There’s better opportunities post Lending Club than buying back shares, says P2P Global Investments' Champ

By Daniel Lanyon on Friday 10 June 2016

Alternative Lending

The Annual General Meeting of the P2P Global Investments investment trust affirmed a positive outlook from its managers but was not so bright for those hoping to see a move to discount control.

Investors in the P2P Global Investments trust are unlikely to see share buy-backs aimed at bringing in its discount at least until capital is fully deployed later in 2016, according to Simon Champ, manager of the popular investment trust.

The £868m investment trust has been sitting on a discount since October 2015, in stark contrast to its racy double-digit premium evident this time last year. Its discount to net asset value [NAV] today stands at 14.4 per cent, just a touch narrower than its widest level a few months ago of 15.96 per cent.

Discount/premium since launch

Source: Association of Investment Companies

This has led many investors to anticipate the fund to start buying back its own shares, in order to narrow the discount and yesterday’s Annual General Meeting for the P2P Global Investments trust included a vote on this issue.

The board can now indeed buy back shares as the resolution passed with ease: up to 14.99 per cent of shares in existence. However, both chairman of the board Stuart Cruickshank and the lead manager of the fund Simon Champ iterated that it was not the time to be doing this.

Champ said while the team are happy to consider share buy-backs, they believe there are stronger opportunities in the market place due to uncertainty created in the peer to peer/marketplace lending space from the fall out of last month's Lending Club fiasco. Also, he says the fund's capital is not yet fully deployed and it has not reached its 100 per cent leverage target.

“The business is not yet at its optimal position, we do not yet have 100 per cent leverage. We are not there yet we’re at about high 50s. In future when we have the leverage in place that could be the right time but not now. I don't want an automatic buyback taking capital away right at the moment where it's counterproductive for shareholders,” Champ said.

“An auto buyback will probably take capital away just at the moment when the opportunity is at is greatest. The board is in control of discount management policy but my appeal as the manager is that we can perform a better job without one in place.”

“I do also accept there are tImes when we cannot create value over and above the accretion created from a buyback and then, absolutely, we should consider it. But at this time my strongly held view is not to.”

The fund is a large investor in the US marketplace lending platform Lending Club which shocked the alternative finance industry last month by ousting its chief executive officer Renaud Laplanche over allegations of impropriety. While this may be disconcerting Champ said the team at P2P GI had been given access to a fully audited account of the scope of Lending Club’s loan book and were satisfied that not only was their exposure to its prime loans safe, but that they were also seeing a boost from the market turbulence.

Lending Club announced that it was raising interest rates across its risk bands, in apparent response to rising negative sentiment to the firm and the industry as a whole from investors. This hike of 55 basis points on average across its various risk bands is a boon to investors but will mean higher costs for borrowers.

Cruickshank, chairman of the board, said in a statement to shareholders that it was in the long term interests of shareholders not to buy back shares at present, even though by doing so would likely benefit their capital in the short term.

 “After careful consideration, our current view is that while a buyback would deliver a one-off accretion to shareholders, it would also mean forgoing the multi-year opportunities we see in deepening our relationships with platforms at a time when other, flightier, investors are pulling back,” he said.

“This is a classic example of weighing up the short term versus the long term. Our opinion is that shareholders' interests, at this time, are best served by implementing the company's existing strategy.”

P2P GI paid a total dividend of 59.2p per ordinary share in 2015. The ordinary shares delivered a yield of 6.12 per cent on the average NAV for the year, within its target range.

The AGM also passed a resolution to elect Mahnaz Safa to the board as a non-executive director. Safa has more than 20 years' experience in finance and is currently a managing director of corporate and investment banking at Citi bank. She was previously co-head of EMEA debt capital markets at UBS.

Stay tuned next week for our exclusive interview with lead manager of P2P Global Investments Simon Champ.

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