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Post by valueinvestor123 on Nov 27, 2019 11:55:50 GMT
The money that is in the cash account (and swept into QAA), where does it go exactly to earn the 4.1% interest rate?
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Post by valueinvestor123 on Nov 27, 2019 12:08:35 GMT
To answer my own question: I see the money is still invested in the loans in the QAA...even if it is in the cash account.
1. How can you still withdraw instantly from the cash account if the monies are stuck in some non performing loans in the QAA? Does it get replaced with somebody else's money?
2. What is the difference between having your money in the QAA vs cash account (but have it swept into the QAA).
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ceejay
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Post by ceejay on Nov 27, 2019 14:35:34 GMT
To answer my own question: I see the money is still invested in the loans in the QAA...even if it is in the cash account. 1. How can you still withdraw instantly from the cash account if the monies are stuck in some non performing loans in the QAA? Does it get replaced with somebody else's money? 2. What is the difference between having your money in the QAA vs cash account (but have it swept into the QAA). 1. Because the access accounts (QAA, 30DAA, 90DAA) maintain a cash pool to provide liquidity "in normal trading conditions" 2. None AFAIK.
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Post by valueinvestor123 on Nov 27, 2019 14:58:27 GMT
1. But how does it work in practice? If I have 5 top loans in QAA where trading is suspended and take all the money out, how is it decided where the money will come from to fill those suspended loans? And isn’t the fact that one is able to take the money out of suspended loans make them...unsuspended?
I never really understood this. Is this still a black box kinda thing where only Assetz know what is really going on?
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dead-money
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Post by dead-money on Nov 27, 2019 15:01:11 GMT
Re point 2.
Cash not swept into the QAA is just that, Cash; so no potential delays due to withdrawal queues or liquidity issues should 'non-normal' trading conditions occur.
I would assume the determination of 'normal market conditions' or not is entirely within Assetz Capital's control just like suspending a loan due to an 'event'.
Basically 'Cash' swept into the QAA does have a liquidity risk.
From the website FAQs
>>
E. Assetz Capital Investment Accounts
What is Assetz Capital’s definition of "Normal Market Conditions"?
“Normal market conditions” means conditions that are broadly what we have at the moment. Economic conditions are reasonably stable, our lenders are making withdrawals from ‘Access Accounts’ (Quick Access, 30 Day Access & 90 Day Access Accounts), in the normal course of business and other lenders are willing and able to buy their loan units through those accounts and others that we offer. Our ‘Access Accounts’ also hold a certain amount of cash “liquid” to help increase the liquidity of withdrawal requests above and beyond normal market supply and demand. So far, all lender withdrawal requests have been carried out when they requested since the accounts opened for investment.
However, past performance doesn’t guarantee future performance and abnormal market conditions could possibly change the speed of withdrawals. Abnormal market conditions would be if there was a very large, sudden and extended demand to withdraw cash from the Access Accounts. This might be caused by a global recession, an abrupt and widespread loss of faith in peer-to-peer lending or a number of other situations. Therefore if a significant number of lenders chose to withdraw their cash in significant quantities and no (or few) new lenders were available to buy their loan parts, conditions would at that point be abnormal and the Access Accounts would not be then able to maintain their current speed of access for withdrawals.
Ultimately this could mean that lenders may have to wait until a buyer could be found for their loans held within the Access Accounts, or until the loans were repaid over time by the borrowers (through monthly repayments made by borrowers or by loans naturally reaching the end of their term for full repayment). The repayment of loans should continue to create some capital which would be available for withdrawal by investors regardless of market conditions being abnormal.
This is the reason that we quote the “in normal market conditions” message everywhere that we refer to Access Account withdrawal times; we can’t guarantee access times in all possible economic scenarios and we want our lenders to understand that.
F. Account Queries
What is the ‘Invest Idle Funds Feature’ and what does it do?
It is a way to earn loan interest on funds that are awaiting investment or sat in your cash account. If you turn it on funds are swept into your Quick Access Account (QAA), up to a maximum of £100,000 (accurate as of November 2019) and will earn loan interest at the rate the QAA is generating. However, if the funds are needed back by the source account, the QAA aims to release them as fast as possible, subject to normal market conditions. Access times cannot be guaranteed.
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r00lish67
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Post by r00lish67 on Nov 27, 2019 15:10:14 GMT
1. But how does it work in practice? If I have 5 top loans in QAA where trading is suspended and take all the money out, how is it decided where the money will come from to fill those suspended loans? And isn’t the fact that one is able to take the money out of suspended loans make them...unsuspended? I never really understood this. Is this still a black box kinda thing where only Assetz know what is really going on? The money comes from the 10% (ish) cash float that is held within the QAA. Let's use a simplified example. 20 lenders lend £50 each in the QAA. So the QAA is £1,000 in total. Assetz invest £900 into various loans, leaving 10% (£100) in cash. This effectively means each investor has £45 in loans and a fiver held in cash. Lender 1 decides to withdraw her £50. It's immediately taken from the cash pool. So, lender 1 gets her cash, whilst the remaining 19 lenders now have to support the £900 worth of lending. As a result, they will now have £47.37 each of loans and just £2.63 in cash. From this point of view, it doesn't really matter whether the loans are suspended or not. If you invest in the QAA, you're going to own some proportion of unsuspended loans, some proportion of suspended loans, and (hopefully) a little spare cash for liquidity. Assetz are still in control of various aspects around this, but that's the basic principle. Challenges may arise of course in the event that liquidity runs dry, or if a high enough proportion of the held loans cease paying interest meaning there's not enough funds to pay out to everyone. That's the risk part of the whole thing.
