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Post by aroominyork on Aug 4, 2019 8:54:30 GMT
I’m trying to understand AC’s provision fund, especially on the 30 day access account. If this is explained elsewhere please direct me to that thread. AC posts the expected loss of 0.48% and, if I understand correctly, says the PF has that covered 5.32 times. Does that mean the PF could cover interest and capital losses up to 0.48 * 5.32 = 2.55% of loans made? Also, how does that compare (my maths has got stuck here) to Ratesetter’s PF currently having 121% interest coverage and 249% capital coverage? What does AC do if the PF is eroded or at risk or being eroded? RS will apply a haircut to interest and then capital (rather than instituting a pooling event as pre-2017) – what is AC’s approach? Many thanks. |
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Post by davee39 on Aug 4, 2019 9:46:10 GMT
The PF is very different to RS.
All lenders are allocated an equal share of defaulted loans, so the accounts can operate as long as money coming in matches that going out, together with cash reserves. It can take many years for recoveries on defaulted loans, the use of the provision fund is unclear.
The crunch will come when withdrawal requests exceed available resources, this will be counted as abnormal market conditions and I would expect the accounts to be frozen until the liquidity position can be corrected. There may then be haircuts applied equally across all lenders.
I do not bother with the maths. You need to consider the possible effects of an economic downturn, your appetite for risk and the possibility funds will be frozen.
I am 100% in quick access (other than my golf course holding in GBBA1) and am slowly reducing exposure.
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Post by aroominyork on Aug 4, 2019 10:46:43 GMT
Thanks. So is AC, where loans are pooled, less predictable in a downturn than RS where I am matched to loans with fixed end dates (I am in the one year market) and where, in theory, my investment would be paid back by term but may have suffered a haircut?
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Post by Harland Kearney on Aug 4, 2019 14:00:13 GMT
Thanks. So is AC, where loans are pooled, less predictable in a downturn than RS where I am matched to loans with fixed end dates (I am in the one year market) and where, in theory, my investment would be paid back by term but may have suffered a haircut? Supposdely, its for AC to answer. In my oppuion, invest in the platform you feel has the highest chance of surviring a economic downtown. History has told us that platform risk is greater than indivdial loans or account types at this point. AC QAA, is very helpful yes. But if the website is locked one morning with no prior warning (COL); then don't matter if the withdrawal time is 1 second or 90 days. We all locked in.
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p2pfan
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Post by p2pfan on Aug 4, 2019 23:00:27 GMT
Thanks. So is AC, where loans are pooled, less predictable in a downturn than RS where I am matched to loans with fixed end dates (I am in the one year market) and where, in theory, my investment would be paid back by term but may have suffered a haircut? Supposdely, its for AC to answer. In my oppuion, invest in the platform you feel has the highest chance of surviring a economic downtown. History has told us that platform risk is greater than indivdial loans or account types at this point. AC QAA, is very helpful yes. But if the website is locked one morning with no prior warning (COL); then don't matter if the withdrawal time is 1 second or 90 days. We all locked in. Sage and sensible advice. It's difficult for a mere outside P2P lender to be able to make a meaningful deduction of whether a platform will "do a Lendy" i.e. fail. One key metric would be if the platform has generated a net profit for a sustained period of time. Anybody know if that is the case with AC?
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ashtondav
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Post by ashtondav on Aug 5, 2019 7:36:00 GMT
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Post by aroominyork on Aug 5, 2019 9:15:54 GMT
4thway has to be taken with a pinch of salt. For example, it's profitability statement about Ratesetter does not mention the wholesale lending businesses which are eating into its balance sheet and which, on this forum's Ratesetter page, gets discussed a lot.
Anyway, while profitability is an obvious metric for assessing how a platform will perform in a downturn, what does it actually tell us? If borrowers default, the costs land on our table and do not reduce the platforms' profitability (other than them maybe having to employ more people and incur more costs in chasing up loans). It seems to me that profitability is only relevant if the amount of business they generate takes a rapid dive, the platforms' profits reduce and they move towards insolvency. From that perspective, the strength of their balance sheets becomes critical, as does the behaviour of investors: will we start to lend through a small number of larger/'safer' platforms and let the smaller ones go to the wall?
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