Alternative Credit Investor January 2024

MUSICAL CHAIRS

>> 7

Bruce Davis’ new roles

TIME IS MONEY

>> 10

Demand grows for liquidity

Tim Kellaway of ClearScore business D•One on open banking-backed lending >> 16

ISSUE 89 | JANUARY 2024

Winners unveiled at the Peer2Peer Finance Awards

AT LONG last, the winners of this year’s Peer2Peer Finance Awards were revealed last month, in a glittering awards ceremony at London’s Hurlingham Club.

CrowdProperty picked up three of the most coveted accolades, for P2P Lending Platform of the Year, Property Development Lender of the Year, and the Investors’ Choice award.

Kuflink also collected some prestigious trophies, for Property Lender of the Year and Residential Property Lender of the Year.

Folk2Folk’s Roy Warren was awarded CEO of the Year, while the platform also won Business Lender of the Year and Ethical Lender of the Year.

“There was an incredibly high standard of entries for this year’s awards and the judges had a difficult time choosing the winners,”

said Alternative Credit Investor’s founder and editor-in-chief Suzie Neuwirth.

“However, it’s no surprise that CrowdProperty, Kuflink and Folk2Folk collected some of the top accolades of the night,

as they are all incredibly impressive platforms that are spearheading the sector’s growth.

“Looking at the wider array of winners, it’s great to see such brilliant companies working in – and supporting – the P2P lending sector and

I feel very glad that we had the opportunity to commemorate them with these awards.”

Turn to page five for the full list of winners, and look out for the full photo coverage of the awards night in the February issue.

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EDITOR’S LETTER

124 City Road, London, EC1V 2NX info@royalcrescentpublishing.co.uk EDITORIAL Suzie Neuwirth Editor-in-Chief suzie@alternativecreditinvestor.com Kathryn Gaw Contributing Editor kathryn@alternativecreditinvestor.com Marc Shoffman Senior Reporter marc@alternativecreditinvestor.com PRODUCTION Tim Parker Art Director COMMERCIAL Tehmeena Khan Sales and Marketing Manager tehmeena@alternativecreditinvestor.com SUBSCRIPTIONS AND DISTRIBUTION tehmeena@alternativecreditinvestor.com Find our website at www.alternativecreditinvestor.com Printed by 4-Print Limited ©No part of this publication may be reproduced without written permission from the publishers.

Alternative Credit Investor 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.

U

nfortunately, the Peer2Peer Finance Awards took place after this magazine went to press, which is why you will have to wait until the February issue for full photo coverage of the night itself.

However, I’m delighted that we can finally unveil the winners of this year’s awards (see the full list on page five).

2023 was a challenging year on a macroeconomic level.

While higher interest rates may have benefitted peer-to-peer lending platforms on the borrower side, they have also made it harder for them to attract investors over the safety of cash savings accounts. The downturn in the property market has added extra headwinds for lenders focused on this sector.

Against this backdrop, it’s all the more impressive that platforms, including our winners, have demonstrated strong growth while innovating at the same time.

I’d also like to commend the service providers who won accolades, who have provided invaluable support to the growth of the industry.

Congratulations to all winners and commiserations to those of you who missed out on an award.

Bring on next year!

SUZIE NEUWIRTH EDITOR-IN-CHIEF

03

04

NEWS

What is the true size of the private credit market?

THE PRIVATE credit market is in the midst of a boom, with new fund launches taking place on a near-weekly basis.

But as the market grows, it is getting harder and harder to keep track of the total value of the private credit sector.

In Preqin’s most recent five-year private capital outlook, the investment data firm said that the private credit market is worth approximately $1.5trn (£1.19trn) at present, and is set to

grow to $2.8trn by 2028. BlackRock has contested this prediction, believing that the market will be worth as much as $3.5trn within the next five years.

Meanwhile, Pitchbook valued the global private credit market at $1.75trn by the end of 2022, far higher than Preqin’s $1.5trn 2023 valuation.

All of these valuations pale in comparison to Apollo Global Management. At a conference in November,

Chris Edson, Apollo’s global co-head of the financial institutions group, said that the true size of the market is closer to $40trn.

It has been suggested that the discrepancy in valuations is because industry onlookers are analysing different segments of the market.

“Those that are quoting $1.5trn or $1.7trn type numbers are only speaking about corporate direct lending,” said one private credit executive.

“That's why you're getting a very different answer from Apollo, which has the breadth of looking across and would include real estate infrastructure and asset based finance.

“Once you incorporate big spaces like the consumer housing, real estate, those numbers get very big very quickly.

“It is probably not quite as large as $40trn in our view, but it's closer to that number than $1.5trn.”

