Ukmikk
Member of DD Central
Posts: 445 
Likes: 298
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Post by Ukmikk on Apr 13, 2017 10:01:18 GMT
Hello,
I have recently created an account and added 2 tranches of cash to LW, 2k + 3k one week apart, and waited patiently for funds to be loaned out. My expectation was that once I reached the front of the queue my cash would be diversified across a number of loans.
I have now has some funds loaned out, but I'm confused about the 'on loan' information I'm being given, which begins with this statement; "To mitigate risk, your money is lent to various borrowers in individual chunks. Below are the details of all your loan chunks. ".
However I have only 2 'loan chunks' listed, both at £1,700, each taken from one of the two deposits made. (The remainder is still not loaned out despite being at the front of the queue for several days now, which is odd.) Do these chunks consist of a number of parts of different loans or am I invested in only 2 individual loans which seems to contradict the statement above and is not what I would expect in terms of risk mitigation? It appears I have invested £3.4k in just 2 loans, not something I feel comfortable with.
I emailed LW to query this but received the following reply; "The aim of the algorithm used, is to allocate your money across multiple loans. However, in some occasions the algorithm may be allocating slightly larger chunks of money to one borrower. For example; If £25,000.00 is borrowed by one individual and then split across 25 lenders, then the algorithm has still diversified the amount being borrowed by one individual."
This response seems to suggest that the algorithm has diversified funds for the borrower, which is of course irrelevant. I replied accordingly but am yet to hear back from LW.
As a lender, should I reasonably expect my funds to be diversified across different loans or are my expectations misplaced? What are the experiences of other investors on this site? Maybe the LW rep could comment please?
Thanks in anticipation.
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theshape
Member of DD Central
Posts: 153
Likes: 109
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Post by theshape on Apr 13, 2017 10:45:37 GMT
I've found that loans have not been split between very many loans on LW. My initial deposit of £100 was split in 3 with £34 the largest chunk. A subsequent deposit of £1500 was also only split 3 ways resulting in two loan chunks of £500+. I think the only way to avoid this is to drip-feeding smaller deposits. Got my fingers crossed that the borrower keeps up repayments over the three year term.
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Post by Matthew on Apr 13, 2017 16:35:26 GMT
Hello,
I have recently created an account and added 2 tranches of cash to LW, 2k + 3k one week apart, and waited patiently for funds to be loaned out. My expectation was that once I reached the front of the queue my cash would be diversified across a number of loans.
I have now has some funds loaned out, but I'm confused about the 'on loan' information I'm being given, which begins with this statement; "To mitigate risk, your money is lent to various borrowers in individual chunks. Below are the details of all your loan chunks. ".
However I have only 2 'loan chunks' listed, both at £1,700, each taken from one of the two deposits made. (The remainder is still not loaned out despite being at the front of the queue for several days now, which is odd.) Do these chunks consist of a number of parts of different loans or am I invested in only 2 individual loans which seems to contradict the statement above and is not what I would expect in terms of risk mitigation? It appears I have invested £3.4k in just 2 loans, not something I feel comfortable with.
I emailed LW to query this but received the following reply; "The aim of the algorithm used, is to allocate your money across multiple loans. However, in some occasions the algorithm may be allocating slightly larger chunks of money to one borrower. For example; If £25,000.00 is borrowed by one individual and then split across 25 lenders, then the algorithm has still diversified the amount being borrowed by one individual."
This response seems to suggest that the algorithm has diversified funds for the borrower, which is of course irrelevant. I replied accordingly but am yet to hear back from LW.
As a lender, should I reasonably expect my funds to be diversified across different loans or are my expectations misplaced? What are the experiences of other investors on this site? Maybe the LW rep could comment please?
Thanks in anticipation. Hi UkmikkThanks for your question. The number of loans to which your funds are assigned depends primarily on your overall account value. Generally, you will initially be matched with 3-5 loans for average account sizes. Larger account sizes are typically matched with a much greater number of loan chunks. Reinvested repayments become new loans so after a period of say 12 months you'll typically have many, many smaller chunks in your portfolio (the average number of loan chunks per lender is currently 87). The statement at the top of your loan portfolio is slightly unhelpful in that the diversification on LW consists of three parts, one of which being the number of individual loan chunks you hold. The second and most important layer comes via the Lending Works Shield, which would pay out whether you've got 1 chunk of £1,000 or 100 chunks of £10. Thirdly, if the Shield ever became depleted to such an extent that it was unable to compensate lenders for missed payments on their loans, a pooling event may be declared which would allow participating lenders to share losses pro-rata to their investment value, thus providing diversification across the entire participating loan book. Regarding the amount not loaned out despite being at the front of the queue - that sounds strange. If you'd like to DM me or email cs@lendingworks.co.uk we can look into that for you. The chunks you see in your portfolio are just that (they are not broken down further). In terms of the response you received, the matching algorithm is not seeking to diversify from the borrower perspective - perhaps this could have been explained better. Hope this helps.
