UK's LendInvest Focuses On HNW, Sophisticated Investors; Shutters Retail Client Segment

Tom Burroughes Group Editor London 11 May 2017

UK's LendInvest Focuses On HNW, Sophisticated Investors; Shutters Retail Client Segment

The online marketplace for property-based lending has decided to concentrate solely on high net worth, sophisticated and professional investors, pulling out of the retail space.

Retail investors using UK-based LendInvest’s online market for property finance are for now losing access to further deals because the firm will focus on high net worth investors - those with an annual income of at least £100,000 ($129,447) - professional investors or “sophisticated” persons.

“From 8 May 2017, existing LendInvest platform investors that are able to confirm that they are high net worth, investment professionals or financially ‘sophisticated’ will be eligible to continue to invest in loans against UK property via our platform,” the firm has announced on its website. It has also emailed users about the change, saying: “Existing customers who cannot confirm their eligibility will still be able to access their existing investments, but will not be able to see new loans and will not be able to make further investments. We will continue to service all existing investments and income will be paid until each loan is returned. Customers will be able to withdraw uninvested funds from their account at any time.”

A London-based client, who asked not to be named, told WealthBriefing he had been notified of the change this week and that he would no longer be able to access its investment platform, a fact he found disappointing because the platform generated a “pretty decent rate of return”. 

The change would suggest that peer-to-peer lenders and other practitioners in the field of what can be loosely called alternative finance find it more profitable to focus on relatively wealthy clients or where there are less onerous regulatory rules in force, as is typically the case because of a need to protect retail clients. 

LendInvest boss Christian Faes Faes was quoted by Altfinews, a specialist publication covering the sector, as saying that he did not expect a substantial change in LendInvest’s investor base as a result of the move. About 90 per cent of the platform’s active investors will pass new eligibility tests, the report said. "Faes was asked if the change means the firm is pulling out of trying to be fully authorised to operate a P2P platform by the Financial Conduct Authority; Faes reportedly said that is not necessarily the case and that the firm may reconsider its treatment of retail clients if the regulator gives it the green light."

A spokesperson for LendInvest told WealthBriefing: "This was a commercial decision - we wouldn't have remodelled the platform to be more tailored if it wasn't a good decision for our customers and our business. We've worked with the FCA ever since 2010 when we got authorised as an alternative investment fund manager, so we know them well and have kept them up to speed with the changes we wanted to make. Funds are a robust and well-understood investment structure, and ours can be managed under our existing FCA fund management regulations. Naturally, therefore, the FCA likes what we've done." 

The FCA late last year said it had found evidence of harm to consumers from peer-to-peer lending and that it intended to consult on new rules. The watchdog announced in July 2016 it was investigating the sector for the second time in two years. The regulator is particular worried about what happens to investors if a large number of borrowers default. The P2P sector hasn’t yet been tested by a recession or sharp market reversal. The UK is one of the largest P2P markets (the term applies to a variety of business models), with organisations such as Funding Circle. The sector has sought to fill the gap partly left by banks as they withdrew credit to rebuild balance sheets after the 2008 financial crash.

Change of tack

“As we move into the next stage of LendInvest’s development, we’ve taken the decision to remodel our online investment offering, tailoring it exclusively in the future for investment professionals, high net worth companies and individuals, and financially sophisticated individuals,” LendInvest said in a statement at the start of this week. “From today [8 May], customers that are able to confirm that they fall into one of these categories will be eligible to access the investment platform and see the investment opportunities available to them,” it said.

As far as high net worth investors are concerned, one or both of the following rules will apply: annual income for the last year has been £100,000 or more; not including your home or benefits (including pensions) you own assets worth £250,000 or more. To be a self-certified sophisticated investor, at least one of the following will apply: They are a member of a network or syndicate of business angels and have been so for at least the last six months; they have made more than one investment in an unlisted company in the last two years; they are working, or have worked in the last two years, in the private equity sector or in the provision of finance for small and medium enterprises; they are currently, or have been in the last two years, a director of a company with an annual turnover of at least £1 million. To be an investment professional, at least one of the following will apply: Work involves managing, operating or investing in alternative investment funds (AIFs); they are a director, officer or employee of such an organisation, acting in your professional capacity, and work responsibilities involve them investing in AIFs.


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