Invesco Perpetual’s Mark Barnett, the biggest investor in listed alternative lending funds, expresses faith in turnaround of sector's biggest disappointment so far.
P2P Global Investments (P2P), the largest of the listed alternative lending funds, has won the backing of Invesco Perpetual’s Mark Barnett, its largest shareholder, for the turnaround plan it outlined last week.
As head of UK equities at Invesco Perpetual, Barnett holds sway over a 31% stake in P2P, most of it held in his funds, leading to speculation about his behind-the-scenes role following the poor performance of the £657 million high yielding company. Its shares have fallen 13% over three years.
During the recording of the video interview we published yesterday, Barnett confirmed that he had encouraged the merger earlier this year between P2P’s former manager, MW Eaglewood, and Pollen Street Capital, manager of £350 million Honeycomb (HONY), a better performing rival fund in which Invesco owns 36%.
The tie-up between the management firms has led to suggestions that P2P could ultimately be merged with Honeycomb, given that their loan portfolios are set to become more similar, a move that was signalled last month when P2P offloaded a chunk of its problematic US consumer debt.
Speaking in our studio before P2P released its strategy update last week, Barnett admitted a merger might be necessary eventually, but ruled it out as an early ambition.
‘In the short term that’s certainly not on the agenda. What the Pollen Street people are doing, and you saw they announced the sale of some of the assets last week, what they’re doing is reshaping the fund. So one manager with two portfolios.’
P2P, managed by Simon Champ, the founder of MW Eaglewood and now a partner at Pollen Street Capital, was the first alternative lending fund to market in 2014. It raised over £800 million from investors – including star fund manager Neil Woodford – excited at the prospect of a new source of income from peer-to-peer lending platforms.
However, its failure to hit its dividend and total return targets disappointed many investors who dumped the shares last year.
‘They raised a lot of equity and they added quite a lot of debt as well. They performed less well,’ said Barnett, adding, ‘I’m confident that we’ll get the targeted returns from the P2P portfolio over the next 12 months.’
P2P’s pledge to raise its dividend next year to 15p from 12p per share, cut costs and shift its assets towards secured loans to specialist, smaller businesses has pleased investors. The shares have risen 6% in the past week, reducing their wide discount to net asset value from above 22% to under 16%. They yield 14%.
By contrast, Honeycomb’s highly-rated stock has continued to cool slightly, its premium subsiding to 14.5% from a peak of 22% above NAV in August. They yield 7.5%.
Barnett holds P2P through the big Invesco Perpetual Income and High Income funds he inherited after Woodford, his former boss at Invesco, quit and set up on his own four years ago. He also holds it through the Perpetual Income & Growth (PLI) investment trust, which has also suffered its own problems with performance.
In addition to P2P and Honeycomb, Barnett also controls leading positions in other alternative lending trusts, often with Woodford’s firm as the second biggest investor. A 29% stake in Funding Circle SME Income (FCIF), 32% of Hadrians Wall Secured Investments (HWSI) and 30% in VPC Specialty Lending (VSLV) have been positive but the 28% holding in Ranger Direct Lending (RDL) has been far less successful with the shares down 29% in the past year repeated writedowns in one of its US investments.
Burnett, who has managed Perpetual Income since 1999, his longest stint on a fund, likes to invest in investment trusts and closed-end funds holding alternative or non-mainstream assets.
‘What I am always trying to do is spread the net to find diversified income from the market and try and find income from areas which are less obvious and which help to diversify the burden of generating income from the market,’ he told us.
His most successful investment company holding is in Burford Capital (BURF), the litigation finance company 22% owned by Invesco Perpetual and 10% by Woodford Investment Management. Its shares have shot up 165% in the past year.