched a new development finance product with a built-in sales guarantee. To date, the platform has lent out £29.7m through 79 loans at an average return of 9.98 per cent.

POWER 50

n Jatin Ondhia Co-founder & chief executive, Shojin Property Partners Another new Power 50 entrant, Ondhia led his property investment platform to its first full-year profit (£234,000) in the year to 30 June 2020.

He recently revealed that the firm is planning to launch two more international offices and is collaborating with other platforms on standardised metrics for the sector. n Karteek Patel Co-founder & chief executive, Crowdstacker Patel leads Crowdstacker, which was one of the industry’s earliest IFISA providers. Despite Covid, last year the platform lent £4.4m and lenders earned an actual return to date of 7.3 per cent. In August, Patel revealed Crowdstacker is set to launch property development loans, offered as mezzanine loans, bridging the gap between money offered by the bank and the full cost. n Uma Rajah Co-founder & chief executive, CapitalRise Rajah has overseen continued growth at CapitalRise with the prime property lending platform hitting several milestones over the last year. The platform has originated £122m to date and has repaid lenders £66m. Rajah has said she has seen increased demand for lending during Covid, with loan applications increasing from around £3.5bn in 2019 to £5.6bn in 2020. n Daniel Rajkumar Founder & managing director, Rebuildingsociety Rajkumar has cemented his place in the Power 50 for the second year running, after his platform adapted during Covid through diversified revenues, such as onboarding more appointed representatives and doing more privately syndicated lending. Rebuildingsociety achieved a profit of around £33,000 during 2020 and Rajkumar said this is being invested into the business as it targets another profit of between £25,000 to £60,000 this year. n Gillian Roche-Saunders Partner, Adempi Associates Roche-Saunders was already well-known in the industry as head of financial regulation consultancy service BWB Compliance before she went on to launch Adempi Associates. The company helps a range of P2P platforms

15

FIRMS OF INFLUENCE • 36H Group • British Business Bank • Cambridge Centre of Alternative Fiannce • Federation of Small Businesses • Goodbody • Innovate Finance •N ational Association of Commercial Finance Brokers • Open Banking Implementation Entity • The Investing and Saving Alliance • UK Crowdfunding Association • UK Finance • Varengold Bank

with their compliance needs at a time when regulation is a particularly thorny topic for the sector. n Louis Schwartz Founder and chief executive, Loanpad This is also Schwartz’s second year in the Power 50 list.

After setting up law firm HCLS in 2009 and lender iBridge in 2013, he founded Loanpad in 2015. In January he said that the size of the platform’s loanbook rose from £6.5m at the end of 2019 to £18.25m at the end of 2020. n Ben Shaw Chief executive, HNW Lending Shaw founded HNW Lending back in 2013, making it one of the more established players in this space.

HNW Lending increased its profits in the year to 31 March 2021, after tightening its lending criteria prior to the pandemic. Shaw said this summer that the platform has “quite a few big loans in the pipeline.” n Jonathan Segal Partner & head of fintech and alternative finance, Fox Williams Segal is one of the best-known legal eagles in the alternative finance space, providing advice for a number of P2P platforms on regulatory issues, institutional funding lines, new products and commercial contracts. While Segal scaled down his in-person networking in the years before the pandemic, he is still a venerable industry figure and a frequent media commentator on the sector.

16

POWER 50

n David Turner Co-founder & chief executive, Invest & Fund Turner has continued to lead Invest & Fund from strength to strength, seeing a busy first quarter for the P2P property lending platform’s IFISA and strong take-up for its Homes England partnership. To date, the platform has lent over £130m with no bad debts and has repaid lenders £4.75m in interest.

n Frank Wessely Managing director, Quantuma Wessely brings extensive experience in the P2P lending space to his role as a restructuring and insolvency specialist. Quantuma advises platforms on restructuring their affairs and managing financial risks. Wessely is one of the members from the team that is serving as a joint administrator of The House Crowd, which closed down earlier this year.

n Mark Turner Managing director, compliance and regulatory consulting, Kroll Turner leads Kroll’s financial services compliance and regulation practice, working with platforms on regulatory issues. The team originally operated under the Duff & Phelps name, but is still applying the same expertise for the P2P sector following this year’s rebrand. n Roy Warren Managing director, Folk2Folk Warren has led Folk2Folk to pass multiple milestones and become one of the largest UK P2P platforms with a loanbook value of over £460m. The rural P2P lending platform exceeded its own financial guidance after breaking the £1m profit barrier for the first time in its latest annual financial results.

