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Post by gemstone on May 28, 2018 1:14:10 GMT
I'm relatively new to AC (about 12 months) and a moderate four fig slice of GBBA1 was one of my initial investments. Rather than simple capping GBBA1 for new investment, AC now seems to be active in running down that fund quickly rather than letting it expire at the rate determined by the repayment of the GBBA1 portfolio of loans. So, if these sell-offs are being bought up by AC for GBBA2 at a reduction on return to lenders 0.75% and with no change in the loan risk profiles, the questions are are 'Why?' and 'To the benefit of whom?' and (IMHO) need answering. The AC explanation that it can no longer write business at rates that can support a 7.00% return to lenders in a managed fund can hold up only for the writing of new loans; it can't hold up for the down-grading of return to lenders on business already in place.
I have to find an appreciably better gross rate of return on investment than 6.25% to invest much further through AC. Thus far, I have been doing this through selective secondary market investment on AC but is seems clear that I now have slices in the AC loans that appeal to me and that at least some of the further money I expect to be investing through p2p will have to go through some other platform. Meantime, 4.1 - 5.1% return on cash-at-bank looks attractive - so long as there's no run on the bank ;-)
My apologies if these points have already been asked and answered. The rather cryptic thread titles used here makes it easy for an old man to miss something of interest.
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dave2
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Post by dave2 on May 28, 2018 17:20:53 GMT
Agreed.
GBBA1 was also my first investment.
I invested £2,000, followed what loans were being purchased by the GBBA, selected loans that I liked, and used that as my starting point for building an MLIA loan portfolio.
My intention was to let the GBBA1 run down naturally, sad that Assetz now seems to be buying back good loan parts.
My book-keeping has become a pain in the ass recently with all the exchange transactions going through, that is another reason I would never invest in GBBA2.
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Post by chris on May 28, 2018 18:53:05 GMT
If the GBBA1 is actively selling then it is because the loan no longer matches the mandate, perhaps due to a shift in LTV after a subsequent draw or sale of some security. If the GBBA2 is buying it then it's because the loan matches the mandate.
There is no active program of selling from one to the other and no code in place to explicitly cause that effect beyond the mandate system mentioned above.
As for "to the benefit of whom?", AC doesn't make any more or less money from any investment account's investments. Our margin is charged to the borrower and any difference in rate between the MLA rate and an investment account's rate will be paid straight to the provision fund.
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Post by gemstone on May 29, 2018 11:47:00 GMT
Thanks for the helpful response, Chris. As intimated, I have no holding of GBBA2 and thus am unable to make a direct observation myself. My post was prompted by the claim by others that ththey have found quantities of what were once GBBA1 loans appearing on the GBBA2 account. For myself, I see only a fairly sharp rundown of the value of my GBBA1 portfolio (by 28% to date), but that might result from other causes entirely, I accept.
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jayjay
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Post by jayjay on May 29, 2018 12:55:22 GMT
From personal observation I would say that the withdrawal of eligibility for GBBA1 is aggressive. My small amount in GBBA1 left at its closure has gone down by almost 50% in a few months because of enforced sales. GBBA2 to my observation has no such parallel activity.
It is clear that AC does not directly benefit from this. However they reduced the rate because there were not enough loans to maintain margins for bad debt provision etc in GBBA1. It follows that margins are still very tight and the easiest way to rectify this, is to aggressively tighten up eligibility criteria.
It is one of the reasons I do not invest more than a token amount in these accounts - another AC black box.
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Post by chris on May 29, 2018 15:48:07 GMT
jayjay - eligibility criteria for those accounts have not changed recently, certainly not this year.
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jayjay
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Post by jayjay on May 29, 2018 21:06:03 GMT
jayjay - eligibility criteria for those accounts have not changed recently, certainly not this year. I am not sure I fully understand the difference between 'matching the mandate' and 'eligibility'. What I have observed is a massive forced sell down of my GBBA1 holdings, which were all on 7%. Is it because I had reinvest set to 'withdraw'? I had £360 in the account when it closed to new money. I now have £193 and have requested no sales of my holdings.
