By Daniel Lanyon on Wednesday 31 August 2016
The p2p investment trust saw its growth in net asset value fall short of its projected run rate to meet its target yield for the past 12 months despite a recent improvement.
The £855m P2P Global Investments trust saw NAV growth of 0.37 per cent for July reflecting an improvment in peformance since its slower June numbers, according to regulatory filings to the London Stock Exchange, although the numbers where not enough to lift it back to its target rolling 12-month target of 6-8 per cent.
The fund is the largest investment trust listed on the London market that offers exposure to the nascent p2p and marketplace lending loans business. June saw a tricky albeit positive month’s return with the net asset value (NAV) of the trust up just 0.17 per cent.
This was the slowest month for the trust since it launched back in May 2014, with the manager of the portfolio Simon Champ pointing to adverse conditions in the market owing to US platform Lending Club's turmoil alongside Brexit induced borrowing and currency volatility. These were themain culprits for the lower than expected returns, he says.
P2P Global Investments, or P2P GI, saw its NAV rise back to 0.37 per cent in July. Its lowest monthly - return apart from - June's - in 2016.
Monthly NAV performance since fund launch
Source: MW EagleWood
While still positive, these numbers set back the fund from achieving its 6-8 per cent annual target return, according to Monica Tepes, director of investment company research at Cantor Fitzgerald. It's rolling 12-month return for the past year is 4.94 per cent NAV growth.
“In the absence of some attribution - how much income, how much mark to model valuation changes, how much accelerated amortisation of debt fees - 0.37 per cent multiplied by 12 is only about 4.4 so some way below even the lower end of their target return of 6-8 per cent. Again, good to keep in mind these are still positive returns, but it would also help to have some clarity over what "normalised" run rates would look like," Tepes said.
A spokesman for P2P GI said: "Our investment objective remains to target a 6-8 per cent run-rate return to NAV when the trust is full leveraged and deployed".
The net asset value (NAV) total return of P2P GI, which buys loans originated from p2p and marketplace lending platforms around the word, in the first half of 2016 was just 2.37 per cent. This is below the required run rate to achieve the company’s target return of 6-8 per cent on NAV for the full year.
According to AltFi data, P2P GI initially underperformed the broader UK marketplace lending space as measured by the Liberum AltFi Returns index in its first nine months but it has since stayed some way ahead.
NAV performance vs LARI index since launch
Source: AltFi Analytics
However, 2016's market turmoil has hit the portolio harder than the broader UK market with the trust underperforing the LARI index for the first seven months of the year.
NAV performance vs LARI index in 2016
Source: AltFi Analytics
In 2016 the fund saw its discount move widen substantially prompting the managers of the portfolio to initiate share buybacks. To date it has bought back 580,974 shares out of the 85,725,829 total in issuance in the past few months. Its discount has seen some improvement in this period from just over 20 per cent to 17.2 per cent today.
Performance of discount/premium since launch
The trust has also slashed its management fee, according to documents filed to the London Stock Exchange, from 1 per cent charged on gross assets, to 1 per cent on net assets, with leveraged assets charged at 0.5 per cent. The fund will continue to charge a performance fee of 15 per cent of NAV returns, subject to a high watermark.
Stuart Cruikshank, P2P GI ‘s chairman, points to a number of “exceptional circumstances” impacting 2016’s return. These include US Consumer platform interest rates, FX Hedging and Cash Management and Share Buyback.
However, he says returns should improve in the coming months due to reduced cash drag as currency markets stabilise and the need to hold cash for FX margin reduces, increased leverage driven by improving availability, breadth and pricing of debt, thus reducing the marginal cost of leverage, increased interest coupon on loans as key platforms raise rates across the US, plus one off income uplifts from incentive programmes from some platforms and cash management optimisation via investing a portion of the liquidity buffer in fixed income instruments.