PROFESSIONAL SERVICES • Begbies Traynor

•K roll

• BDO

• Legal Alternative

• Bovill

• Moorfields Advisory

• CG&Co

•N orthRow

• Fintech Compliance

• Pinsent Masons

• Fox Williams

•Q uantuma

• Hogan Lovells

•R SM

• JustCoded

•S hareIn

• Katipult

• TLT Solicitors

ANALYSTS • 4th Way

•H argreaves Lansdown

• AJ Bell

•L iberum

• Goodbody

•N umis

n Dan Walker UK managing director and deputy chief executive, Sancus Lending Group Walker (pictured) leads the UK business of one of the only publicly-listed alternative finance groups in the country. He told Peer2Peer Finance News in August that the group was readying for a strong second half of the year following its rebrand from GLI Finance earlier this year. n Rishi Zaveri Co-founder and chief executive, Lendwise Zaveri co-founded Lendwise in the summer of 2019 and has made the Power 50 list for the first time this year. The P2P education finance lender reported a 150 per cent increase in loan applications from students during the first quarter of this year, which bodes well for its future performance. He said that he has seen postgraduate students turn to the platform to make up a shortfall in cash to fund their studies and living costs.

JOINT VENTURE

17

Investors earning 10.5pc returns by funding bank-quality loans

I

NVESTORS ON LandlordInvest’s platform have been earning average returns of 10.5 per cent over the past four years by funding bank-quality loans.

The peer-to-peer lending platform, which specialises in bridging finance, is run by a highly experienced team of property and finance professionals who opt for quality over quantity.

This is evidenced by the fact that many of LandlordInvest’s loans go on to be refinanced by banks or building societies, dispelling the myth that P2P is a ‘lender of last resort’.

“Given the amount of loans I’ve seen passing through the platform over the years, it’s abundantly clear to us that our loan quality is better than that what we mostly see with other bridging lenders and P2P platforms,” says Filip Karadaghi (pictured), cofounder and managing director of LandlordInvest.

“A high proportion of our loans are refinanced by banks or building societies – that’s a stamp of approval that what we do is of a high quality.

The quality of LandlordInvest’s loans is also validated by the platform’s lifetime default rate of just three per cent and an ‘exceptional’ rating from P2P research and ratings agency 4th Way. Indeed, no capital losses have occurred during the 4.5 years that LandlordInvest has been trading.

Transparency is at the very heart of what the platform does and

LandlordInvest is one of the few P2P platforms that still publishes its full loanbook data.

“From a professional investment perspective, I would say that’s a prerequisite,” Karadaghi asserts.

“When we were speaking to banks earlier this year, the first thing they asked for was a loan tape. This is essentially detailed loanbook data with various details of every loan ever completed, with multiple data sources.

“That is one of the most basic things that institutional investors request for their due diligence so I expect that our investors would place the same requirement on our platform.”

As well as publishing its loanbook, LandlordInvest clearly discloses if the borrower has any previous or current loans on the platform and also makes a full valuation report available,

instructed by top-tier valuers.

Investors can also be reassured by the fact that LandlordInvest compensates lenders when there are delays for a loan to complete after being funded.

“Every time we had a significant delay on drawing down a loan, we always paid the lenders around four or five per cent,” Karadaghi explains. “It’s something we’ve been doing voluntarily since day one and very few others do.”

The pandemic sent shockwaves throughout the world and many P2P platforms shut down their secondary markets – or their entire lending business – during the crisis.

But LandlordInvest was not one of those platforms.

Its secondary market was open throughout the entire pandemic and Karadaghi says that while the platform had to extend a few loans, there were no defaults or arrears.

With such a stellar track record before and during a period of economic turbulence, LandlordInvest has cemented its place as one of the most respected and trusted firms in the P2P industry.

In fact, the only complaint LandlordInvest gets is that the platform doesn’t have enough opportunities, Karadaghi reveals.

“That is simply explained by our focus on quality not quantity,” he says.

“We have a responsibility to our shareholders and our investors, so we’re not going to be adventurous with their money.

“That’s our primary driver of why we focus on quality.”