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dave2
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Post by dave2 on May 30, 2018 4:58:42 GMT
My MLIA GBBA1 total investment held fairly steady until mid April after which it started to reduce slowly.
There has been a 33% reduction in the total amount invested in my GBBA1 since the start of May.
What I don't understand fully is the mechanism behind Exchange transactions. Why for example: In one (random) example of this:
During May my overall holding of 544 reduced by £156, there were £258 of sales, and £102 of exchanges back into the loan, hence £102 worth of other loans were sold via the mechanism of exchanging into 544, supposedly to balance my MLIA GBBA1.
Edit: This was of course my GBBA1 account
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Post by chris on May 30, 2018 6:15:44 GMT
jayjay - eligibility criteria for those accounts have not changed recently, certainly not this year. I am not sure I fully understand the difference between 'matching the mandate' and 'eligibility'. What I have observed is a massive forced sell down of my GBBA1 holdings, which were all on 7%. Is it because I had reinvest set to 'withdraw'? I had £360 in the account when it closed to new money. I now have £193 and have requested no sales of my holdings. I don't know the details of your account but it's more likely that a couple of loans that you happened to be heavily invested in have drifted outside the mandate for the account. With the way the GBBA1's LTV calculation was set up there are some loans that initially match the criteria but over time as subsequent draws are made the LTV slips outside the bounds for the account and the account then automatically sells out of them. I'm personally responsible for the code that tells the system which loans are suitable for each account and I can categorically state there has been no change to that code this year, no change last year beyond a couple of tiny parameter tweaks, and that there is no forced sale or conscious decision from AC to make the system sell out of GBBA1 loans.
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Post by chris on May 30, 2018 6:17:13 GMT
My MLIA total investment held fairly steady until mid April after which it started to reduce slowly.
There has been a 33% reduction in my MLIA amount invested since the start of May.
What I don't understand fully is the mechanism behind Exchange transactions. Why for example: In one (random) example of this:
During May my overall holding of 544 reduced by £156, there were £258 of sales, and £102 of exchanges back into the loan, hence £102 worth of other loans were sold via the mechanism of exchanging into 544, supposedly to balance my MLIA.
The MLA does not partake in the diversification algorithm that exchanges loan units, it only responds to your explicit instructions. Did you mean the MLA?
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dave2
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Post by dave2 on May 30, 2018 7:43:18 GMT
The MLA does not partake in the diversification algorithm that exchanges loan units, it only responds to your explicit instructions. Did you mean the MLA? It was of course my GBBA1 account. Edited and corrected.
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Post by chris on May 30, 2018 8:11:02 GMT
In which case it's likely that the loan fell outside the lending criteria for the GBBA1 and was being sold. When it's sold the market will sell as it can so success at selling will likely be asymmetric, with some lenders being able to sell more than others. The diversification algorithm then sets to work rebalancing each lender's account so that holdings are broadly in line with each other.
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dave2
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Post by dave2 on May 30, 2018 9:13:37 GMT
In which case it's likely that the loan fell outside the lending criteria for the GBBA1 and was being sold. When it's sold the market will sell as it can so success at selling will likely be asymmetric, with some lenders being able to sell more than others. The diversification algorithm then sets to work rebalancing each lender's account so that holdings are broadly in line with each other. Assuming that the loan (XYZ) is being sold because it falls outside the lending criteria for GBBA1.
And that the diversification algorithm is then allowing loans that fall within the lending criteria to be exchanged for (into) that same loan (XYZ) which is outside the lending criteria ?
Then that could well explain the faster than expected decrease in value of certain GBBA accounts, as noticed by myself and others.
Holding of any loans outside the lending criteria required by the GBBA1 would allow the exchange transaction to effectively suck other loans that do fall within the lending criteria out of the account, as per the example in my last post.
Interesting stuff.
