alender
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Post by alender on Feb 17, 2016 16:30:05 GMT
You are confusing shareholders and directors, even if the shares are sold then the directors of the PF won't change. The shareholders of the company have no immediate control over the running of the company although I suspect that a few are both directors and shareholders from the guys that originally established the company. Furthermore your comment goes back to the start of this thread and that RS are looking for an independant director to head up the PF company that isn't involved wit hthe running of RS. Correct me if I am wrong but do not the share holders elect and remove the directors, any new owner would certainly do this. All directors of the PF should be independent of RS otherwise there is conflict of interests. There should be legal binding rules in place for the use of the PF funds, otherwise we as investors have no guarantee that the funds will be there when needed.
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Post by westonkevRS on Feb 17, 2016 20:00:39 GMT
Two questions then: 1. Why it is difficult to fund? Just offer a good rate and it will be gone in seconds. Right now, to mop up £1m on the five-year would require 6.7%. To mop up £1.2m would take the ENTIRE market, including 100%. To mop up £2m would take the entire three AND five year markets, including 100%. £2.7m would take all the one, three and five year markets. £3.7m would take all four markets. These bigger loans tend to be shorter in duration, certainly not 3 or 5 years. So the availability of funds is realistically limited to only the monthly and 1-year products. And if we soaked up the entire market, not only would it use up all those 10% plus back markers (making the loan too expensive to be sold) but also nothing for the daily course of business. This 10% is a funding process to improve the network of borrowers and smooth the entire process. Kevin.
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Post by westonkevRS on Feb 17, 2016 20:07:09 GMT
Correct me if I am wrong but do not the share holders elect and remove the directors, any new owner would certainly do this. All directors of the PF should be independent of RS otherwise there is conflict of interests. There should be legal binding rules in place for the use of the PF funds, otherwise we as investors have no guarantee that the funds will be there when needed. There is a search for an independent Director, as outlined in the original blog. Although the other Directors are RateSetter staff (including the co-founders), so perhaps over time this will change. What people must also remember is that if the Provision Fund was depleted or a Resolution Event was called, that would be the probable end of RateSettwr and RMM Ltd. Therefore interests are clearly "aligned". There are "legal binding rules", as its a Ltd company with clear Articles, etc. I'm unsure if the associated documents are with Companies House yet, but they will be with the next annual accounts as they come due. Kevin.
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Post by propman on Feb 18, 2016 8:14:45 GMT
Kevin.I cannot agree that the interests of the investors and RMM are aligned. Investors have options outside RS and so merely want the highest risk adjusted returns. RS wants to grow its business and profitability and avoid the risk of having to cease trading. This means that it is in RMM's interest to offer the minimum returns that sufficient investors will accept to cover the loans it can source. Investors can accept the risk of a resolution event as the price of increased interest while it is in RMM's interest to minimise this risk.I look forward to seeing the articles. Of the many companies I have worked with, I have not seen a company with restrictive articles created after about 1960!
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Post by contangoandcash on Feb 18, 2016 10:39:34 GMT
I've followed this with interest since commenting a couple of days ago. What has probably annoyed many people here is that we are finding out retrospectively exactly how the PF is being utilised. If this had been clearer before, many of us would have felt (and been) more informed about our investment decisions. Everyone here has a different attitude to risk, and many may not have felt that this type of PF was the right backstop before they lock money in for five years. Transparency is key to trust. I wonder how the expected cashsunami when IFISAs arrive will affect this use of the PF. In theory it wouldn't be needed as much, however an ambitious business is likely to chase more, larger loans and the strategy of smoothing markets (lowering rates) with the PF will continue. I think you've summed up quite well the origins of my frustration on this front. I sold out some 5 year, and then began re routing to the monthly which now with hindsight is where I should probably have been in the first place.
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Post by westonkevRS on Feb 18, 2016 10:43:57 GMT
Kevin, if it came to pass that defaults were to rise to a level which was placing abnormal stress on the PF, would the PF continue to be used to fund these large loans if the money was available in it? If the bear poo were to hit the fan within the 90 day repayment period, things could go pear shaped very quickly. Is the using of the PF to fund these loans an automatic computer decision, or is the decision taken at the highest level, and the funding done manually? I doubt it, especially as the 10% is a maximum. If the Provision Fund was depleted this 10% would naturally make the absolute value lower and the need to use the fund rather than markets obselete. This is only for very large loans where we think the markets cannot handle easily the size. I won't go into mandate specific, but you can be sure that loans of this size would never be automated (no property of SME loan is ever automated anyway) and is above any indivudals personal mandate. So it would probably always go to the Credit Committee for approval. Kevin. .
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toffeeboy
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Post by toffeeboy on Feb 18, 2016 10:44:08 GMT
Kevin.I cannot agree that the interests of the investors and RMM are aligned. Investors have options outside RS and so merely want the highest risk adjusted returns. RS wants to grow its business and profitability and avoid the risk of having to cease trading. This means that it is in RMM's interest to offer the minimum returns that sufficient investors will accept to cover the loans it can source. Investors can accept the risk of a resolution event as the price of increased interest while it is in RMM's interest to minimise this risk.I look forward to seeing the articles. Of the many companies I have worked with, I have not seen a company with restrictive articles created after about 1960! I think what Kev was referring to is that it is in the interest of the PF company to have Ratesetter going as without ratesetter then the need for the PF will cease to exist once the loans are all repaid. The reasons for keeping ratesetter going and what they get out of it are different as you say but both are interested in keeping it going as well as possible.
