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It’s online v offline – but everyone’s a winner

While internet-based lending sites and traditional fund managers have competing claims to investor capital, the opportunity for both is getting larger.

“Invest in bricks and mortar”. This is what LendInvest is imploring the general public to do with its new adverts frequently seen in the carriages of London Underground tube trains. Not necessarily the sexiest of ads, but interesting to note their presence nonetheless.

With their promise of property portfolios you can start to build for as little as £100, and rates of 5 percent-plus (not many places you can get that these days), they may catch the eye of more than a few commuters.

But, as we reported yesterday, it’s not just the general public that the likes of LendInvest are keen to attract: it’s also institutions. Flush with a new funding line of £40 million (€51 million; $58 million) from Australian financial services giant Macquarie, LendInvest – since being formed just a few years ago – has now raised £230 million of institutional backing in total to lend against mortgage loans.

It’s clear that online platforms arising from the “fintech” phenomenon are making big strides. The “Pushing Boundaries – 2015 UK Alternative Finance” report published by the University of Cambridge and Nesta, the innovation charity, revealed that the UK’s online alternative financing sector had grown by 84 percent last year, with much of this growth coming from real estate-focused peer-to-peer (PSP) lenders.

But while institutional backing in the P2P space is growing, the courting of blue-chip backers was arguably taken a step further when InvestSure recently launched a new platform with “pro-to-pro” branding and an aim of attracting professional investors only (and with the expectation of larger ticket sizes).

For private debt fund managers operating in parts of the market that overlap with the online platforms, there is the question of how much of a competitive threat they pose. The platforms will say that they can offer developers the chance to access finance on highly competitive terms, with investors battling each other for access to deals.

Fund managers in the real estate lending space may acknowledge that they are not the cheapest source of finance, but may also argue they can offer an infrastructure and quality of underwriting that the online platforms lack – as well as an ability to get the finance into the hands of time-pressed developers quicker than the platforms can. They also make the case that brokers prefer personal relationships and will be inclined to bring the best deals to those they can engage with face to face.

Whatever the merits or otherwise of those arguments, the fund managers – and not only the largest ones – are also detecting a surge of support from institutional investors. Omni Partners, upon the recent launch and first close of its third secured lending fund, revealed it had received its first direct allocation from an unnamed pension fund.

While this is just one example, fund managers often tell us with a glint in their eyes that they see more and more investors allocating to private debt from their huge fixed income allocation rather than their much smaller alternatives bucket.

While the growth of P2Ps and other online platforms is impressive, maybe fund managers should not feel too threatened. The bigger story is the weight of institutional capital wanting to access the private debt opportunity – the smaller (but still interesting) sub-plot is how they go about doing it.