Post by james on Jan 31, 2016 22:35:02 GMT
I agree that platform risk is a factor but I think that at least for the smaller platforms that I would suggest the risk-reward balance is reasonable. It also seems likely that some of those are profitable, while we know that the oldest big platform isn't yet.
Small isn't necessarily bad because it can imply that it can be maintained at a hobby level for loan runoff, particularly if the loans are short term, which might allow just funding for the runoff period as an ongoing business. Or just buying out all investors to close at the tiny end. Potential for debt collection costs would be a factor to consider here.
Particularly for newer platforms I'm not greatly concerned about profitability because it's expected that a new platform will not initially be profitable, as with most new businesses. At some point that would transition to a concern that new funding sufficient to keep the platform operating, or changes to charges, could not be found to keep it as a sustainable business. In this area it's also of interest that some of the platforms typically offer loan durations in the six months sort of range, or a year. That gives relatively easy exit options even without secondary market use, though perhaps not for defaulted loans, as well as an easy strategy for platform windup.
A further concern would be a platform requiring more external funding but which is not showing sustained growth, a combination that would look bad to VCs and which may prompt major cost-cutting, a decision to terminate the business, or some combination like cutting new sales activity and starting loan runoff as the only ongoing activity. In such a case the VCs might instead use any contractual right to buy in all loans and take the revenue until complete runoff as their potential gain or loss reduction, at lower ongoing cost than maintaining any services to lenders.
There is one platform, not in the UK, where I have decided that I do not trust the combination of funding, loan volume trends and general conduct and where I am in general targeting an end to my lending at no more than original loan term. It's now less than a year until I expect to be cashflow positive (withdrawn above paid in) neutral but 80%+ capital runoff is a few years away.
For a person who wants some provision of capital flexibility but who like you prefers the lower paying platforms, I think it's still reasonable to determine some amount that is designated for flexible access and use the 12% or so platforms that have cheap secondary markets to deliver that flexibility, without interest rate cost. If the desire is say 10% of flexible capital it's not a particularly unpleasant event if it's spread over say three platforms and one fails even with 100% loss, unlikely though that is. Of course, given more time, a bond ladder can be constructed at the lower paying platform that you prefer, so this might be a transient stage if that is desired.
Ultimately we each have to decide on our own preferred balance. In this case I'm content with it and you're not but I think we do at least agree that bond ladders beat short term investment rates at some low paying platforms unless very high proportions of the capital have to be made available short term?
Small isn't necessarily bad because it can imply that it can be maintained at a hobby level for loan runoff, particularly if the loans are short term, which might allow just funding for the runoff period as an ongoing business. Or just buying out all investors to close at the tiny end. Potential for debt collection costs would be a factor to consider here.
Particularly for newer platforms I'm not greatly concerned about profitability because it's expected that a new platform will not initially be profitable, as with most new businesses. At some point that would transition to a concern that new funding sufficient to keep the platform operating, or changes to charges, could not be found to keep it as a sustainable business. In this area it's also of interest that some of the platforms typically offer loan durations in the six months sort of range, or a year. That gives relatively easy exit options even without secondary market use, though perhaps not for defaulted loans, as well as an easy strategy for platform windup.
A further concern would be a platform requiring more external funding but which is not showing sustained growth, a combination that would look bad to VCs and which may prompt major cost-cutting, a decision to terminate the business, or some combination like cutting new sales activity and starting loan runoff as the only ongoing activity. In such a case the VCs might instead use any contractual right to buy in all loans and take the revenue until complete runoff as their potential gain or loss reduction, at lower ongoing cost than maintaining any services to lenders.
There is one platform, not in the UK, where I have decided that I do not trust the combination of funding, loan volume trends and general conduct and where I am in general targeting an end to my lending at no more than original loan term. It's now less than a year until I expect to be cashflow positive (withdrawn above paid in) neutral but 80%+ capital runoff is a few years away.
For a person who wants some provision of capital flexibility but who like you prefers the lower paying platforms, I think it's still reasonable to determine some amount that is designated for flexible access and use the 12% or so platforms that have cheap secondary markets to deliver that flexibility, without interest rate cost. If the desire is say 10% of flexible capital it's not a particularly unpleasant event if it's spread over say three platforms and one fails even with 100% loss, unlikely though that is. Of course, given more time, a bond ladder can be constructed at the lower paying platform that you prefer, so this might be a transient stage if that is desired.
Ultimately we each have to decide on our own preferred balance. In this case I'm content with it and you're not but I think we do at least agree that bond ladders beat short term investment rates at some low paying platforms unless very high proportions of the capital have to be made available short term?