BUILDING AN OPEN AND FAIRER FINANCIAL SYSTEM WITH DIGITAL MONEY

We’re crowdfunding why not join us? www.justus.co/seedrs seedrs@justus.co

Capital at risk This advertisement has been approved as a financial promotion by Seedrs Limited which is authorised and regulated by the Financial Conduct Authority

JOINT VENTURE

JustUs predicts digital finance revolution

T

RADITIONAL LENDERS and big banks risk being sidelined as digital currencies, peer-to-peer lending and fintech innovation create a new monetary system, JustUs’ founder and chief executive Lee Birkett has predicted.

Birkett (pictured) believes that in addition to the Chinese central bank, other nations will soon roll out their own digital currencies, and this will trigger a digital revolution in the world of finance.

While banks risk being left behind, alternative lenders such as JustUs can take advantage of these new opportunities in cryptocurrency and P2P lending.

“It's definitely going to happen, it's just a matter of who gets there first,” he says.

“Furthermore, I'd say our business opportunity has increased tenfold because the marketplace demand has increased dramatically due to the withdrawal of some alternative finance players.

“Over the last 12 to 18 months, the majority of lending has been propped up by the government.

That's due to end within the coming months. So next year, the demand is going to be off the charts for alternative lending platforms because the banks are going to be retrenching, they're going to be administering the bounce back loans and coronavirus business interruption loans that don't get paid back.

“I can see a crisis in the financial system in the first or second quarter of next year because

it's not resourced sufficiently to deal with the avalanche of administrative challenges that the banks are going to face.”

The P2P lending platform is the only regulated entity in the UK which has its own digital currency (BiPS) and Birkett believes that digital money represents the future for UK banking. In fact, the slogan for the company’s upcoming Seedrs campaign is “Old Money Is Out and New Money Is In”.

“Its an evolution of P2P,” says Birkett. “Crypto is P2P, but instead of just lending you are storing and exchanging value too.

“At the moment, we're restricted to one country as a British P2P platform, but with us creating our own digital currency, we have become exposed to 200 countries and this enables even more investors to access our P2P platform.

“This gives the holders of those BiPS freedom, security and flexibility. So it's creating a new digital monetary ecosystem. It's an

19

evolution of an old-school, broken financial system. And obviously the governments of the world have recognised this new technology as the evolution of money and they're all creating their own digital pounds, digital euros and digital dollars.”

Despite the huge opportunities in the crypto lending space, Birkett believes that the barriers to entry are now so substantial that it is unlikely that any new platforms will be able to secure a cryptobacked P2P lending licence now.

In fact, the world’s largest regulated wallet provider – Coinbase – had to halt its lending plans last month until it secures appropriate P2P lending licences, so in this sense JustUs is very much ahead of the digital money curve.

However, despite a commitment to innovation, Birkett is adamant that risk management remains at the core of his business.

“I think we are a very conservative platform,” says Birkett. “We are predominantly property backed, so our exposure and our risk profile is probably akin to a bank. And we don't take high unsecured risks or invest in risky loans. We don't want to expose the platform to any structural economic risk.”

This conservative approach goes hand-in-hand with the platform’s forward-thinking approach. JustUs uses open banking to help identify any potential borrower difficulties, and the company will not sacrifice loan quality for loan quantity.

“I've been involved in lending for 30 years and my philosophy is the same,” Birkett says. “For us, it's not about volume – it's about quality and building a sustainable business.”

20

PROPERTY

Its not easy being green

Peer-to-peer lenders are leading the eco-housing revolution. Michael Lloyd explores the opportunities in ethical property investing, and what the future may bring

M

ORE THAN 500 Extinction Rebellion protestors were arrested during the group’s two-week protest in London over the summer. Climate activists blocked roads and bridges while some members even threw paint at banks and glued themselves to a McDonald’s restaurant.

Whether you agree with their methods or not, they have certainly brought the issue of climate change to the forefront of people’s minds.

Peer-to-peer property lending platforms have also been doing their part to raise awareness of environmental issues by offering ethical investments to climateconscious investors.

According to a recent study

by metals exchange traded commodities provider Global Palladium Fund, nearly half (47 per cent) of retail investors plan to invest more of their cash in companies and funds at the forefront of the green revolution.

And in June, The Investor Index – an annual report authored by communications firm AML Group and research agency The Nursery Research and Planning – revealed that millennial investors are more likely to consider environmental, social, and governance (ESG) products. 27 per cent of younger investors now include responsible investments in their portfolio, compared to only four per cent of investors aged 55 and older.

