According to The Times, the vehicle will provide money to small companies in Britain and the United States through Funding Circle’s online debt marketplace.
Investors can expect an annual dividend of between 6 per cent and 7 per cent, the lender said, from targeted returns of between 8 per cent and 9 per cent.
Samir Desai, Funding Circle’s co-founder and chief executive, expects the trust to be used by wealth managers, pension funds and asset managers to invest in small business debt as they search for high-yielding securities. The trust will be open to ordinary investors through individual savings accounts, making peer-to-peer investments tax free for the first time.
Since it was set up in 2010, Funding Circle has backed £831 million of lending to more than 10,000 businesses. The company claims that it was the fifth-largest net lender to small and medium-sized companies in the second quarter.
The London listing for the SME Income Fund is being led by Goldman Sachs. Funding Circle added that it was in talks with the European Investment Bank over accessing public economic development funds, which could be invested through the trust.
The fund will be run by directors who are independent of Funding Circle, but there are no plans for it to invest in rival small business lending platforms.
Investors will not be charged fund management or performance fees but the trust will pay an annual fee to Funding Circle of 1 per cent of the value of funds invested.
When it was established, Funding Circle was promoted as a simple way for companies to bypass banks and raise money quickly and efficiently from ordinary retail investors, many of whom were frustrated by the poor returns they were receiving from their banks.
The company once ran an advertising campaign with the tagline “No thanks, banks”, but it has since gone into partnerships with traditional high street lenders and has encouraged large financial institutions, the government and local authorities to use its platform alongside ordinary investors.
It has been backed with $288 million by venture capital firms including DST Global, an investor in Facebook and Spotify, and is regarded as one of Britain’s most promising technology companies.
The SME Income Fund will be the fifth listed investment trust floated with the intention of seeking returns from peer-to-peer lending.
Innes Urquhart, an investment trust analyst with Winterflood Securities, said: “It’s a growth sector and an interesting asset class. It’s demand for income that is driving it. But these new funds have never been through a full market cycle.”
Mr Desai said that the fund was a “response to the huge demand we’re seeing from a wide range of investors for small business loans”. The company insisted that the arrival of more institutional money on the platform would not disadvantage retail investors.
Funding Circle said that institutions and individuals alike had equal opportunities to access varying credit risks on the platform. “We cannot determine who funds any individual loan — we take alignment of interest very seriously,” a spokesman said.
