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Funding Circle trust faces closure

The sister investment trust's net asset value has been weakening in recent months
April 10, 2019

Shareholders in Funding Circle’s (FCH) sister investment trust have pushed for the company to wind up its activities and hand cash back to shareholders, amid concerns over declines in net asset value and dividend cover.  

IC TIP: Sell at 324p

The Funding Circle SME Income Fund – which invests in loans originated by Funding Circle’s platform – said two-thirds of shareholders had stated that they were in favour of ceasing new credit investments. The board plans to convene an extraordinary general meeting where shareholders will vote on winding up the company. Shares in Funding Circle fell by as much as 9 per cent on the day of the announcement.

The fund’s net asset value fell 3 per cent to 97.5p a share during the latter six months of 2018, while total returns were -0.4 per cent, partly due to “the underperformance of certain UK loan cohorts from 2016 and 2017”. In February NAV total returns came in at 0.05 per cent, although share buybacks contributed 0.06 per cent to returns. Declining returns were due to higher finance and currency hedging costs and the introduction of new loan impairment accounting standards in 2018. Quarterly dividend payments are expected to remain covered by net profits until June 2020. 

In June the fund revised down its target total NAV return to 4 per cent in 2019, from an annual target of between 8 and 9 per cent set at the fund's initial public offering (IPO) in 2015.   

Funding Circle said the trust had “become a declining part of its overall funding mix” and was projected to fund just 3.5 per cent of the group’s originations in 2019. Management also said it planned to launch a UK private direct lending fund and UK bond product, with the former intending to raise more than £200m from institutional investors over the next few years.