News Briefing - Crowdfunding, SME And Alternative Finance

a crowd expressing jubiliation

1.UK – P2P

The FT is one of many to report on the end of a wretched experience for Neil Woodford in the P2P investment stakes.

“Neil Woodford has disposed of his stake in P2P Global Investments to wealth manager Quilter for close to £86m, as the former star stock picker liquidates holdings to repay investors withdrawing from his funds.

Woodford Investment Management sold 10.2m shares in the peer-to-peer lending specialist when the stock traded just below 850p. That compares with the £10 to £11.84 range in 2015 when Mr Woodford began building his stake, according to a person familiar with the matter.

The company declined to comment on the reasons for sale which comes weeks after Mr Woodford offloaded a £42m stake in NewRiver Reit to funds managed by his protégé Mark Barnett at Invesco. Mr Woodford’s investment company said in April that assets in his flagship equity income fund had shrivelled to £4.4bn, down from £4.7bn at the end of February, and 57 per cent lower than its all-time peak of £10.2bn in 2017.

Investors have pulled cash from the fund for 22 consecutive months since that peak, putting one of the UK’s best-known investors under intense pressure to meet those redemptions by selling stakes in the more than 100 companies held in the fund. The equity income fund has underperformed the FTSE All-Share index over one year and three years.

Since its launch in June 2014, the fund has risen just under 10 per cent compared to the more than 30 per cent gain in the FTSE All-Share. Mr Woodford is battling his longest period of weak returns in a three-decade career that saw him rise to become the UK’s most prominent stock picker. At the same time, Mr Woodford needs to ensure his fund complies with regulations that restrict investments in unquoted securities.

The equity income fund last year had a weighting of more than 9.5 per cent in unquoted stocks, close to the 10 per cent cap imposed by the Financial Conduct Authority. The fund has 7.76 per cent of its investment in unquoted securities. Selling holdings in P2P Global and NewRiver reduces the size of the quoted portfolio and correspondingly increases the weighting of the unquoted segment.

P2P Global was the 23rd largest holding in the equity income fund with a 1.6 per cent weighting at the end of March. Mr Woodford’s sales of the P2P stake was first reported by Citywire. One of Mr Woodford’s top five holdings — biotech company Benevolent AI — on Tuesday announced a long-term collaboration with AstraZeneca to use artificial intelligence and machine learning to develop treatments for kidney disease and pulmonary fibrosis. No financial details were disclosed.

However, Joanna Shields, Benevolent AI chief executive, said the deal came with “an upfront payment, development milestone payments and tiered royalties on future revenues”.

Neil Woodford sells stake in P2P Global to meet redemptions

2. UK – AltFi

The FT reports on investor anger towards the FCA over the LCF affair.

“Retail bondholders facing the wipeout of their savings in a £236m investment scandal are accusing the UK’s financial compensation scheme of giving misleading information over the protection they should expect. People who bought “mini-bonds” from London Capital & Finance have told the Financial Times that they only did so after receiving assurance from the Financial Services Compensation Scheme that their money was safe.

More than 11,500 bondholders — many of them retirees and first-time investors — may now be wiped out following LCF’s collapse in late January, which sparked a regulatory and criminal probe.

An FSCS spokesperson apologised for “the confusion” it may have caused for LCF customers, adding in a statement to the Financial Times: “We have been made aware of a small number of communications from FSCS which may have given a partial picture and we are seeking to establish the number and nature of their content.”

The FSCS, which refunds deposits and investments when things go wrong, has previously said it is not accepting claims related to LCF as the company was issuing “its own mini-bonds to investors on a non-advised basis”. In one case, a pensioner greatly increased his investment in LCF’s mini-bonds, ploughing in £35,000 — up from an initial £6,000 — after receiving what he deemed to be reassurance last August from the FSCS.

While LCF held regulatory authorisation from the Financial Conduct Authority, which the company displayed prominently in marketing, mini-bonds are unregulated, which means they are not typically covered by the FSCS unless investors can show they bought the bonds following bad advice.

But correspondence seen by the FT shows that the FSCS did not spell out this nuance to some bondholders, and stated the company was protected by the guarantee scheme to the tune of £50,000. An August 2018 email from the FSCS to the 72-year-old who invested £35,000 said simply: “London Capital & Finance Plc are authorised by the Financial Conduct Authority and therefore covered by the FSCS up to the compensation limit of £50,000.”

The retiree, who wished to remain anonymous, told the FT: “I feel I was most definitely misled. I thought hopefully they wouldn’t go bust, but even if they did I thought my capital was covered.”

The FSCS said in its statement: “While it is true to state that FSCS protection would cover regulated activities carried out by LCF, we accept these efforts to inform people may have led to confusion about the extent to which our protection extends to these particular mini-bonds. “As part of our investigation we will examine each of the individual cases and respond to them directly,” it said. “We are sorry for the confusion this may have caused some LCF customers.”

LCF’s administrators at Smith & Williamson said the FSCS may have to reconsider its position in relation to individual bondholders who can show they received misleading communications from the guarantee scheme. “Normally the FSCS is looking at advice from other people, but this puts the FSCS in a particularly difficult position with regards to that individual,” said Finbarr O’Connell at Smith & Williamson.