“Ethical P2P property investing

is in its infancy but is primed for strong growth in the years ahead as lenders and platforms seek to embed ESG criteria in their loan origination activities,” says John Cronin, an analyst at brokerage Goodbody.

Neil Faulkner, managing director of P2P ratings and research firm 4th Way, says that alternative lenders have always been interested in ethical investments, and predicts that the shift to sustainability will continue.

“We've seen resistance from investors in lending to claimschaser type firms,” Faulkner says.

“A high proportion of investors are also attracted to P2P lending companies' better and fairer treatment of borrowers.

PROPERTY

“

Ethical P2P property investing is in its infancy but is primed for strong growth in the years ahead “My view is that while the shift to sustainability will continue to be far too slow for our planet, it will continue to accelerate rapidly, offering considerably more opportunities for P2P lending platforms and investors in the immediate future.”

The main way in which P2P property lending platforms offer ethical investments is by funding the development of greener, sustainable housebuilding to build new properties. These are often described as ‘eco homes’ and are designed to be energy efficient and have a minimal impact on the environment.

These homes are usually created through modern methods of construction, using materials such as timber instead of bricks. Often, these properties are built offsite with precision engineering that cuts out much of the wasted energy, for example, through various ways of preventing warm air leaking out of the house.

Several P2P property platforms already operate in this area,

up to

”

including Assetz Capital, JustUs, CrowdProperty and Crowdstacker.

“You wouldn’t build cars in a muddy field, they’re built in factories,” says Stuart Law, chief executive of Assetz Capital.

“Brick onto brick in a muddy field is very stupid and leads to poor energy efficiency, while factory built is brilliant with precision engineering.”

Typically, traditional lenders are more hesitant about funding the development of eco homes

£4,000

CASHBACK

T&C's apply.

21

through offsite construction, so the consensus among industry stakeholders is that there is a huge opportunity for P2P platforms to step in and lead the way.

“The old-school lenders will catch up soon but there’s an opportunity for forward-focused platforms like us in this area,” says Lee Birkett, founder and chief executive of JustUs. Law believes that P2P platforms can tap into this opportunity by aiding the many small- and medium-sized enterprise (SME) developers who see the benefits of offsite construction while national housebuilders lag behind and “don’t really understand it”.

He says that valuers need to

Earn up to 7.44%* gross pa† Kuflink invests up to 5% with you Secured against UK property* Secondary market available

*Capital is at risk. Property is illiquid. † Based on compounded rate

IF-ISA

£10m transferred in

22

PROPERTY

start raising their valuations of eco homes to mirror the savings on the energy costs they produce, and this will lead to a rise in finance for their development, while government legislation over the next few years should force the housebuilding industry to move in this direction.

“I think the future is coming, it’s all about climate change, the government is behind it and there are plenty of ahead-of-the-curve SME housebuilders that are doing it,” Law says.

“We understand it and are supportive of it, we are funding lots of these developments, but we know the risks and wouldn’t fund everything.

“We think P2P is definitely leading the way on this.”

Karteek Patel, chief executive of Crowdstacker, says he has seen a shift towards the importance of ethical building choices in construction projects, driven by buyer demand.

homes not just because they are ethically superior but because they tend to be cheaper to run.”

Besides greener housebuilding for eco homes, there are other ways in which P2P property platforms can offer ethical investment opportunities.

One such way is Assetz Exchange’s funding of supported living properties for ex-prisoners, autistic people, those with learning difficulties and others, to address a shortage in these facilities.

Chief executive Law says that the platform has seen a rise in demand in this area from both borrowers and investors due to the social and economic benefits available.

He explains that ethical property developments that are leased to corporate and charity tenants can also provide a more stable source of returns than short-term six-month tenancies on flats and houses.

“It’s definitely an area of growing opportunity for us,” Law says.

“ We can certainly see a shift towards the

importance of ethical building choices in all aspects of a building project, from choice of materials to how new buildings will function "In our experience raising money for property developments we can certainly see a shift towards the importance of ethical building choices in all aspects of a building project, from choice of materials to how new buildings will function, and also how the actual build process itself impacts communities and the surrounding environment,” he says.

“To our mind this is being driven by house purchaser preference. People want efficient

”

“Our investors recognise the potential for attractive rates of return while making a positive social impact, while our borrowers are motivated to develop suitable properties for those that need livein care or specialist support.”

Over the past couple of years, several companies have pioneered new ways to help borrowers and investors benefit from the ethical investing trend in the property market.