Authorities warn on private credit risks POLITICIANS and regulators have raised concerns about the fastgrowing private credit market and the potential risks for the global financial system.

Two US senators – Sherrod Brown and Jack Reed – wrote a letter in November to leaders at the Federal Reserve, Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, asking if private credit could threaten the safety of the banking system.

“Private credit funds operate in the shadows, and we are concerned that risk may be accumulating in the absence of sufficient oversight

and accountability,” they said in the letter, seen by Financial Regulation News.

And last month, the

Bank of England said in its latest financial stability report that economic instability “could cause sharp

revaluations of credit risk.”

“Higher interest rates in advanced economies continue to pose challenges to UK financial stability through their impact on households, businesses, sovereigns and financial institutions,” the report said.

“Riskier corporate borrowing, such as private credit and leverage lending appears particularly vulnerable.”

Private credit industry leaders, including Oaktree Capital Management’s co-founder Howard Marks, have also raised concerns about the challenges facing the sector amid higher interest rates and slower economic growth.

NEWS

05

Peer2Peer Finance Awards Winners 2023 P2P Lending Platform of the Year

Open Banking Provider of the Year

Winner CrowdProperty

Winner ClearScore

CEO of the Year

P2P Software Provider of the Year

Winner Roy Warren

Winner White Label Crowdfunding

Property Lender of the Year

Law Firm of the Year

Winner Kuflink IFISA Provider of the Year

Winner easyMoney Investors' Choice

Winner CrowdProperty

Winner Shearman & Sterling Property Development Lender of the Year

Winner CrowdProperty Property Development Lender of the Year

Financial Inclusion Award

Highly commended Property Bridges

Winner The Money Platform

Bridging Lender of the Year

Innovative Lender of the Year

Winner AxiaFunder Consumer Lender of the Year

Winner Lendwise Business Lender of the Year

Winner Folk2Folk

Winner Shojin Commercial Property Lender of the Year

Winner Relendex Residential Property Lender of the Year

Winner Kuflink Ethical Lender of the Year

Winner Folk2Folk

Rising Star

Winner Lande Finance P2P Institutional Partner of the Year

Winner Fasanara Capital P2P Institutional Partner of the Year

Law Firm of the Year

Highly commended MSB Solicitors Property Law Firm of the Year

Winner Gunnercooke Property Law Firm of the Year

Highly commended Fintex Capital

Highly commended Ashfords

Business Advisory Firm of the Year

Bridging Broker of the Year

Winner Kroll

Winner Tapton Capital

Debt Advisory Firm of the Year

Development Broker of the Year

Winner Evelyn Partners

Winner Finspace Group

Restructuring Firm of the Year

Commercial Broker of the Year

Winner Kroll

Winner Capricorn Commercial

06

NEWS

Dozens of EU platforms in limbo after missing ECSPR deadline DOZENS of peer-to-peer lending and crowdfunding platforms across Europe have been left in regulatory limbo after missing the deadline to become authorised under the European Crowdfunding Service Providers Regulation (ECSPR).

All EU-based crowdlenders were given a deadline of 10 November 2023 to become compliant with the new rules, which

aim to harmonise the industry across all 27 markets of the bloc.

By the end of November 2023, more than 110 platforms had become regulated under the ECSPR, with that number expected to hit between 130 and 150 by early 2024.

However, this means that there are between 20 and 40 platforms still waiting on final approval to operate in the EU.

Some platforms – such as Lendermarket – have paused lending while waiting to receive their final authorisation.

However, Oliver Gajda, executive director of the European Crowdfunding Network, has warned that others may be operating illegally.

“There are still significant issues in the application of the ECSPR in praxis, from member

states that basically are breaking EU law…to those who have issues understanding the details [of the regulation], and platforms that are equally unsure and are not yet ready to push for fear of legal issues,” Gajda told Alternative Credit Investor.

“So, we shall wait a little. On a good note, some platforms have already expanded across borders.”

Impact credit funds grow in popularity IMPACT credit funds are on the rise, as investors demand more substance in their portfolios.

A number of new impact credit funds are set to launch in the coming months, with each fund expected to raise hundreds of millions of dollars from institutional and highnet-worth investors.

In November, BlueOrchard – an impact investment manager which is part of the Schroders Group – launched a credit fund dedicated to improving financial inclusion worldwide.

“We see three megatrends shaping fast-growing emerging markets today: demographics, digitalisation and decarbonisation,” said

Philipp Mueller, chief executive at BlueOrchard.

“These developments are accompanied by significant capital needs and investment opportunities, which our regional teams are seeing first-hand. We are excited to have launched an investment strategy that captures these opportunities, fills a gap in terms of both funding and impact, and complements our investment platform.”

