City investors expect online lenders to drive growth in asset-backed securities

INSTITUTIONAL investors are planning to increase their exposure to asset-backed securities (ABS), with more deals expected to come from fintech firms, including alternative lenders.

A survey of 57 institutional investors by Managing Partners Group, released on Friday, found 60 per cent expect their exposure to ABS to rise over the next three years.

25 per cent of respondents said strong growth in fintech companies, including alternative lenders that prefer to raise capital via ABS, was a factor driving increased supply.

The peer-to-peer lending industry has been dipping its toe into the debt-packaging space, with Funding Circle becoming the first platform to securitise its business loans in 2016. This was followed by Zopa with its consumer loan portfolio later in the year.

Rating agencies predicted a boom in P2P securitisations, but the only activity in 2017 was a £208.9m Zopa deal, led by investment trust P2P Global Investments.

Moody’s recently told Peer2Peer Finance News it expects more securitisations this year, while fellow ratings agency S&P Global has predicted a 30 per cent increase in securitisations from marketplace lenders during 2018.

Read more: P2PGI re-enters Numis buy list thanks to Zopa securitisation

The Managing Partners Group survey also found that 52 per cent cited the role of ABS in offering an alternative to lending by banks and 27 per cent said the European Union would support the ABS sector because it has an important role to play in financing small- to medium-sized enterprises (SMEs).

Half of the respondents said they will increase their exposure to higher-yielding assets such as fixed income ABS because of their concerns about rising interest rates, up from 37 per cent a year ago.

Jeremy Leach, chief executive officer at Managing Partners Group, said fixed income ABS offer an attractive strategy, with yields high enough to counter rising inflation while being secured against real underlying assets, which is reassuring for investors.

“This flourishing sector also offers a range of yields and risk profiles to suit a wide range of appetites,” he added.

Read more: KFW mulls more P2P securitisations