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Post by Matthew on Nov 29, 2019 11:55:31 GMT
I am out - for now at least. I think the proposed changes are a good idea and I will certainly consider going back in at some point. My main concern is whether the changes are sufficient. The shield cash has been dropping, on average, at £150k per month for the past 8 months. The reduction in interest rates is around 1.1%, so on a loan portfolio of £92m that equates to £1.012m or about £85k per month. If all of this £85k is diverted to the shield then the shield cash would still be dropping by £65k per month all else being equal. What I particularly don't like is the fact that the statistics are now only being updated quarterly instead of monthly - this is really not something that lenders want to see. Without any up to date information on the shield I am erring on the side of caution and exiting completely. I am going to need to see concrete improvements in the shield cash before going back in. These are very good points, and I share the concerns around moving to quarterly updates, at a time when clearly more regular updates on performance would be the preference. Matthew can you offer any justification for this? I broadly support the changes being implemented but not any reduction in transparency. Hi guys Apologies if I'm not responding to every post as quickly as I'd like - but will try to address queries when I get the chance. Whereas in the past, performance stats were just lifted and dropped onto a page each month, the new process requires a significant amount of work in the background to review and update models, reassess the many assumptions underlying forecasts and projections and reassess Shield cash flows over the remainder of each cohort etc. Some of this obviously does happen on a monthly basis, while some happens on a quarterly basis. To show stats each month with only half the picture I think would be misleading. The new FCA regime requires quarterly updates and I think this will be the industry standard view going forward. There really shouldn't be many, if any, stats which change significantly on a monthly basis. In terms of the Shield statistics, we understand that people like to assess the Shield cash position etc and monitor that closely. The key benefit of the new approach and model is that it's set up in a way that the Shield will always be sufficiently funded provided the repayments from the loan portfolio are greater than the sum of defaults (in reality for a prime and near-prime consumer lending book, repayments on good loans should always dwarf losses on bad loans). Therefore, the primary metric to monitor becomes the expected net returns to investors and any potential adjustment (downwards or upwards) to this on a quarterly basis. We will also be publishing an annual 'outcomes statement' which will delve into yet more detail on performance and deviations from expectations, discussing the reasons for fluctuations etc. I think investors will find this extremely helpful. Thanks
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jlend
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Post by jlend on Nov 29, 2019 12:14:57 GMT
Overall I think the changes are a reasonable compromise, although no one likes to see rates reduced, especially on existing loans. It is what it is...
The alternative of not reducing rates on existing loans and LW not putting the majority of its margin on existing loans into the PF may well have seen the PF run out of its cash balance and then worse case the platform may have gone into run down mode and administration. This may have resulted in materially less money for existing investors in terms of interest and potentially capital.
The RS model also allows rates to be reduced if the PF is underfunded which I think is the right thing to do. I prefer the RS model where the risk is spread across all cohorts.
There is always a risk with LW that they have a particularly bad year which may catch out some lenders as LW are not spreading the risk across different annual cohorts, the risk is only being shared within an annual cohort.
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rogedavi
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Post by rogedavi on Nov 29, 2019 13:24:49 GMT
Given returns are now cohort specific (rather than driven by the entire loan book), it would be good for the loan book information to be displayed by cohort going forward on my dashboard.
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Post by Duane Dibley on Nov 29, 2019 13:34:07 GMT
Having been previously bitten by Co, Ly and MT, well more had my left arm ripped off, ragged around and spat back at me, protection of capital is the main priority now.
So if this is what LW thinks is necessary to protect my capital then I'll accept that, it does after all bring them more into line with their competitors, AC, OC and GS.
So while I don't fully understand the statistics or talk of cohorts, I have been happy with LW so far so I'll be giving them the benefit of the doubt and keeping my funds invested and watching over the next 6 months to see whether this action has the desired effect.
Whatever happens it is a refreshing change to see a platform make decisive changes to their operation to head off any perceived risk rather than stick their head in the sand and just kick the can down the road, and LW should be applauded for that.
Whether it's enough we'll have to wait and see.