Soon after, it was reported that Avenue Capital is planning to launch a new fund targeting private credit investments which have an environmental impact.

Avenue is said to be in talks to invest between $600m (£515m) and $800m for the fund, ahead of a launch in early 2024.

Earlier this year, impact investment adviser Phenix Capital Group reported that private debt impact funds have raised €45bn (£38.56bn) in total capital, but this figure is expected to rise sharply as more funds enter the space. The firm noted that there were 19 private debt impact fund launches in the pipeline as of July 2023.

And according to a recent report from Allianz Global Investors on impact credit funds, inequality, climate change and Covid-19 are among the driving forces behind rising investor interest in impact investing.

“Impact investing goes beyond an environmental, social and governance approach by focusing investment only on companies generating

lasting material positive change,” the report said.

“Challenging the consensus view that impact investments are only possible via equity, interest is growing in impact credit as an innovative, targeted, and effective response to big global issues, including climate change.

“Fund managers channel investment only to those businesses or projects delivering positive and measurable change to society and the environment, as well as financial returns.

And while ESG has gained most traction as a framework for change among listed companies, impact investing has the potential for a wider reach – to businesses outside public markets.”

NEWS

07

UKCFA names Bruce Davis as chair BRUCE Davis has stepped down as joint managing director of Abundance Investments and has taken on a new role as chair of the UK Crowdfunding Association (UKCFA).

Davis (pictured), who cofounded the ethical crowd bonds platform in 2012, has stepped back from his fulltime position to become non-executive director.

The move will allow him to devote more time to his new role as chair of the industry trade body, the UKCFA said.

Davis has been a founding director of the UKCFA since 2012.

The trade body said that Davis has played a central role for the association since its fruition, leading on its responses to the many consultations and policy statements which

have shaped the regulation of the sector.

He was a member of the original ISA working group which created the Innovative Finance ISA and has been part of the team supporting the Treasury to shape the new public offer platform legislation.

He will be charged with growing the UKCFA’s membership among the crowdfunding and P2P lending sectors.

“The UKCFA plays a central role for the industry promoting its interests to government, regulators and the investing public,” said Davis.

“It has supported members through what has been a period of unprecedented regulatory change and I hope that my appointment as chair will mean that we

can redouble our efforts to ensure that the UK maintains leadership of a financial sector it created and which has been widely adopted and copied around the world.

“Crowdfunding and P2P lending are vital links in the chain, when it comes to financing growth businesses that will be the unicorns and IPOs of the future. The sector also provides thousands of individual investors with much needed access to private market investments to diversify their portfolios

and make a positive difference to the real economy here in the UK.” The UKCFA also announced that Sam Robinson, partner at law firm CMS, has joined the board.

“With the strategic leadership of Bruce Davis, backed by his wealth of experience and expertise that Sam brings, the UKCFA is embarking on an exciting new chapter,” said Atuksha Poonwassie, director of the UKCFA. “Together, their collective vision mirrors the UKCFA's mission to champion the crowdfunding and P2P industry sectors, reinforcing our commitment to navigating the evolving regulatory landscape and advocating for our members.”

Elfin Market goes for growth after smashing Seedrs target ELFIN Market is gearing up for growth after its oversubscribed funding round closed on Seedrs last month.

The peer-to-peer consumer lending platform – which offers a flexible credit line called the Elfin Card – raised more than £1.38m on the equity crowdfunding platform, surpassing its £1.2m target.

Lakshithe Wagalath,

co-founder and chief operating officer of Elfin Market, told Alternative Credit Investor that the company will use the proceeds of the fundraise to invest in the business and build on its rapid growth this year.

“We’re experiencing 10 per cent month-onmonth growth in both the number of users and loan volumes,” he said.

“Elfin Market has now

lent out £60m to date and our loan book is currently valued at £30m.”

The platform obtained an additional consumer credit authorisation from the Financial Conduct Authority (FCA) in December 2022, meaning it can now lend its own funds sourced from institutional investors.

Wagalath revealed that the platform agreed a deal with a UK asset

manager earlier this year, which started funding consumer loans via the platform in June.

“Our investor base is two thirds retail, one third institutional,” he said. “We’ve attracted a lot of investors from our Seedrs funding rounds.”

Wagalath added that the platform is currently seeing a high volume of ISA transfers into its Innovative Finance ISA.

The world’s leading resource on alternative credit Subscribe today for full online access Alternative Credit Investor (alternativecreditinvestor.com) is the premier source of in-depth news, analysis, and insights on the fast-growing alternative credit market. As a subscriber, you’ll have access to: igh-quality coverage of key topics impacting the •H alternative credit industry and its investors. p-to-the-minute news, features and opinions from •U alternative credit experts and other industry professionals. aily news and analysis from Monday to Friday, and daily and •D weekly newsletters.