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Post by Matthew on Apr 13, 2017 16:37:58 GMT
Got my fingers crossed that the borrower keeps up repayments over the three year term. Hi theshapeAs above - the Shield's objective is to ensure lenders are not negatively impacted by individual missed payments/defaults on their loans. It's important to note that it cannot provide a guarantee, but since LW's launch in January 2014 every capital and interest payment has been made to lenders as expected.
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Post by Deleted on Apr 13, 2017 18:02:14 GMT
So LW isn't diversifying like Zopa where lenders' money is diversified into £10 chunks (as far as I understand)?
That sounds odd, although if losses are spread across all lender accounts anyway by the shield (?) I suppose it works out?
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Post by dan1 on Apr 13, 2017 18:13:36 GMT
So LW isn't diversifying like Zopa where lenders' money is diversified into £10 chunks (as far as I understand)? That sounds odd, although if losses are spread across all lender accounts anyway by the shield (?) I suppose it works out? LW operates in a similar way to RS in that lenders may lend to relatively few borrower(s). LW also has borrower insurance for certain risks (redundancy, illness).
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Ukmikk
Member of DD Central
Posts: 445
Likes: 298
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Post by Ukmikk on Apr 14, 2017 10:17:29 GMT
Hello,
I have recently created an account and added 2 tranches of cash to LW, 2k + 3k one week apart, and waited patiently for funds to be loaned out. My expectation was that once I reached the front of the queue my cash would be diversified across a number of loans.
I have now has some funds loaned out, but I'm confused about the 'on loan' information I'm being given, which begins with this statement; "To mitigate risk, your money is lent to various borrowers in individual chunks. Below are the details of all your loan chunks. ".
However I have only 2 'loan chunks' listed, both at £1,700, each taken from one of the two deposits made. (The remainder is still not loaned out despite being at the front of the queue for several days now, which is odd.) Do these chunks consist of a number of parts of different loans or am I invested in only 2 individual loans which seems to contradict the statement above and is not what I would expect in terms of risk mitigation? It appears I have invested £3.4k in just 2 loans, not something I feel comfortable with.
I emailed LW to query this but received the following reply; "The aim of the algorithm used, is to allocate your money across multiple loans. However, in some occasions the algorithm may be allocating slightly larger chunks of money to one borrower. For example; If £25,000.00 is borrowed by one individual and then split across 25 lenders, then the algorithm has still diversified the amount being borrowed by one individual."
This response seems to suggest that the algorithm has diversified funds for the borrower, which is of course irrelevant. I replied accordingly but am yet to hear back from LW.
As a lender, should I reasonably expect my funds to be diversified across different loans or are my expectations misplaced? What are the experiences of other investors on this site? Maybe the LW rep could comment please?
Thanks in anticipation. Hi Ukmikk Thanks for your question. The number of loans to which your funds are assigned depends primarily on your overall account value. Generally, you will initially be matched with 3-5 loans for average account sizes. Larger account sizes are typically matched with a much greater number of loan chunks. Reinvested repayments become new loans so after a period of say 12 months you'll typically have many, many smaller chunks in your portfolio (the average number of loan chunks per lender is currently 87). The statement at the top of your loan portfolio is slightly unhelpful in that the diversification on LW consists of three parts, one of which being the number of individual loan chunks you hold. The second and most important layer comes via the Lending Works Shield, which would pay out whether you've got 1 chunk of £1,000 or 100 chunks of £10. Thirdly, if the Shield ever became depleted to such an extent that it was unable to compensate lenders for missed payments on their loans, a pooling event may be declared which would allow participating lenders to share losses pro-rata to their investment value, thus providing diversification across the entire participating loan book. Regarding the amount not loaned out despite being at the front of the queue - that sounds strange. If you'd like to DM me or email cs@lendingworks.co.uk we can look into that for you. The chunks you see in your portfolio are just that (they are not broken down further). In terms of the response you received, the matching algorithm is not seeking to diversify from the borrower perspective - perhaps this could have been explained better. Hope this helps. Hi Matthew , Thank you for your reply, which is more coherent than your support desk managed. At least I now understand what is happening, although I cannot agree that the shield counts as 'diversification' and indeed this strategy means that lenders are heavily dependant on the shield in the event of a default, which as you have pointed out is not guaranteed. I think you should consider re-wording your statement at the top of the loans page to clarify that loan chunks are not diversified. Even better explain this on your 'how it works' pages so as to manage the expectations of potential investors such as myself. I am planning further investment but my strategy for doing so will now be revised in light of this information, more along the lines of smaller amounts as suggested by theshape , which is less convenient for me and more of an admin burden for yourselves (multiple ISA transfers). Re my remaining deposit, some of this has now been lent and the remainder is now showing as matched, again (it has been before but returned to next day), so hopefully will be finally lent out next week. If it is not I will get in touch. Finally, I appreciate your input here on the forum Matthew, but have been disappointed with the customer support received. It was 2 days to answer my question and even then was unsatisfactory, clearly did not address the question and ignored the second part of the query entirely. Thus far I have not even received any response to my follow up. Hopefully you are in a position to feed this back to the relevant area with suggestions for improvement. Kind regards and a very Happy Easter.