At a creditors’ meeting last week, around half a dozen bondholders claimed they had been given erroneous information by the FSCS. There has been a failure of duty of care all around Ray Nair, LCF bondholder One of the UK’s biggest scandals to hit retail investors in recent times, the collapse of LCF has highlighted the confusing thicket of rules around unregulated products.

LCF promised returns as high as 8 per cent through its mini-bonds, which in some cases it wrongly described as fixed-rate ISAs. Unlike listed retail bonds, mini-bonds are thinly traded and can carry a high risk because of the higher failure rates of small businesses. The bonds ostensibly went to fund dozens of small businesses.

LCF’s administrators revealed last month that in reality, it was a web of interlinked companies, with millions of pounds of bondholders’ money enriching LCF’s boss and the chairman of its biggest borrower, according to the report by Smith & Williamson.

Another bondholder, Ray Nair, who invested £20,000, says he did so only after calling the FSCS in 2017 and being told to “go ahead and invest” because LCF held FCA approvals. A subsequent FSCS letter dated September 2017 to Mr Nair says LCF is “registered with the FCA so protected under our scheme” but adds that “for investment claims we must establish that your investment was mis-sold to you and that you have lost money as a result of the advice you were given”.

“There has been a failure of duty of care all around,” said Mr Nair, a volunteer with the NHS, who has twice complained in writing to the FSCS. “It’s clear we were misled.” Even as recently as mid-January — two weeks before LCF collapsed and a fortnight after the FCA began its investigation — the information FSCS gave was not clear.

Mahendra Bajaj, an accountant and LCF bondholder from Reading, said he called the FSCS after reading about the FCA probe to check the status of his £53,000 investment.

“The guy I spoke to said he would have to check on the situation, and came back to say that the business was regulated and that I would be entitled to compensation up to £50k if it went into default.”

He asked for this in writing and was sent a confirmatory email, seen by the FT.

Nicky Morgan, who chairs the House of Commons Treasury select committee, said: “If true, this would not have helped those who invested in LC&F to make a fully-informed decision. This could be an issue that the independent reviewer considers as part of the investigation that I have called for into the issues raised by the failure of LC&F."

UK redress scheme accused of misleading London Capital & Finance investors | Financial Times

3. International – P2P

The wires carry an announcement from China-focused P2P platform, Fincera.

“Fincera Inc. (''Fincera'' or the ''Company'') (YUANF), a leading provider of internet-based financing and ecommerce services for small and medium-sized businesses (''SMBs'') and individuals in China, today reported financial results for the year ended December 31, 2018.

Full-year 2018 Financial Highlights

  • Income (revenue) for the year ended December 31, 2018 was RMB1,412.0 million (US$205.7 million), an increase of RMB388.1 million from RMB1,023.9 million in the prior year period, as a result of the ramp-up of the Company's internet-based business segment.
  • Net income improved to RMB274.8 million (US$40.0 million) in the year ended December 31, 2018, or RMB5.45 per diluted share (US$0.79 per diluted share), compared to a net loss of RMB8.4 million, or RMB0.18 per diluted share in the prior-year.

Dividend AnnouncementFincera is pleased to announce plans to pay its shareholders a cash dividend semi-annually.”

Fincera Reports 2018 Year End Financial Results Highlighted by Record Loan Transaction Volume; Declares First Semi-Annual Dividend of US$0.30 per share

4. International – FinTech

Coin Telegraph on the latest in the long-running Tether saga.

“The company behind USD stablecoin Tether (USDT) only has enough cash to back three-quarters of its increasing supply, its lawyers confirmed in documents released on April 30.

As part of an ongoing legal process involving the New York Attorney General, Zoe Phillips of law firm Morgan Lewis said that at the time of writing, 74% of Tether’s reserves had USD and equivalent backing.

The figure falls short of previous promises given by Tether executives, specifically that every USDT token had full fiat backing, something a bank statement appeared to confirm in December last year.

“In fact, Tether’s reserves of cash and cash equivalents alone (without the line of credit) would cover approximately 74 percent of the outstanding amount of tether,” Phillips wrote.

The legal battle stems from claims that cryptocurrency exchange Bitfinex, which shares its CEO with Tether, used reserves to plug holes left from a problematic outsourcing agreement earlier in 2018.”

Fractional Reserve Stablecoin Tether Only 74% Backed by Fiat Currency, Say Lawyers

5. International – FinTech

More evidence of speculative demand as stocks in an Ethereum-based platform rise 29 per cent in a day, according to Cryptocoins Tribune..

“It was good day for Lendingblock (LND), as it jumped by $0.0012942544 or 29.17%, touching $0.0057312404. Top Cryptocoin Experts believe that Lendingblock (LND) is looking for the $0.00630436444 goal. According to 5 analysts could reach $0.0135569290270057. The highest price was $0.0057312404 and lowest of $0.004436986 for April 29-30. The open was $0.004436986. It last traded at HitBTC exchange.

For a month, Lendingblock (LND) tokens went up 42.71% from $0.004016 for coin. For 100 days LND is up 56.12% from $0.003671. It traded at $0.004139 200 days ago. Lendingblock (LND) has 1000.00M coins mined with the market cap $5.73M. It has 1000.00M coins in circulation. It was founded on 05/03/2018. The Crypto LND has proof type and operates under algorithm.

Lendingblock is an Ethereum-based currency lending platform. Its focus is to match lenders and borrowers in a transparent and trustless way. LND is an ERC20 utility token that works as the payment method of fees and interest on loans.”