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PROMOTED CONTENT

09

Earn stable returns and enable access to education by becoming a lender on Lendwise

Y

OU HAVE THE opportunity to make a meaningful impact while earning a return – which can be tax free in our Innovative Finance ISA (IFISA) – by becoming a lender with Lendwise. But what do we mean when we say making a meaningful impact? It means creating a significant social impact by supporting the next generation of students striving for academic excellence to enhance their careers and future prospects.

Our loans often serve as the key difference between being stuck in a career rut and the transformative power that education provides.

You can earn up to nine per cent per annum (on average) if you diversify your loans on Lendwise, which on our platform, makes sense to do – there’s an age-old saying about having all your eggs in one basket!

Since we focus on educational loans, funding opportunities typically arise on our platform seasonally. We see more activity in August and September as the academic year starts around September to October each year, and also in November and December as we work with some leading business schools who have a January intake for their MBA programme.

Therefore, it makes sense for investors to have our AutoLend feature activated, so they can set their parameters, such as loan term, interest rate range or preferred universities they wish to invest in.

These parameters continuously work in the background so that when loan repayments come in, any

cash in your account is reinvested into loans of your choice.

In addition to the primary market, we offer an active secondary market where you can acquire loans without incurring additional pricing effects. For instance, if you initially invested in a loan with a nine per cent net return and a 60-month (five-year) term, and after two years, you wish to free up some cash for another purpose, you have the option to list your investment for sale – whether it's a portion or the entire amount – and another lender can purchase it from you. The only charge associated with this process is a one per cent transaction fee applied to the seller of the investment. It's important to note that only performing loans are eligible for listing on the secondary market; any loans in arrears cannot be placed for sale.

We’ve been in business for over five years and so there is a lot of detail that can be accessed on our website, including the performance of our loan book and our annual outcomes statement, as well as other useful information such as how to apply diversification in your investment portfolio.

We’re very proud of our track record and the returns we have delivered to our lenders while at the same time helping so many ambitious individuals achieve greater success in life through postgraduate education.

So, if you’re looking for a way to use your money with a real purpose that makes a difference to the next generation while earning a solid return, open an account with Lendwise today.

By Rishi Zaveri, chief executive and co-founder of Lendwise

10

LIQUIDITY

When it rains, it pours Private credit is supposed to be an illiquid market, but as more retail investors enter the space, liquidity demands have amplified. Kathryn Gaw looks at the opportunities and risks of a liquid private credit sector

L

IQUIDITY AND PRIVATE credit do not exactly go hand in hand. By nature, the private credit market is designed for investors who are happy to lock their money up for a number of years, in return for a higher interest rate. But recently, some investors have been seeking easier access to their cash, and private credit funds have been working hard to meet this demand.

In November 2023, M&G Investments debuted its first European Long-Term Investment Fund (ELTIF), with £500m committed ahead of the launch. M&G Corporate Credit Opportunities offers quarterly liquidity to investors, making it one of the most liquid private credit products on the market.

One month earlier, both Allianz Global Investors and US investment house Muzinich unveiled semiliquid private credit funds. Two of the largest funds in the private credit space - Blue Owl Credit Income and Blackstone’s BCRED – offer five per cent liquidity to investors.

It is no coincidence that all five of these funds are targeting

the private wealth space, rather than institutional investors. Over the past year, there has been a shift in the private credit sector as the investor base has widened from the traditional mainstays of pension funds, family offices and insurers; to the larger – but more regulated – retail investor space.

The ELTIF regulations in Europe have made it easier for private credit funds to market their products to high-net-worth individuals and sophisticated investors who are keen to get a piece of the booming private debt space. And with returns often reaching 10 per cent per annum, it is easy to see why these inflation-beating yields would be attractive to investors following years of stock market instability.

“Interest from retail and wholesale clients for investments into private markets have been on the rise for a while,” says Jo Waldron, head of client and solutions, private credit at M&G. “The asset class has previously been accessible mainly to institutional investors seeking the benefits of diversification and potentially higher returns.

“The new ELTIF regulation will meet this demand, offering a regulated and easily accessible vehicle across Europe capable of providing access to these assets with improved liquidity and lower minimum investments, enabling its inclusion in model portfolios.”

As more retail investors flood into the private credit market, fund managers are beginning to realise that their needs are different. While

11

LIQUIDITY

one private credit executive.

“And this is why you have to be extremely thoughtful about understanding the needs of a client. In 2022, people were faced with a unique situation where everything - both equity and debt - went down at the same time.