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Ukmikk
Member of DD Central
Posts: 445
Likes: 298
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Post by Ukmikk on Apr 14, 2017 10:22:19 GMT
I've found that loans have not been split between very many loans on LW. My initial deposit of £100 was split in 3 with £34 the largest chunk. A subsequent deposit of £1500 was also only split 3 ways resulting in two loan chunks of £500+. I think the only way to avoid this is to drip-feeding smaller deposits. Got my fingers crossed that the borrower keeps up repayments over the three year term. Thanks for your reply, which confirms my experience is not unique. Cheers.
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Ukmikk
Member of DD Central
Posts: 445
Likes: 298
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Post by Ukmikk on Apr 20, 2017 8:33:05 GMT
Update; my remaining deposit has finally been lent out. My initial £5k deposit split over 4 loans.
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morris
Member of DD Central
Posts: 261
Likes: 149
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Post by morris on Apr 21, 2017 6:50:27 GMT
I had a £5,000 deposit a couple of months ago which went entirely into one loan.
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Post by Matthew on Apr 21, 2017 8:15:21 GMT
Hi Ukmikk Thanks for your question. The number of loans to which your funds are assigned depends primarily on your overall account value. Generally, you will initially be matched with 3-5 loans for average account sizes. Larger account sizes are typically matched with a much greater number of loan chunks. Reinvested repayments become new loans so after a period of say 12 months you'll typically have many, many smaller chunks in your portfolio (the average number of loan chunks per lender is currently 87). The statement at the top of your loan portfolio is slightly unhelpful in that the diversification on LW consists of three parts, one of which being the number of individual loan chunks you hold. The second and most important layer comes via the Lending Works Shield, which would pay out whether you've got 1 chunk of £1,000 or 100 chunks of £10. Thirdly, if the Shield ever became depleted to such an extent that it was unable to compensate lenders for missed payments on their loans, a pooling event may be declared which would allow participating lenders to share losses pro-rata to their investment value, thus providing diversification across the entire participating loan book. Regarding the amount not loaned out despite being at the front of the queue - that sounds strange. If you'd like to DM me or email cs@lendingworks.co.uk we can look into that for you. The chunks you see in your portfolio are just that (they are not broken down further). In terms of the response you received, the matching algorithm is not seeking to diversify from the borrower perspective - perhaps this could have been explained better. Hope this helps. Hi Matthew , Thank you for your reply, which is more coherent than your support desk managed. At least I now understand what is happening, although I cannot agree that the shield counts as 'diversification' and indeed this strategy means that lenders are heavily dependant on the shield in the event of a default, which as you have pointed out is not guaranteed. I think you should consider re-wording your statement at the top of the loans page to clarify that loan chunks are not diversified. Even better explain this on your 'how it works' pages so as to manage the expectations of potential investors such as myself. I am planning further investment but my strategy for doing so will now be revised in light of this information, more along the lines of smaller amounts as suggested by theshape , which is less convenient for me and more of an admin burden for yourselves (multiple ISA transfers). Re my remaining deposit, some of this has now been lent and the remainder is now showing as matched, again (it has been before but returned to next day), so hopefully will be finally lent out next week. If it is not I will get in touch. Finally, I appreciate your input here on the forum Matthew, but have been disappointed with the customer support received. It was 2 days to answer my question and even then was unsatisfactory, clearly did not address the question and ignored the second part of the query entirely. Thus far I have not even received any response to my follow up. Hopefully you are in a position to feed this back to the relevant area with suggestions for improvement. Kind regards and a very Happy Easter. Thanks for your note above and I apologise for my delayed response - I've only just seen your post. Thank you for the feedback and please accept my apologies that your interaction with our customer service team was not satisfactory. I will catch up internally and feed back your comments to establish how this query could have been handled differently. As always, I'm happy to help with any general queries so feel free to contact me if needed.
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