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sl75
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Post by sl75 on May 31, 2018 8:23:35 GMT
In which case it's likely that the loan fell outside the lending criteria for the GBBA1 and was being sold. When it's sold the market will sell as it can so success at selling will likely be asymmetric, with some lenders being able to sell more than others. The diversification algorithm then sets to work rebalancing each lender's account so that holdings are broadly in line with each other.So the bug is that the diversification algorithm is including loans that are ineligible for the account, thereby forcing users to accept ineligible loans in exchange for part of their eligible holding. If the account will refuse to exchange cash for a loan (because it is ineligible) it should certainly refuse to exchange an eligible loan for it. Sounds like it should be a relatively simple fix - have the diversification algorithm only consider loans which are still eligible for the account, and/or skip over any that are ineligible.
Imperfect analogy time...
Suppose that a new law is passed so that all new rental cars must meet newly-defined emissions targets, and rental companies cannot acquire any vehicles for their fleet that do not meet the new target. They're also expected to sell off the models in their old fleet that don't meet the new targets. The strong demand for new cars meeting those targets means they're hard to get, so rental companies have uninvested cash waiting for suitable new vehicles to acquire. It has also been established as common practice for the companies to swap vehicles over where one rental company has too many of a particular model and another has too many of a different model.
One company has been unusually successful in selling off their old fleet (and most job titles in the following are for roles within that company) - their buyer has a large wad of cash and is out trying to source new cars, and their marketing director is preparing the new advertising to highlighting their green credentials in being the first rental company whose fleet fully meets the new emissions targets, but just as he lines up the cars for the marketing shot, he sees an old car not meeting the new standards there. Angry phone calls to the seller ensue, who apologises, figuring he must have missed one, but being such a good seller quickly manages to sell off the old car, and passes even more money to their buyer... The next night, the security cameras pick up someone coming in and switching out one of the cars for an old one.
The general manager gets on the phone to the other company, pointing out that the government rules do not allow him to acquire that car, so asking them to reverse the transaction. However, the boss of the other company says "can't do that - we've got so many of those old cars we're even calling the car-swapping agency to find us suitable replacements", and points them to the last version of the agreement which was written before the new government rules, so didn't differentiate between compliant and non-compliant cars. Naturally the moment the seller notices this non-compliant car in the car park he gets to work selling it, but despite the buyer managing to pick up one or two new cars, there are a lot of empty parking spaces where their should be cars.
The next night the general manager asked security to do an extra shift and guard the lot. Sure enough, another competitor comes along with one of their surplus non-compliant cars. The security guard tries to turn them away, and even calls the police, but the moment the police see the car-swapping contract they say that this is a legal agreement and that the competitor company has every right to enforce that contract... despite being called out of bed at an ungodly hour to deal with it, the general manager can do nothing at that time. Of course, the seller will immediately be set to work trying to sell it... maybe he'll succeed today too in order to repeat the scenario the next night?
However, the general manager gets in touch with a lawyer and calls the head of the trade association who put the car sharing agreement together - his lawyer argues that because all cars were eligible at the time the agreement was drafted, the agreement should only be enforced for eligible cars. Even if the head of the trade association agrees, he still needs to put a memo out to communicate this to the agency workers who physically do the swapping. In the meantime, the general manager tries to figure out how to arrange his fleet so that the agency workers won't consider any of the few remaining cars to be eligible for swapping out... he's particularly worried about the shiny new car his buyer just managed to pick up which is the same model as the one he parked it next to.
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SteveT
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Post by SteveT on May 31, 2018 8:31:30 GMT
In which case it's likely that the loan fell outside the lending criteria for the GBBA1 and was being sold. When it's sold the market will sell as it can so success at selling will likely be asymmetric, with some lenders being able to sell more than others. The diversification algorithm then sets to work rebalancing each lender's account so that holdings are broadly in line with each other. Leading to more howls of protest from GBBA lenders whose accounts are overweight in a loan now deemed ineligible ... Anyone who opts to lend via the GBBA really has to come to terms with the fact that it's a black box account with a provision fund. If you don't trust that the provision fund will be able to cover any future losses (whichever loans you're invested in) then you really shouldn't be using the GBBA. Pick your own loans via the MLA instead and "self-insure" by mentally reserving a portion of the interest you receive against future bad debts. Same goes for the QAA / 30DAA, by the way.
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