“And because there was such a significant valuation change in the public markets, many folks who would not have ordinarily been concerned about liquidity all of a sudden became concerned. So this is all about people understanding their liquidity profile.”

Yet there are risks involved in seeking liquidity from private credit products. The underlying assets in a private credit fund are typically long-term corporate,

“ Everybody is

looking at liquidity to some degree

”

institutions are happy to sacrifice liquidity for a fixed return, retail investors want to have it all.

At a recent Citywire event, Richard Hope, co-head of investments and head of EMEA at Hamilton Lane, said that liquidity was the top concern for his private wealth clients.

“The most consistently asked question in our funds when we’re talking to investors is: ‘If it all goes

wrong, how do I get out?’,” he said.

This is understandable. Retail investors have been through the wringer in the past few years, with Covid-related market crashes, stubbornly high inflation eroding away the value of their cash savings, and high interest rates heaping pressure on even the wealthiest households.

“Everybody is looking at liquidity to some degree,” says

environmental, or real estate loans with a term time of four to eight years. In order to give investors the option of an early exit, fund managers have to get creative.

Some do this by staggering their loan terms, so that – in theory – different tranches of loans will mature at different times, allowing for partial redemptions. Others offer ‘semi-liquidity’, where limited withdrawals are offered at the fund manager’s discretion.

“Alternative asset managers are creating opportunities for quarterly liquidity, particularly for funds with retail/high-networth investors,” says Ana Arsov, managing director of the Moody’s financial institutions group.

“However they allow for only

12

LIQUIDITY

five per cent quarterly liquidity outflow which is prudently managed by appropriate cash, revolver access and also more liquid assets to allow for that event.

“Nevertheless, accessing retail investors is indeed a growing trend in capital formation and it does come with both heightened liquidity risk and reputational and regulatory risks.”

Arsov is not the only one predicting enhanced regulation as liquidity requests rise.

“I'm expecting regulation at some point to come in because of the size of deals that are being done,” says Patrick Marshall, head of fixed income, private markets at Federated Hermes.

“The fact that some direct lenders now underwriting transactions and seeking to sell those transactions on to other institutional investors is in many ways something that the investment banks did before 2007.

“In terms of liquidity, I think if we want to become an established asset class, we have to be transparent in what we promise our investors and what we can deliver. And to me there is a liquidity gap premium in the fact that we've got illiquid assets underlying in a fund and then some people are claiming that they can provide liquidity. It doesn't make sense to me. So I think the regulators probably in time will need to look at making sure that what is being promised is deliverable.”

The ETLIF regulations could be seen as a first step towards regulating liquidity in the private credit space. The rules place the onus on the fund manager to choose the most appropriate liquidity management tools for their investors, as long as redemptions do not happen

“ We have to be

transparent in what we promise our investors and what we can deliver

”

more frequently than quarterly.

Meanwhile, at the smaller end of the credit market, regulated peerto-peer lending platforms have been innovating in liquidity management for years. Most major P2P platforms in the UK and Europe operate their own secondary markets, where investors can trade loans or loan parts. In many cases these sales are finalised within 24 hours of being listed, but the speed of the sale very much depends on the quality and duration of the loan, and whether it is being sold at a discount.

But with more and more funds offering liquidity to attract new investors, how viable is this as a new model for the private credit space?

“I don't think it's viable at all,” says Marshall. “People invest in private equity and private debt for a number of reasons. One is the liquidity premium, which is part of the yield. The other is to get income for liability-matching purposes, or if you've got a growth strategy it's a counterbalance against what I would call high-risk strategies.

“My view is that this move towards providing liquidity when you're seeking to earn an illiquidity premium makes no sense. A lot of these products that offer liquidity, it's not real liquidity. It's usually through a constraint where the manager can buy some of the loans with a funding line attached to the fund or something like that. But

it is usually structured in such a way that the manager can decide if that liquidity is available or not.”

Marshall notes that there have been a number of instances where real estate funds have closed their liquidity because too many people were trying to withdraw from it. Blackstone hit the headlines last year when its real estate income trust was forced to limit redemptions after withdrawal requests surged to 15 per cent. In December 2022, Blackstone’s BCRED private credit fund reached its five per cent

LIQUIDITY

“ There is certainly more risk in credit

vehicles that allow for redemption activity as the assets may be illiquid redemption limit for the first time.

“I would argue that this liquidity trend is not real, and I think the regulators will probably put an end to it in time because it doesn't work,” says Marshall.

“I think the reason people are pushing for it is that people are trying to find ways to get retail or wholesale funding into the sector,

”

so they need to offer liquidity.”

As the private credit market grows and attracts more retail investors, the risks associated with enhanced liquidity will come under increased scrutiny.