In November 2020, Rito Haldar and Aswin Parameswaran – who are behind P2P platform Unbolted – launched OnStep Homes. This is a P2P finance-backed shared ownership scheme that launched to offer people a way to invest in residential property while supporting first-time buyers.

The platform supports people seeking to purchase a property without a mortgage and with a deposit of just five per cent of the property value. It acts as an equity loan and the rest of the money is then funded through P2P finance to form a shared equity mortgage.

Bruce Davis, managing director of Abundance, says that his crowd bonds platform finances retrofit loans to improve the energy efficiency of a home. This is done through a series of measures, such as replacing a gas boiler with a heat pump or hydrogen boiler, to reduce the energy consumption or switching the energy supply to a renewable source.

“The bulk of eco homes investment would be retrofit and not new build, the problem has

PROPERTY

been the number of public sectorled schemes for retrofit that have been a bit stop/start in the way they have been implemented so you haven’t seen much progress,” says Davis.

“We’re at the stage of development that wind farm technology was at 10, 15 years ago. Engineers need to get their heads around the problem and create efficiencies, there’s a huge opportunity for the UK.” As one of the earliest champions of eco housing investments, Abundance has an acute awareness of the challenges for ethical property lending.

Abundance used to fund the

up to

development of eco homes and social housing but stopped when the Financial Conduct Authority (FCA) introduced a permanent mini-bond marketing ban in January.

“Abundance eco homes’ development funding came to a blinding halt when speculative illiquid securities rules came in,” Davis says.

“I think we have something to offer to housebuilders, whether offering green or affordable housing, and certainly from an investment perspective we believe it’s a good investment to have on your portfolio, but the FCA has taken the view that the structure used and type of risk is not appropriate when using a bond and is currently reviewing the status of it on the P2P side too.”

If the rules were to be introduced in the P2P sector, this would also stop P2P platforms from offering development loans, something industry stakeholders have repeatedly spoken out against.

As well as the threat of additional regulation, P2P property lending platforms have faced the twin problems of Brexit and Covid leading to a shortage in construction labour and materials, as well as rising costs of building materials due to inflation.

Assetz Capital’s Law says that

£4,000

CASHBACK

T&C's apply.

23

these shortages and rising inflation have slowed down the building of houses, making it more difficult to predict when developments finish.

This may ultimately lead to fewer homes being built.

He says that eco housebuilding has been particularly impacted, with fewer workers and rising material costs. Timber prices alone have increased by at least 50 per cent.

However, he is still optimistic about the future of eco property building.

“I would hazard a guess that in the medium-term eco homes will be absolutely fine, as it takes less manpower to build an eco-home than a traditional home,” Law says.

“Traditional builders are more exposed to labour shortages than those building eco homes. I think eco homes will do better on a relative basis.”

Despite obstacles to overcome, P2P property lending platforms are clearly committed to ethical investments, whether through greener housebuilding, helping first-time buyers onto the property ladder or retrofit loans.

Extinction Rebellion activists may argue that change is not moving quickly enough, but P2P property lending platforms are rising to the challenge and creating a roadmap for other climate-conscious property lenders to follow.

Earn up to 7.44%* gross pa† Kuflink invests up to 5% with you Secured against UK property* Secondary market available

*Capital is at risk. Property is illiquid. † Based on compounded rate

IF-ISA

£10m transferred in

Be Prepared.

Plan ahead and mitigate risk.

BTG Advisory can help.

Wind-down plans are an FCA requirement for all P2P lenders. They are also key management tools to help safeguard the business and its stakeholders, particularly during this period of economic turmoil. Wind-down plans allow you to review the financial health of your business, identify future issues not immediately apparent and put in place plans to strengthen operational resilience and sustainability.

If you would like to discuss how we can help or have an informal discussion, please contact: Sorca McGeown T: 020 7516 1526 E: smcgeown@btgadvisory.com Gary Shankland T: 020 7516 1513 E: gshankland@btgadvisory.com

BTG Advisory’s pre-eminent experience in this market ensures that we will understand your business, working alongside you to enhance or construct your wind-down plan. If required, we will also work with you to put in place strategies to preserve or strengthen your operational and financial success.

Offices across the UK. www.btgadvisory.com BTG Advisory LLP, a limited liability partnership, registered in England No: OC319336.

Registered office: 340 Deansgate, Manchester, M3 4LY.