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Post by propman on Nov 29, 2019 13:56:11 GMT
In terms of the Shield statistics, we understand that people like to assess the Shield cash position etc and monitor that closely. The key benefit of the new approach and model is that it's set up in a way that the Shield will always be sufficiently funded provided the repayments from the loan portfolio are greater than the sum of defaults (in reality for a prime and near-prime consumer lending book, repayments on good loans should always dwarf losses on bad loans). Therefore, the primary metric to monitor becomes the expected net returns to investors and any potential adjustment (downwards or upwards) to this on a quarterly basis. We will also be publishing an annual 'outcomes statement' which will delve into yet more detail on performance and deviations from expectations, discussing the reasons for fluctuations etc. I think investors will find this extremely helpful. Thanks Are you saying that the approach will carry across to capital repayments as well?
If not, it is only the interest that should be compared to defaults. Defaults have exceeded 7% on one cohort in relatively benign conditions, so it is far from certain that defaults will always be swamped by interest.
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Ukmikk
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Post by Ukmikk on Nov 29, 2019 14:40:47 GMT
These are very good points, and I share the concerns around moving to quarterly updates, at a time when clearly more regular updates on performance would be the preference. Matthew can you offer any justification for this? I broadly support the changes being implemented but not any reduction in transparency. Hi guys Apologies if I'm not responding to every post as quickly as I'd like - but will try to address queries when I get the chance. Whereas in the past, performance stats were just lifted and dropped onto a page each month, the new process requires a significant amount of work in the background to review and update models, reassess the many assumptions underlying forecasts and projections and reassess Shield cash flows over the remainder of each cohort etc. Some of this obviously does happen on a monthly basis, while some happens on a quarterly basis. To show stats each month with only half the picture I think would be misleading. The new FCA regime requires quarterly updates and I think this will be the industry standard view going forward. There really shouldn't be many, if any, stats which change significantly on a monthly basis. In terms of the Shield statistics, we understand that people like to assess the Shield cash position etc and monitor that closely. The key benefit of the new approach and model is that it's set up in a way that the Shield will always be sufficiently funded provided the repayments from the loan portfolio are greater than the sum of defaults (in reality for a prime and near-prime consumer lending book, repayments on good loans should always dwarf losses on bad loans). Therefore, the primary metric to monitor becomes the expected net returns to investors and any potential adjustment (downwards or upwards) to this on a quarterly basis. We will also be publishing an annual 'outcomes statement' which will delve into yet more detail on performance and deviations from expectations, discussing the reasons for fluctuations etc. I think investors will find this extremely helpful. Thanks Thanks Matthew, No apology needed. As stated before, your engagement here is much appreciated and helps us all to reach a better understanding. Re monthly stats, there have been significant changes recently month on month wrt the shield and lenders are now understandably keen to keep a close eye on things. Given the changes being implemented would it be too much to ask for LW to continue to provide frequent updates, albeit requires some work, even if the result is to merely demonstrate that the new regime is having the desired stabilising effect. I'm sure LW would also benefit from a more re-assured and less nervous lender population. In terms of invested capital, LW is my biggest platform by far and and it is concerns around trust and transparency which may cause me to reassess my position rather than a reduction in rate of return. Similar concerns caused me to recently exit a competitor platform entirely, a decision which appears to have been justified. I'm sure LW will be hoping for continued support from its lenders, and I would hope that LW will also support its lenders with full and frequent information at a time like this.
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Post by gravitykillz on Nov 29, 2019 16:54:18 GMT
Anyone know if the following changes to lending works makes assetz a better more secure place for my capital?