Meghan Neenan, head of North American non-bank financial institutions at Fitch Ratings, warns that investors

13

may struggle to find all the information they need to make informed decisions about investing in semi-liquid credit products. This lack of transparency, combined with the possibility of mass redemption events, could mean that investors are choosing products which are not necessarily suitable for them.

“Relative to vehicles without redemption rights, there is certainly more risk in credit vehicles that allow for redemption activity as the assets may be illiquid,” says Neenan. “Relative to public business development companies (BDCs), perpetual BDCs with redemption rights often operate with a liquid sleeve of level one and two broadly syndicated loans which can be sold to fund redemptions or undrawn revolver capacity.

“Fitch rates one perpetual BDC publicly and it has a lower targeted leverage ratio than its affiliated public BDC, which we think is appropriate given the redemption terms.”

As liquidity becomes more of a priority for private credit investors, regulators are sure to be keeping a keen eye on the sector. Next year, even more retail investors are expected to enter the private credit market. More retail-focused fund launches are in the works, and in April, the Innovative Finance ISA will be extended to allow investors to make taxfree investments in Long-Term Asset Funds for the first time.

Ahead of this influx of noninstitutional investors, fund managers will face a new challenge – how to find the balance between offering liquidity and managing risk, while continuing to offer the yields that make this sector so attractive.

14

PENSIONS

Private debt sector poised for influx of pension money THE PRIVATE credit space could soon see a wave of investment from direct contribution (DC) pension schemes, thanks to Long-Term Asset Funds (LTAFs).

The LTAF is a Financial Conduct Authority (FCA)-approved structure which was opened up to professional and retail investors last year to encourage private investment into illiquid assets such as credit or real assets.

“While bigger pension schemes were already moving to illiquid assets, the LTAF structure makes it easier,” said Joe Dabrowski, deputy director – policy at the Pensions and Lifetime Savings Association.

“It’s a package you can buy off the shelf. It creates more options, as it’s a wrapper approved by the FCA that can work with platforms.”

There are currently just six authorised LTAFs, according to the FCA’s financial services register, with many more firms in the application process.

Investment giants BlackRock, Aviva Investors and Schroders all offer authorised LTAFs. BlackRock has an LTAF with a 10 to 20 per cent allocation to private credit, while Alternative Credit Investor has spoken with one asset manager currently going through the authorisation process which plans to have a 20 per cent allocation if its LTAF is approved.

Dabrowski expects LTAFs to pick up in popularity as more funds come to the market in the next few months,

has launched a real estate-focused LTAF, is bullish about the structure’s growth.

“It’s hugely encouraging to have a fund structure regime that is supportive of more illiquid asset classes,” said Mark Meiklejon, head of real asset investment specialists at Aviva Investors.

“We’re definitely seeing a lot more client interest, including from DC master trusts.

“It definitely helps to have a quasi-regulated structure with appropriate

“ Private credit can represent an attractive asset class for DC clients

which could have a knock-on impact on the alternative credit sector.

“I think schemes are willing to look at a range of options within LTAFs and a lot of them will look to have private credit in their portfolios,” he added.

Aviva Investors, which

”

liquidity to protect existing investors.”

Meiklejon said that Aviva “has pretty developed ambitions to launch another LTAF”, and is “definitely” considering private debt among other assets.

M&G Investments

is also exploring the potential of the scheme.

The asset management firm unveiled its first European Long-Term Investment Fund (ELTIF) in November focused on private credit. The ELTIF structure is the EU’s equivalent to the LTAF. “We’re also supportive of the LTAF proposition and this is an initiative we’re actively exploring, both for wholesale and DC audiences,” said Jo Waldron, head of client and solutions, private credit.

“Private credit can represent an attractive asset class for DC clients: With its floating rate nature, private credit is offering equity-risk-like

PENSIONS

returns (around nine to 10 per cent yields) without the durationlinked volatility you would find in traditional fixed income – this can be particularly useful in DC defaults as members are approaching retirement.

The ability to offer this strategy and benefits in a vehicle compatible with life insurance platforms is a development we certainly welcome.”

Alternative Credit Investor understands that the LTAF authorisation process takes six months, with the regulator taking an interest in the fund’s environmental, social and governance credentials and valuations.

While most private

credit investment strategies should be possible within an LTAF, the FCA is understood to be keen to ensure that managers of LTAFs have the knowledge, skills and experience necessary to manage the assets their funds invest in.

“We expect there to be a lot of interest in LTAFs as it gives you something that doesn’t exist at the moment from a regulatory standpoint – access to pension schemes,” said David Williams, partner and head of the investment funds team at Simmons & Simmons.

“We’re not seeing much in the way of demand for LTAFs from the far retail

end, more structuring for indirect retail such as DC pension funds.