PROMOTED CONTENT

25

City watchdog sharpens focus on wind-down plans

P

EER-TO-PEER AND alternative lenders are emerging as pillars in the finance industry. This innovative sector has experienced rapid growth and provided investor classes with access to new financing opportunities, providing liquidity in sectors where traditional lenders have retracted.

Whilst the majority of these lenders have been successful, the breakneck pace of innovation, combined with competition and market share capture, has left the sector saddled with regulatory non-compliance.

Current market dynamics have created concerns within the Financial Conduct Authority (FCA), which recognises that the Covid-19 pandemic and Brexit (e.g. lockdown restrictions, cross-border supply chain bottlenecks) and broader macro pressures (e.g. price increases and inflationary pressures) have created something of a perfect storm for the sector.

Given these issues, the requirement that all P2P platforms and regulated lenders have an orderly wind-down plan (WDP) in place, is high on the FCA’s radar. These WDPs are designed to safeguard investors and lenders, when borrowers become unable to meet debt obligations. The FCA wrote to the boards of P2P lenders in May warning that none of the platforms reviewed had “adequately identified the triggers that might realistically allow for a solvent wind-down to be invoked”.

In reality, WDPs should be considered best practice as they provide security and reassurance for all stakeholders and the lender itself.

With a high proportion of

P2P secured lending focused on providing property and development finance, the impact of Covid-19 and Brexit has been colossal. From retail and commercial tenants being unable to meet rental obligations and the government’s moratorium on tenant evictions, to developers experiencing delays in supply chain disruption and the rising cost of materials and shortage of labour – all have caused development costs to spiral and increased risk exposure to lenders.

When borrowers are unable to meet debt obligations, the risk burden will fall to the lending platform and its investors.

A WDP involves identifying the ‘risk fault lines’ where failure would severely affect the business (e.g. sector-specific risks, the loss of a key revenue driver, ongoing market volatility) and setting a minimum level of liquid and capital resources which, if breached, will trigger a wind-down, as per the FCA’s requirements.

Liquidity planning and monitoring your financial health is also critical for lending platforms, through ongoing preparation of cashflow forecasts, conducting scenario modelling and stress testing. This extended period of market disruption underscores

the need for liquidity monitoring.

A WDP combined with broader liquidity management will help keep P2P lending platforms financially resilient and highlight potential future issues which may not be currently apparent.

BTG Advisory has wide-ranging experience in assisting lenders and can help construct a WDP and perform an overall health assessment of your business.

Sorca McGeown was fundamental in the running of Amicus Finance whilst it was in administration.

Managing a loanbook of £600m, comprising property assets and development sites, McGeown oversaw the finance and liquidity function and provided secured creditors with substantial capital repayments. Amicus Finance was passed back to the directors in August 2021 via a landmark midmarket restructuring plan, the first to be given High Court approval.

If you would like assistance in developing a wind-down plan, discuss the impact of the FCA’s requirements or you would like an informal discussion on your future plans and financial resilience, please do not hesitate to contact Sorca McGeown at smcgeown@ btgadvisory.com or Gary Shankland at gshankland@btgadvisory.com.

JOINT VENTURE

27

Kuflink eyes development loans after pandemic profit

K

UFLINK IS ON TRACK to become profitable next year for the second year in a row, after the turmoil of Covid-19 opened up new opportunities for the platform in the property development space.

Earlier this year, the peer-to-peer property lending platform turned a profit for the first time by cutting six jobs, reducing its marketing spend and raising £3.4m of equity.

Kuflink’s chief executive Narinder Khattoare says that the company’s success is down to the hard work and flexibility of his staff.

“Kuflink has been one of the platforms that has managed Covid quite well,” says Khattoare. “We managed to work remotely straight away which was fantastic.

“Everybody plays their roles in the business, and I think overall, Covid brought the team together. They gelled better, they got on with each other better.

“We're finding that people are working more efficiently now, and they actually have a better work life balance as well. Our staff are in a happier place.”

Remote working, flexible hours and daily staff catch-ups have resulted in better communication between different departments, and as a result the platform has been able to identify and embrace new opportunities in the P2P property space.

Ever since the first lockdown, Khattoare has seen an influx of property development deals, and now approximately 70 per cent of Kuflink’s deals are for development loans. This segment has huge potential for growth, Khattoare believes, and Kuflink is perfectly placed to take meet this demand.

“Traditional lenders weren't very heavily involved in this space prepandemic,” he explains.

