After months of strategy adjustments, loan defaults and shifts in market exposure, Funding Circle's SME Income Fund is set to close, sending shares down for the alternative lending company Friday (April 5).
The Financial Times reported that the Funding Circle SME Income fund (FCIF), Funding Circle's sister investment trust, will close following lower-than-anticipated returns. The fund launched in 2015 to finance Funding Circle loans on its marketplaces in the U.S., U.K., Germany and Netherlands. Reports noted that returns for investors have stagnated in recent months, with Funding Circle's board revising expected returns of between 6 and 7 percent down to just 4 percent fo 2019.
Now, the fund announced it will "cease investment in new credit assets and commence a process to return capital in an orderly an expeditious fashion," reports said.
In an interview with the FT, Jefferies Equity Analyst Matthew Hose said the move is "not an unexpected result, given the fund's recent travails."
Last December, Peer2Peer reports said the FCIF saw an increase of corporate loan defaults the previous August to seven, up from the year's average of six, with the value of those defaults also on the rise.
While the FCIF said in a statement at the time that the stats were "well within normal month-to-month statistical variability," they followed Funding Circle's previous decision to reduce the fund's exposure to the U.S. market.
At the same time, Funding Circle announced plans to secure additional funding in the U.K. from the British Business Bank. Reports in AltFi in July said Funding Circle planned to cut its U.S. holdings by up to 10 percent, though it wanted to maintain some U.S. exposure to diversify its portfolio.
The latest news suggests the efforts failed to provide the boost to investors the company had hoped, however. The news outlet said shares in the company fell by 7 percent.