Strong start for new Fintech fund

Augmentum Fintech’s (LON: AUGM) portfolio of unquoted, early stage Fintech businesses has risen by an impressive 10.7% during its first year, with the managers looking to take advantage of a healthy pipeline of new opportunities.

The fund was founded by Tim Levene and Richard Matthews and benefits from an advisory panel that includes Ed Wray, the co-founder of Betfair. They have a strong track record in fintech investments, with the plan being to return up to 50% of gains on disposal, annually, through tender offers or special dividends.

During the first year, the managers assessed over 675 potential opportunities, of which they invested in just 9, as well as participating in further fundraising rounds for the holdings in their initial seed portfolio that was acquired after the IPO in March 2018.

Exciting investments

Augmentum has some exciting investments that include Zopa, one of Europe’s leading P2P consumer lending platforms, which is well on the way to launching a next generation bank alongside its peer-to-peer business.

There is also the retail stockbroker Interactive Investor that following a number of acquisitions will soon become the second biggest direct to consumer platform in the country after Hargreaves Lansdown.

The largest of the new investments made during the year was iwoca, a challenger SME lender, which was closely followed by Monese that mainly provides banking services to those who work abroad and need a local bank account.

Another fascinating position is the holding in Onfido, a business which uses Artificial Intelligence based technology to assess whether a user’s government-issued ID is genuine or fraudulent, and then compares it against their facial biometrics.

There is also Farewill, an online platform that offers legal services, principally wills; and Unmortgage, which targets people in the UK who can afford to rent, but who want to own, through part ownership with as little as a 5% deposit.

Record year for fintech investment

2018 was a record year for fintech investment with nearly $40bn invested globally. The UK remains the dominant market in Europe, receiving $1.7bn across approximately 300 Venture Capital deals.

Areas that the fund invests in such as challenger banks and alternative lenders are gaining ground, but there is a massive opportunity with the big six UK banks still holding 87% market share in 2017.

At the end of March, Augmentum had net cash of £25m, equivalent to 24% of net assets, of which £15m is earmarked for follow-on opportunities within the existing portfolio. It is also seeking to raise a further £30m via a placing of new shares to fund a near-term pipeline of 9 opportunities. The fund currently has total assets of £103m with the shares trading on a 3% premium to NAV.

The broker Numis says that Augmentum has a unique mandate among London-listed funds, and appears well-placed to exploit the rapid growth potential among European fintech companies, which are seeking to disrupt the business models of traditional banking and financial services. They regard the management team highly and believe that the fund is an attractive long-term investment.