“The majority of loans in this space have institutional funds. And the moment you get a pandemic, these institutional funds will halt all lending. They've got an average return that they need to provide their investors, and if they can't achieve that target they're just going to stop lending.

“That’s one reason why alternative lenders like ourselves have seen an influx of those deals. There's nothing wrong with development loans, it's just about managing them and having the appetite to do it.

“Our business philosophy has always been that we've got to make sure that the asset is right, that it’s secured, and that there's an exit plan in place.”

When it comes to managing a development deal, Kuflink’s team will work together to identify and manage every potential risk.

“We go from a stress scenario

from start to finish,” says Khattoare.

“We look at various layers of risks that are involved on that loan and when it comes to maturity.”

Kuflink has also reduced its loanto-value slightly – from an average of 67 per cent before the pandemic, to 65 per cent today.

“These loans come with their own challenges because the loans are going to be out there for a longer period of time, and they'll be riskier because something can go wrong during the build phase,” says Khattoare.

“But what we see is that we are helping the UK economy build more properties, which is fantastic.

“We've been very fortunate that over the last 12 or 18 months, property prices have gone up.

And now they look like they will stay more steady, but there's no guarantee. I think the key thing is to do your due diligence on your platforms, do your due diligence on the projects, and spread your risk across various different types of asset classes.”

28

PROFILE

An alternative approach

RM Funds portfolio manager Pietro Nicholls explains to Marc Shoffman how the alternative investment manager is helping to boost the UK economy

R

M FUNDS MAY NOT be the most recognisable investment brand name but the GP surgery or student accommodation on your high street may have been built using its capital.

Its two infrastructure-focused products, the RM Infrastructure Income (RMII) investment trust and the RM Alternative Income Fund (RMAI), back real estate projects and lenders in this space.

RMII, which focuses on secured social and environmental infrastructure lending, became the only listed debt fund to take part in the government’s emergency lending schemes when it was accredited for the coronavirus business interruption loan scheme (CBILS) earlier this year.

As well as supporting the economy, the RMII investment trust’s share price is up 6.7 per cent over three years, according to Trustnet data on 16 September, while the size of the RMAI fund’s portfolio has grown by 25.7 per cent over three years.

Portfolio manager Pietro Nicolls explains more.

Marc Shoffman (MS): When and why was RM Funds set up?

Pietro Nicolls (PN): RM Funds was set up 10 years ago. It was originally branded as RM Capital but has evolved organically. We started off just being an agency trading business, buying and selling securities from hedge funds and pension funds. Our advisory

business then developed and we worked with companies and pension schemes to finance lots of interesting things.

That was followed by our asset management business that launched five years ago with our public vehicle RM Secured Direct Lending. We have also since launched other open-ended funds such as the RM Alternative Income Fund.

We manage capital on behalf of clients such as pension schemes, discretionary fund managers and retail investors. A lot of our retail

investment comes through DIY investment platforms.

MS: What is the difference between the RMII and RMAI funds?

PN: Our investment trust focuses on lending and has a big environmental, social and governance (ESG) impact as well as our work with the British Business Bank on CBILS. The RMAI fund focuses on the entire universe in the alternative space such as secured lending and real estate infrastructure. It tends to invest in RMII but also

PROFILE

in a range of secured lending and real estate credit opportunities.

The funds are focused on the alternative income space in the credit segment, with businesses where there is tangible security.

When we looked at the peer-topeer lending market, we found that a lot of the lending was unsecured so it can be harder to make recoveries when things go wrong.

There is always a recovery route in real estate as you can sell the asset.

We invest in businesses that lend to real estate projects or which own infrastructure assets.

MS: What makes alternative lending investable?

PN: Transparency is important.

One of the big issues this sector had for a long time is a lot less transparency than you would like.

We need to understand what is going on under the bonnet.

For us, the other thing is the visibility of income and a line of sight to the security itself such as the real estate, the equipment or plant machinery.

MS: Why have you steered clear from backing P2P lenders?

PN: From our perspective, because of the nature of the funds we run, we need liquidity and want to avoid a situation where we can’t raise cash.

We can’t have any of those types of risks – everything has to be a publicly listed company.

We want recalls to assets directly and you don’t get that through a platform like Funding Circle which may be listed but is more about the platform and the technology.

Traditional P2P lending doesn’t quite give us what we need.

The concept of P2P has changed now and it is more about institutions providing the capital

RM Alternative Income Fund Fund size: £115m RM Infrastructure Income Fund size £130m

and the platform being a shelf where you can pick the deals.

