Invest & Fund: P2P has earned its place in private credit
Peer-to-peer lending has more than earned its inclusion in the booming private credit sector, Invest and Fund has claimed.
In a new blog post, the property lender argued that the inclusion of real estate-backed P2P investments as a sub-sector of private credit could add further diversification to the risk profile of alternative credit investors.
“An investment mechanism underpinned by growth assets such as land and housing is not unsecured business lending to distressed corporate borrowers with already leveraged assets,” Invest and Fund noted.
“We feel that P2P backed by an underlying growth asset such as real estate has more than earned its inclusion in that defined basket of opportunities, that falls under the umbrella of private credit.”
Read more: Moody’s: Private credit to hit $3tn by 2028
The blog post referenced a recent Moody’s report that predicted that the private credit market is set to grow to $3tn (£2.3tn) by 2028.
Invest and Fund pointed out that P2P lending already falls under the ‘umbrella’ of private credit, as the global private credit market traditionally refers to loans and debt financing provided by non-bank lenders, which includes P2P lending, as well as private equity or hedge funds.
“From an investor’s perspective, private credit offers an alternative to traditional fixed income, often yielding slightly higher returns due to the risk-adjusted nature of the investment,” said Invest and Fund.
“Investors are drawn to private credit for its potential for stable cash flow, diversification, and reduced correlation with public markets.”
The blog post went on to argue that inflation is behind the recent surge in private credit investments, as investors sought to diversify their portfolios away from lower-yielding traditional fixed income instruments and public equities like stocks and shares.
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“In periods of rising inflation, such as we have just experienced over the last 18 months, traditional fixed-income investments struggle to keep pace with inflation, leading to negative “real” or actual returns,” said Invest and Fund.
“Private credit investments typically offer higher yields due to their complexity and bespoke nature. The go-to line is that private credit is increasingly attractive in a high-inflation environment as it can typically deliver inflation-beating returns.”
According to the recently-launched 4thWay P2P and Direct Lending (PADL) Index, P2P lending investments have returned an inflation-beating average of 7.36 per cent per annum over the past 10 years.
Invest and Fund is one of the platforms reporting its data to PADL. According to 4th Way data, Invest and Fund currently offers returns of 8.81 per cent to investors.
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