The magic thing for the LTAF is that it’s available much more readily for pension schemes, so it’s not retail even though the end user is.”

While the pensions industry is gearing up for LTAFs, retail investment platforms are yet to be convinced, despite the Treasury’s efforts to open up the structure to a wider array of investors.

LTAFs will be eligible to be held within the Innovative Finance ISA wrapper from April 2024, as part of a shake-up of the ISA market confirmed in last November’s Autumn Statement.

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LTAFs could not be held in an ISA previously because ISA assets needed to have the ability to be sold within 30 days.

“We welcome the idea of offering diversification and long-term investment opportunities to portfolios through innovative structures which deliver good client outcomes,” said Emma Wall, head of investment research and analysis at Hargreaves Lansdown, the largest platform for private investors in the UK. “We have reviewed LTAFs across the business, including input from the policy team, fund research and asset allocation. At this stage we do not feel the product is sufficiently mature or transparent for us to include in our solutions, but we are committed to analysing new funds as they come to market and will review our position in a year’s time.”

The LTAF was first introduced by the FCA in 2021. It was recategorized from a Non-Mass Market Investment (NMMI) to a Restricted Mass Market Investment (RMMI) in June 2023, meaning that mass market retail investors, self-select defined contribution pension schemes and self-invested personal pensions (SIPPs) are able to invest into an LTAF.

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PROFILE

Bringing lending into the 21st century Tim Kelleway, director at D•One, talks to Marc Shoffman about the opportunities that open banking could present for credit providers

C

LEARSCORE MAY be better known as a credit score provider that helps consumers find and access financial products such as loans and mortgages, but its work has extended beyond the consumer this year.

It is now helping credit providers bring their lending decisions into the 21st century by using open banking.

It launched a new business-tobusiness unit in January to offer UK lenders specialist open banking connectivity services to help them make sense of the data on offer.

The technology has been built following the group’s acquisition of Money Dashboard in early 2022.

The hope is that its tools can help assess financial risk of borrowers and give providers the confidence to make more accurate and appropriate lending decisions based on real-time data rather than just credit files that can be historic.

Tim Kelleway, director at D•One, explains how the service has progressed so far this year

and his solutions to getting more providers to use open banking.

Marc Shoffman (MS): What is ClearScore?

Tim Kelleway (TK): The basic premise of ClearScore is a consumer-friendly app that lets users access their credit

score and report for free. We have 14 million users in the UK and 20 million worldwide.

It’s an app that allows users to connect to their credit score and report to get access to better products. We have a marketplace that lets users find loans and credit cards that may be appropriate

PROFILE

for their circumstances.

We enable our users to connect their bank data through open banking. This lets them see insights of what their financial footprint looks like, and helps them piece together how they can match their credit score and affordability situations.

MS: What is the relationship between D•One and ClearScore?

TK: D•One is a B2B business which is a wholly-owned subsidiary of the ClearScore group. The reason we launched last year was with the intent of accelerating the adoption of open banking for both lenders and consumers, so that lenders could make more surgical decisions rather than taking a broad brush position.

Open banking data contains all of a user’s incoming and outgoing transactions. It helps lenders understand if there is any risk regarding repayments, how much consumers are spending and how much income they are getting. It helps to make a much more individualistic decision.

There are two products on offer to clients. Connection•One

powers an open banking sign-up and authorisation process and Category•One helps lenders classify and analyse bank transactions as part of the underwriting process. The main consumers are those accessing it via the ClearScore marketplace.

We are also delivering services to lenders directly on their own domains. It is open to anybody offering credit, including providers in the P2P lending space, helping them access the bank connection suite we have.

We are on the cusp of seeing lending organisations managing risk data and looking at this as an open data source. The concept has been floating around for a few years but has struggled to get traction. However, a lot of different lenders are now coming to us to understand the data.

MS: Has there been enough take-up of open banking?

TK: It has been slow. That is a common opinion. It is a twofold problem. A user is being asked to give their data up but without a real concrete promise of what they will receive.

The lenders themselves are

Open banking adoption • More than 1 in nine (11 per cent) of British consumers are active users of open banking, and 17 per cent of small businesses.

• Financial decision-making, payments and borrowing account for 75 per cent of all propositions.

• As of June 2023, there were 151 fully regulated firms with live-tomarket open banking-enabled products and services.

• The fully regulated market remains dominated by propositions addressing improved financial decision-making (45), expanded payments choice (45) and better borrowing (26).

• The availability of products and services offered by agents of regulated third party providers has increased by 36 since the end of March 2022. There were 208 such firms with live-to-market services at the end of 2022.