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rogedavi
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Post by rogedavi on Nov 29, 2019 17:58:07 GMT
Anyone know if the following changes to lending works makes assetz a better more secure place for my capital? RS/Z have already dropped their rates. Now LW have. Surely AC isn't going to buck the trend now? In terms of safety, this news is surely a plus for LW vs AC
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Post by Matthew on Dec 3, 2019 10:33:35 GMT
Given returns are now cohort specific (rather than driven by the entire loan book), it would be good for the loan book information to be displayed by cohort going forward on my dashboard. Hi rogedaviYou can filter by cohort using the start date of the loan, in both the public downloadable loan book and your individual portfolio from within your dashboard. Thanks
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Post by Matthew on Dec 3, 2019 10:36:57 GMT
In terms of the Shield statistics, we understand that people like to assess the Shield cash position etc and monitor that closely. The key benefit of the new approach and model is that it's set up in a way that the Shield will always be sufficiently funded provided the repayments from the loan portfolio are greater than the sum of defaults (in reality for a prime and near-prime consumer lending book, repayments on good loans should always dwarf losses on bad loans). Therefore, the primary metric to monitor becomes the expected net returns to investors and any potential adjustment (downwards or upwards) to this on a quarterly basis. We will also be publishing an annual 'outcomes statement' which will delve into yet more detail on performance and deviations from expectations, discussing the reasons for fluctuations etc. I think investors will find this extremely helpful. Thanks Are you saying that the approach will carry across to capital repayments as well?
If not, it is only the interest that should be compared to defaults. Defaults have exceeded 7% on one cohort in relatively benign conditions, so it is far from certain that defaults will always be swamped by interest. Hi propmanBear in mind that the 7% quoted is a lifetime default rate - it is not a loss rate i.e. it does not consider recoveries and it is a lifetime figure, rather than annualised. The annualised rate is much lower. Thanks
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Post by Matthew on Dec 3, 2019 10:43:24 GMT
I prefer the RS model where the risk is spread across all cohorts. Hi jlendWe obviously discussed and debated both models extensively prior to these changes and believe the annual cohort model is preferable, primarily because it avoids the risk of cross-subsidisation across cohorts. For example, if a particular annual cohort performs poorly, perhaps due to the economic climate at the time, under the overarching model future cohorts would have to subsidise that cohort, possibly to the detriment of those cohorts' loss coverage, lender returns or loan pricing (or a combination of all three). I guess it depends which side of the fence you're on - if you're being subsidised you're probably happy; if you're taking a hit to subsidise investors who invested years before you joined, you may be less so. We felt on balance that it's a fairer distribution of returns/losses on the annual cohort model. Thanks
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jlend
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Post by jlend on Dec 3, 2019 12:42:18 GMT
I prefer the RS model where the risk is spread across all cohorts. Hi jlend We obviously discussed and debated both models extensively prior to these changes and believe the annual cohort model is preferable, primarily because it avoids the risk of cross-subsidisation across cohorts. For example, if a particular annual cohort performs poorly, perhaps due to the economic climate at the time, under the overarching model future cohorts would have to subsidise that cohort, possibly to the detriment of those cohorts' loss coverage, lender returns or loan pricing (or a combination of all three). I guess it depends which side of the fence you're on - if you're being subsidised you're probably happy; if you're taking a hit to subsidise investors who invested years before you joined, you may be less so. We felt on balance that it's a fairer distribution of returns/losses on the annual cohort model. Thanks It is a fair comment. Having been with RS continuously since 2010 I prefer the smoothing effect over a longer period. In a similar way I quite like investment trusts who are able to smooth returns. Appreciate that both models have their advantages and disadvantages. It doesnt matter too much unless LW have a really bad year then some lenders may get caught out through no fault of their own. I have my reinvestment in LW turned on at the moment and will see how things go. Thanks for keeping us updated.
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rogedavi
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Post by rogedavi on Dec 3, 2019 16:56:28 GMT
The product offering now looks an awful lot like securitization.
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ashtondav
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Post by ashtondav on Dec 3, 2019 18:42:09 GMT
60% effectively ditching LW. I guess it will reduce cash drag for the remaining 40%. Lets hope the 40% have the biggest wedge.
Bl**dy hell, Mathew reassure, please. REASSURE...
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Post by pmjenkins on Dec 3, 2019 19:00:38 GMT
60% ? Based on what on data ? Or are you assuming 60%? 42% running down + 18% exiting ASAP (according to the survey at the top of the page)
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