7-Nov-19

The Hunt for Predictable Income - The Case for Direct Lending

A challenging investment environment is driving many UK investors beyond conventional routes in search of predictable, risk adjusted returns. Over the last decade, the direct lending market has transformed, with a range of opportunities now available for retail investors to put money in fund vehicles which lend to small and medium sized enterprises (‘SMEs’).

In these uncertain times if you exclusively rely on the income and security of cash, the odds are you will be disappointed by the rate of interest you’re receiving from your bank. Chances are in real terms you are losing money.

Research from MoneyFacts, found that the interest rates on more than 80% of cash accounts are now failing to beat current levels of inflation. This is not something that has occurred overnight either, to put this issue into a broader picture, in the last decade savers have lost out on a staggering £188 billion of interest after a ‘miserable decade’ of low interest rates which were slashed in the wake of the financial crisis and have never really recovered.

For investors with a longer-term outlook, investing in equities has the potential for attractive returns, however, with sustained fears surrounding Brexit and global trade, it continues to be a volatile marketplace. In 2018 Britain’s leading index, the FTSE 100, suffered its worst performance since 2008 after falling by 12.5% over the course of the year with the average annual total return of the FTSE 100 in the past 5 years delivering a Given the current political uncertainty it looks unlikely things will change anytime soon.

With these challenges in mind, it is no wonder that many UK investors are considering the alternatives…

Direct lending as an asset class

What is Direct Lending?

Direct lending as an asset class or term may seem unfamiliar or alien to many, but in reality it is far from it. In simple terms direct lending is the process of providing debt financing to businesses, often termed SMEs. This has traditionally been the preserve of banks, but over the last decade or so non-bank lenders, such as asset management houses, like Triple Point, have increasingly stepped into this space to help support SMEs.

Why are banks no longer doing this?

Regulatory pressures on banks to strengthen their capital levels after the financial crisis, resulted in traditional lenders retreating from SME lending. As a result, a host of alternative finance providers have entered the direct lending space to provide much needed capital and support for SMEs. To illustrate the importance of this Triple Point have supported well in excess of corporates and SMEs to date. Investors are attracted by both the positive yields, the uncorrelated nature of the asset class and the potential diversification that it presents, all of which combine to give investors the possibility of solid risk adjusted returns.

According to Deloitte’s Alternative Deal Tracker, direct lending has become the fastest growing asset class between 2016 and 2018 in terms of deal volume. Preqin, the data provider, has shown that European focused direct lending funds raised $11.1bn over the first six months of this year, compared with $8.5bn in the same period a year earlier.

It’s easy to see why there has been such explosive growth in the sector.

However, as direct lending products are newer to the retail market there is an increased impetus for investors to focus on due diligence and underwriting processes. This is a complex market. It requires due diligence in selecting managers with specialized expertise, a network of industry relationships, and a track record of success in developing diversified private loan portfolios.

Triple Point Income Service

Founded in London in 2004, Triple Point is an FCA authorised alternative investment manager with over £1.49bn in AUM and over 110 employees. As a leader in the private debt market, Triple Point currently manages over £500m of assets in lending and leasing strategies and has provided funding to over 100,000 businesses.

Triple Point’s Income Service is designed to generate a predictable income stream for investors that is uncorrelated to other traditional asset classes. It provides a range of fixed interest rates over a number of different holding periods from 1 to 5 years, with interest being paid either monthly or at maturity. Invested funds are exposed to a diverse Direct Lending portfolio, including Secured Lending, Leasing and Working Capital Loans.

The Triple Point Income Service places capital at risk and returns are not guaranteed. Investment into unlisted companies carries more risk than companies in the FTSE 100 or listed on AIM. FSCS protection does not apply to investments held in the Triple Point Income Service. Remember that investments are for a fixed term during which your capital is tied up, and that past performance is not a reliable indicator of future performance.

Triple Point is the trading name for the Triple Point Group.  While Triple Point includes entities which are authorised and regulated by the Financial Conduct Authority, our SME lending activities are not regulated activities in their own right. This financial promotion has been issued by Triple Point Administration LLP which is authorised and regulated by the Financial Conduct Authority no. 618187.

‘Predictable Income through Direct Lending’

Triple Point is a leader in the private debt market and to date manages over £500m of assets in direct lending strategies – and has provided funding to over 100,000 UK customers.

For more information on Triple Point’s Income Service click here or call us on 020 7201 8989

 

 

 

 

 

 

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