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Post by westonkevRS on Feb 18, 2016 10:48:07 GMT
What has probably annoyed many people here is that we are finding out retrospectively exactly how the PF is being utilised. If this had been clearer before, many of us would have felt (and been) more informed about our investment decisions. This isn't true. The ability to use the Provision Fund to matched large loans for a short time duration is only allowed under the new Ltd company structure of the fund. It wasn't used in this way before, and to date I'm not sure if it has been used in this way. This notification was to be transparent before the event. EDIT: I've had it clarified that the use of the Provision Fund was tested last Autumn '15 when the new Provision Fund was created as a Ltd company. However currently only 0.6% of the Provision Fund is being used to fund loans in their initial period. Kevin.
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Post by westonkevRS on Feb 18, 2016 16:01:37 GMT
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Post by Deleted on Feb 18, 2016 16:20:30 GMT
Glad the issue is getting some publicity. Its pretty annoying to tie up money for 5 years only to see the goalposts shifted like this.
Couple that with the way the PF ratios have been falling recently - headline coverage ratio very, very close to ticking down to a rounded 1.3, for example. Calcs currently show it at 1.351, way down on when I joined.
And now all of a sudden we find that the PF can be used to fund RateSetters own business, thus creating a very unwanted correlation between insurer and insured event in times of stress.
Its not very reassuring at all.
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Post by westonkevRS on Feb 18, 2016 18:20:24 GMT
Here is the full text that RateSetter provided to Altfi for the " online debate" piece: www.altfi.com/article/1750_ratesetter_provision_fund_revelations_spark_online_debate “ We believe in disclosure because all markets grow with transparency, hence why we set out our approach to managing the money in the Provision Fund. The basic approach is to keep the money safe and liquid – using UK bank accounts and fixed term deposits, for example – to ensure the Provision Fund is very well placed to meet its forecast liabilities. We have also, in the last three months, started using a very small amount (currently only 0.6% of the balance) to enable our market to absorb larger loans (such as loans to businesses or for property development), where being able to deliver a large amount of money at a specific point in time is essential. This is temporary funding and we do not intend for it to become permanent because we don’t want a circular reference appearing. This is very important for our market – the ability to approve a loan with confidence is key to its ongoing development – and benefits not only borrowers, but also investors as it helps to deepen and diversify our market.” Background points - We have identified opportunities to make loans to larger SMEs and property developers. This is good for the diversity and depth of the market, and for investors who benefit from the returns from these loans (and also the deeper and more diverse market that results from them). As we have set out in another blog, we tend to take security on these loans. - However, in order to deliver a larger loan at a specific point in time, the funding must be available. We can help to achieve this by using the Provision Fund to temporarily fund all or some of the loan and then it is quickly replaced with investor money. All money must be returned to the Provision Fund within 6 months, but in practice it takes less time. - The alternative would to obtain the funds from elsewhere, which would have a cost. That would mean either a higher APR for the loan (so the risk of becoming uncompetitive) or a lower return for investors. - Right now, 0.6% of the Provision Fund is used for this purpose, although this ebbs and flows, hence the reference to ‘less than 10%’ in our blog."Kevin
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Post by Deleted on Feb 18, 2016 18:36:58 GMT
And that still doesn't explain why that liquidity has to come from the Provision Fund. Other than RateSetters convenience of course.
Dipping into an insurance fund like this to fund new business in the exact products that the insurance is supposed to be insuring against, makes a mockery of the idea of the fund as insurance.
I joined because the Provision Fund was marketed as ringfenced for investor protection. Not a convenient source of funds for RateSetter to dip into when it wants to chase new business.
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jonah
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Post by jonah on Feb 18, 2016 21:04:53 GMT
More to the point, since when was this place called the 'indy'? That wasn't mentioned in my initial guided tour....
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adrianc
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Post by adrianc on Feb 18, 2016 22:51:44 GMT
More to the point, since when was this place called the 'indy'? That wasn't mentioned in my initial guided tour.... Some dodgy Russian was flogging the brand off cheap t'other day.
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pip
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Post by pip on Feb 19, 2016 8:08:45 GMT
Personally I don't like the whole idea of lending to property developers in a big way anyway. If too great a proportion of the loan book is secured against one asset type, then it creates a systemic risk. It also can create a misleading default rate as with such deals the default rate is likely to be 0% in a time of a rising property market, however could rise exponentially in a falling one. I also think it's a bubble waiting to burst but anyway another debate.
I have no idea about the deals but the valuations on some new properties on other sites seem pretty punchy, and I think the new build market (many of the properties I can't justify why are at such a premium to existing stock) may be the first to fall.
In any case sounds like the 3 changes I requested earlier this week are not going to happen, namely 1) no lending to ratesetter loans from provision fund, 2) independent body to call a resolution event and 3) all creditors to be treated equally in resolution event. All of these I see as a must for me, other people can decide for themselves.
This combined with the continued increase in default rate and seemingly relaxation of borrowers accepted (see changes in their average profile) my drawdown of funds continues.
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