Source: Open Banking Limited

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trying to make sense of a dataset they haven’t seen before. For a lender to understand the risksplitting power of the data, they have to see enough of it so they can offer better pricing and access.

That is why on ClearScore we have tried to take the bull by the horns and give user feedback on the data so they can share it.

MS: Are there any other challenges?

TK: The main challenge that lenders have is to ingest a large amount of data and make sense of it quickly enough to be able to return a decision.

If someone is in the process of an application then they are happy to wait but if they are searching the market, they want to see options quickly. With D•One we have made sure our technology is top drawer.

The other challenge is to integrate our technology into all parts of the ecosystem from lenders to introducers.

MS: When could open banking become more widely adopted?

TK: In general, the point is to enable users to get a better deal in line with the new consumer duty regulation that states lenders should be avoiding foreseeable harm and enable users to reach their financial goals. Open banking is an easy way to do that.

If consumers are making their data available, we feel the lenders have a duty to at least look and understand it, that is what we are making available.

My prediction is that, based on the appetite for our services, a lot of providers are considering how they leverage open banking for good. I think we will see a tipping point over the next 12 months.

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DIRECTORY

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Assetz Exchange is a property investment platform delivering long term stable income for investors, primarily through the purchase and leasing of housing for social good. Regulated by the FCA, it provides the opportunity for investors to create a diversified property portfolio and alternative funding options for the housing sector. www.assetzexchange.co.uk T: 03330 119830 E: info@assetzexchange.co.uk easyMoney is a peer-to-peer property lending platform that is fully authorised by the Financial Conduct Authority #231680. It has £164m+ in investor funds currently deployed and £280m+ in total loans written to date.

It has had no borrower defaults and no investor has ever made a loss. Among P2P firms surveyed by Alternative Credit Investor it has the largest active Innovative Finance ISA portfolio, with over £66m currently invested. easyMoney.com T: 0203 858 7269 E: contactus@easymoney.com Folk2Folk is a profitable UK lending and investment platform. More than half a billion pounds has been invested via the platform with no investor losses to date. Loans are a maximum of five years, secured against land/property at a maximum 60 per cent LTV, with a fixed rate of between 7.5 and 9.5 per cent, per annum. www.folk2folk.com T: 01566 773296 E: enquiries@folk2folk.com Invest & Fund is an established alternative finance platform that has deployed over £257m on clients' behalf and has repaid over £158m to lenders with zero per cent bad debts written off. Lenders can achieve a diversified, asset-backed portfolio with gross yields averaging from 6.75 per cent to 7.5 per cent per annum with an option to lend through an ISA or a 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 more than £25m and paid more than £1.7m in interest to lenders to date. Investors can enjoy returns of up to 10.98 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 £280m 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 9.73 per cent (compounded) per annum, with an IFISA available. www.kuflink.com T: 01474 33 44 88 E: hello@kuflink.com

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LANDE is a crowdfunding platform that gives investors access to secured agricultural loans. It has created a unique scoring model, accessible infrastructure, and a variety of products so that farmers are able to access financing quickly and easily. With LANDE and its investors as partners, farmers can become more independent and sustainable, while improving their yield, efficiency and profitability. Projects offer interest rates of up to 14 per cent per annum. https://lande.finance T: +371 20381802 E: info@lande.finance

Lendwise is the UK’s only peer-to-peer lender that is dedicated to impact investing in education finance. Investors finance education for borrowers at universities and business schools across the UK and globally. Investors define their own risk appetite and use Lendwise’s AutoLend feature to diversify their strategy across a pool of loans, which can be invested in an IFISA wrapper earning average returns of up to nine per cent per annum. www.lendwise.com T: 0203 890 7270 E: lenders@lendwise.com

Lending for over eight years, Somo is a seasoned bridging lender specialising in providing short-term secured loans against UK property. Somo gives its lenders the opportunity to tailor their investments according to their risk tolerance, selecting interest rates and loan-to-value ratios that align with their preferences, with a minimum investment of £5,000.

W: www.somo.co.uk/how-it-works T: 0161 312 5656 E: investors@somo.co.uk

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The European Crowdfunding Network (EuroCrowd) is an independent, professional business network promoting adequate transparency, regulation and governance in digital finance while offering a combined voice in policy discussion and public opinion building. It executes initiatives aimed at innovating, representing, promoting and protecting the European crowdfunding industry. www.eurocrowd.org E: info@eurocrowd.org

Q2 creates simple, smart, end-to-end lending experiences that make you an indispensable partner on your customers' financial journeys. Its modular platform gives you the ability to manage lending simply throughout the entire loan lifecycle, from application, onboarding, servicing to collections. The result is a better experience for both borrowers and lenders. https://eu.q2.com T: 020 3823 2300 E: info@Q2.com

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