MS: How does the RMII social and environmental strategy work?

PN: We work with impact advisory firm The Good Economy to assess how the companies we invest in meet certain ESG metrics. Its tools look at everything from social metrics to gender pay gaps and their carbon footprint.

We can also use our position to influence change when providing capital. If we are the only ones investing, we can say how we want a building built, such as with solar panels. This creates a benefit for the company by reducing their bills and gives us a higher quality investment with more resale value.

MS: How did you end up becoming a CBILS lender?

PN: We had been speaking with the British Business Bank team for around four years. We were always looking for a way to work with them but it was hard to find the right opportunity as they couldn’t invest in our fund as a public company.

CBILS was a great opportunity to invest. We are working in areas important to the economy such as education and care homes. Our CBILS lending has gone really well.

These are businesses that have been massively impacted by Covid and our support has helped create in excess of 1,000 jobs.

We maintained or created jobs through this capital and there is an environmental impact. It also provides an opportunity to use our ESG strategy and ensure borrowers

29

meet certain green measures. We want the underlying asset to be energy efficient and if our help means a business can reduce their carbon footprint then it’s a win-win.

MS: A lot of alternative lending funds have closed or changed strategy in recent years, how have you survived?

PN: We don’t have anything negative to say about other funds. Our approach is that we always focused on three things: management teams, cashflow of those investments and the assets we are backing. When we invest, we provide a lot of transparency and investors can see every single investment we have made. That level of transparency is very rare in the public market space.

MS: What is your outlook for the funds?

PN: We are not looking to launch any more funds in the near term.

Last year was a year of monitoring and control as Covid was so tricky. RMII had very few arrears during the pandemic. In our entire portfolio which had 37 investments, only two had issues.

This year is about making sure the businesses get back on track and I suspect we will have more diversification. We are in dialogue with the British Business Bank about the recovery loan scheme so that is the direction of travel.

There may be some new investments in the existing portfolios but we just want to continue delivering a steady income stream.

The outlook for the alternative income sector is strong. Investors should be looking at this space more seriously as you get no returns from bank deposits and nothing on equity investments or bonds.

Our magazine is read by peer-to-peer lending professionals, investors and more. If you'd like to be included in our directory, please email Tehmeena Khan on tehmeena@p2pfinancenews.co.uk for details and pricing.

DIRECTORY

31

INVESTMENT PLATFORMS

Assetz Capital is one of the largest peer-to-peer lenders in the UK. Founded in 2013, it has lent over £1bn, while investors have earned over £140m in total gross interest. Investors can opt to choose their own loans or invest via its automated accounts, which can all be IFISA-wrapped. www.assetzcapital.co.uk T: 0800 470 0430 E: enquiries@assetzcapital.co.uk

Invest & Fund is an established alternative finance platform, that has deployed over £107m on behalf of clients with zero per cent bad debts written off.

Lenders can achieve a diversified, asset-backed portfolio with gross yields starting from 6.5 per cent per annum with an option to lend through an ISA or SIPP for tax-free returns. www.investandfund.com T: 01424 717564 E: lending@investandfund.com

JustUs is an innovative peer-to-peer lender that provides a range of consumer and property-backed loans. It has lent out almost £15m and paid more than £1.1m in interest to lenders to date. Investors can enjoy returns of up to 9.61 per cent, with all products eligible to be held in an Innovative Finance ISA for tax-free earnings. www.justus.co T: 01625 750034 E: support@justus.co

Kuflink is an award-winning lender and online investment platform. With over £142m invested through the platform, investors can customise their own portfolio investing in specific loans or in a pool of loans diversified across a number of opportunities. Earn up to 7.49 per cent (compounded) per annum, with an IFISA available. www.kuflink.com T: 01474 33 44 88 E: hello@kuflink.com

LandlordInvest matches professional landlords looking for financing with investors that are looking to invest in asset-backed products with a monthly income. Loans range between £100,000 and £750,000. Investors can earn between 5-12 per cent per year, with the option of an Innovative Finance ISA wrapper. www.landlordinvest.com T: 0207 406 1491 E: info@landlordinvest.com

The P2P Power 50 2021

The most influential people in the UK’s peer-to-peer lending sector RISING STAR

THE

FIRM OF INFLUENCE P2P Power 50

P2P Power 50

2021

most influential people in P2P 2021

2021