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Post by valueinvestor123 on Nov 27, 2019 16:30:37 GMT
I realise there is a float. However even a float is still somebody's cash. My question is simply aimed at trying to understand how it is decided whose cash is going to replace the cash that is in the suspended loans (taken out by an investor from the cash account).
Say you are a new investor and just put money into the QAA/Cash (wept into qaa): would you want to know whether your cash is going into suspended loans or would you rather just leave it to the algorithms?
Doesn't it become more like a musical chairs kind of game?
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bg
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Post by bg on Nov 27, 2019 16:35:57 GMT
I realise there is a float. However even a float is still somebody's cash. My question is simply aimed at trying to understand how it is decided whose cash is going to replace the cash that is in the suspended loans (taken out by an investor from the cash account). Say you are a new investor and just put money into the QAA/Cash (wept into qaa): would you want to know whether your cash is going into suspended loans or would you rather just leave it to the algorithms? Doesn't it become more like a musical chairs kind of game? Its everyone's cash. If you withdraw it then everyone's cash balance goes down and loan holdings go up.
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r00lish67
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Post by r00lish67 on Nov 27, 2019 16:38:00 GMT
I realise there is a float. However even a float is still somebody's cash. My question is simply aimed at trying to understand how it is decided whose cash is going to replace the cash that is in the suspended loans (taken out by an investor from the cash account). Say you are a new investor and just put money into the QAA/Cash (wept into qaa): would you want to know whether your cash is going into suspended loans or would you rather just leave it to the algorithms? Doesn't it become more like a musical chairs kind of game? It's all totally equal. We all have the exact same % share of each respective loan that the QAA holds and the exact same % of cash, whether you have a quid in there or a million. If lots of people were to withdraw, then the % of cash would dwindle to zero (for everyone remaining) and we'd be in abnormal market conditions - presumably resulting in the effective suspension of withdrawals from the QAA.
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warn
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Post by warn on Nov 27, 2019 19:44:44 GMT
... What is the difference between having your money in the QAA vs cash account (but have it swept into the QAA). There is a limit of £100,000 swept cash, but you can directly invest £200,000 in the QAA, should that be of other than academic interest.
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Greenwood2
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Post by Greenwood2 on Nov 28, 2019 7:07:35 GMT
I realise there is a float. However even a float is still somebody's cash. My question is simply aimed at trying to understand how it is decided whose cash is going to replace the cash that is in the suspended loans (taken out by an investor from the cash account). Say you are a new investor and just put money into the QAA/Cash (wept into qaa): would you want to know whether your cash is going into suspended loans or would you rather just leave it to the algorithms? Doesn't it become more like a musical chairs kind of game? It does seem a bit bizarre, everyone is invested equally in some suspended loans, but anyone can take their money out with no loss passing a bigger share of the suspended loans to the rest of the lenders. At the end of the day who does take the loss when the suspended loan becomes a default (if it ever does)?
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Post by jonrgrant on Nov 28, 2019 7:30:34 GMT
I expect it’s the same company who manages the loan book and would be making the interest difference between loans of 6% + compared to the investor repayment of 4.1%.
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bigfoot12
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Post by bigfoot12 on Nov 28, 2019 8:49:00 GMT
At the end of the day who does take the loss when the suspended loan becomes a default (if it ever does)? If all goes to plan, the provision fund will take the loss (on the bit of the loan that was in one of the accounts covered). In a sudden downturn/credit crunch/larger default than expected/worse security situation than expected/.... it will be the last ones standing (likely the majority).
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littleoldlady
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Post by littleoldlady on Nov 28, 2019 9:51:13 GMT
2. What is the difference between having your money in the QAA vs cash account (but have it swept into the QAA). AIUI there is a purely psychological difference. Money in Cash not swept should be in a segregated FSCS protected client account instantly available. Money in Cash that is swept into the QAA is invested so not protected by FSCS and liable to be frozen in abnormal market conditions and so is barely distinguishable from money in the QAA. But it just feels safer in Cash. The FCA may put a stop to this eventually if they consider it is not properly understood by investors. Also under the T&C swept money cannot be transferred out of an ISA, however in practice they seem currently to be allowing it. This would change in difficult market conditions.
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sl75
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Post by sl75 on Nov 28, 2019 14:01:44 GMT
Also under the T&C swept money cannot be transferred out of an ISA, however in practice they seem currently to be allowing it. This would change in difficult market conditions. My understanding would be that swept money indeed cannot be transferred out.
However, under "normal market conditions" the swept money can be liquidated in the blink of an eye to cash which can be transferred out... so as long as "normal market conditions" are still in effect at the time the application is being processed, there's no good reason AC admin staff shouldn't just liquidate it for you at that time.
In the event that the QAA is not liquid at the time an application to transfer an ISA out is processed, they would presumably need to rely on that part of the T&Cs in order to reject the transfer application (whilst still being able to process applications from others who had the necessary amount held as actual cash).
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