niceguy37
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Post by niceguy37 on Nov 29, 2014 14:39:29 GMT
I would guess that the 5% level set for the provision fund is designed to have sufficient margin to accommodate the hoped-for growth without AC having to continually add to the PF themselves, as well as hopefully eventually recover their seed money.
With regard to a speedy exit, it may be that once AC reintroduce selling at a discount, that this frees up the after-market a bit. If a GEIA investor wanted an accelerated exit I'd think that a percent or two discount would soon shift any outstanding non-defaulting loans.
I think that, although I'd prefer to pick my own loans, the GEIA investment has a lot of positives for the hands-off investor. There are teething troubles to sort out, which I'm sure AC are working on, but I think it could provide stiff competition for RS, Z and others.
And if the PF proves it's worth then AC might see fit to expand the concept for other loans, on and opt-in option, priced by AC credit team.
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Post by oldnick on Nov 29, 2014 15:26:14 GMT
My tuppenceworth on this discussion is that if there is an accounting deficiency it is unacceptable, and an unconditional apology will be due.
Whether the terms of the scheme are sufficiently explicit however is surely a matter of opinion depending on the supposed financial experience of a reader.
I find it difficult to put myself in the position of the naive lender to know whether they would see the pitfalls sufficiently clearly with the terms as presently written, but they look clear enough to me now. Whether a financial regulator would see it the same way is open to debate.
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mikes1531
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Post by mikes1531 on Nov 29, 2014 18:22:46 GMT
You're right of course, but I think the point batchoy was trying to make is if you are the type of investor AC is trying to attract, they will invest in GEIA on the basis that they could withdraw small amounts as and when needed [c.f. all this nonsense in the press of bank account pensions]. But the GEIA algorithm isn't configured to allow this liquidity as it will follow its own rules on loan distribution when deciding which units to sell. So what is the preferred alternative? If you allow it to sell the loans which are in demand, you loose all the best loans and just end up with a portfolio of dros (relatively speaking). If I were investing in the GEIA seriously -- as opposed to my current experiment -- I wouldn't care which loans were bought for the account. And I wouldn't care which loans were sold if I wanted to make a withdrawal. With a specified rate of return, and a PF, there aren't any good loans or dross since the result for the investor should be the same no matter which loans are held. That's the main feature of the account, and it's a very positive one for the hands-off investor that the GEIA is aimed at. However, there are a couple of features the account should have that it seems to lack at the moment... - The ability to put the entire investment to work. If I invest £XX into the GEIA, I expect to earn 7% on it, not 7% on most of it with the remainder earning nothing. The latter is what seems to be happening now, and that makes it impossible for the GEIA investor to achieve the advertised return.
- Some idea of how long it might take to make a withdrawal. Right now, a GEIA withdrawal request might produce results instantly -- though none of the experiments so far have produced that result -- or the withdrawal request might not produce results for some considerable time, possibly up to three years.
A seemingly simple tweak to the GEIA purchasing algorithm ought to solve the first issue. An alternative might be for AC to pay interest on all the investor's money whether or not it has been invested. That might be a messier solution because the payments have to come from the borrowers rather than from AC or AC would start looking like a bank and fall under a different set of regulations, and I'm sure they don't want to go there. But Zopa have managed to do something similar with their Rate Promise payments and, as long as at least 75% of a GEIA is invested, all AC would have to do is change the way borrowers' payments are split between investors' accounts and the PF.
The second issue is a more difficult one. If someone puts money into an instant-access account, they get instant access. If they put money into a fixed-rate bond, they might have no access at all until maturity, or they might be able to have access before maturity by paying a penalty. But the point is that they know what access they have at the time they make their investment and that's where the GEIA is different -- accessibility is an unknown, and that's bound to put off investors. The simplest remedy I could suggest would be to give GEIA units priority for Aftermarket sales. That shouldn't be disruptive as long as GEIA holdings are small relative to total holdings, and it would give AC an opportunity to market the GEIA with a reasonable withdrawal expectation -- though clearly not guaranteed -- and develop a feel for how GEIA investors use their accounts and what the typical level of withdrawals is. And AC could charge a fee for that priority, which could be handled automatically by the system as soon as the ability to apply a discount selling parts is restored.
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mikes1531
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Post by mikes1531 on Nov 29, 2014 18:30:27 GMT
I would guess that the 5% level set for the provision fund is designed to have sufficient margin to accommodate the hoped-for growth without AC having to continually add to the PF themselves, as well as hopefully eventually recover their seed money. : Can you explain the relationship between the 5% and the growth of the GEIA? I would have thought that the 5% would have been set because AC felt that would provide a fund robust enough to cope with likely defaults, and I don't see how the amount of GEIA investment might affect that percentage. What am I missing?
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Post by oldnick on Nov 29, 2014 18:49:40 GMT
mikes1531 said:
"The second issue is a more difficult one. If someone puts money into an instant-access account, they get instant access. If they put money into a fixed-rate bond, they might have no access at all until maturity, or they might be able to have access before maturity by paying a penalty. But the point is that they know what access they have at the time they make their investment and that's where the GEIA is different -- accessibility is an unknown, and that's bound to put off investors. The simplest remedy I could suggest would be to give GEIA units priority for Aftermarket sales. That shouldn't be disruptive as long as GEIA holdings are small relative to total holdings, and it would give AC an opportunity to market the GEIA with a reasonable withdrawal expectation -- though clearly not guaranteed -- and develop a feel for how GEIA investors use their accounts and what the typical level of withdrawals is. And AC could charge a fee for that priority, which could be handled automatically by the system as soon as the ability to apply a discount selling parts is restored."
Giving priority to GEIA sales on the aftermarket is all very well now, when it doesn't dominate the ownership of those loans, but it doesn't allow for a future in which it might dominate that sector of the market, at which point the priority would be meaningless. In that possible future AC's 'promise' of a relatively easy-to-liquidate investment would effectively be broken - not a situation they can allow themselves to fall into. As you say they are not a bank and cannot guarantee to the seller, or even give the impression, that an early exit from the investment is a realistic proposition in anything except ideal conditions.
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bigfoot12
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Post by bigfoot12 on Nov 29, 2014 20:14:35 GMT
... An alternative might be for AC to pay interest on all the investor's money whether or not it has been invested. That might be a messier solution because the payments have to come from the borrowers rather than from AC or AC would start looking like a bank and fall under a different set of regulations, and I'm sure they don't want to go there. But Zopa have managed to do something similar... If someone puts money into an instant-access account, they get instant access. If they put money into a fixed-rate bond, they might have no access at all until maturity, or they might be able to have access before maturity by paying a penalty. But the point is that they know what access they have at the time they make their investment and that's where the GEIA is different -- accessibility is an unknown, and that's bound to put off investors. I don't think Zopa do this. I think that the rate promise covers only those funds invested. That is why people are very concerned about the 0.1% - 1% which isn't invested. I that that you can be sure about the term, if it is the most important thing for you. If you invest and then opt out of all other wind turbines, then as those you initially invested in mature you will get your money back. So total term is just under 36 months.
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bigfoot12
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Post by bigfoot12 on Nov 29, 2014 20:33:08 GMT
Giving priority to GEIA sales on the aftermarket is all very well now, when it doesn't dominate the ownership of those loans, but it doesn't allow for a future in which it might dominate that sector of the market, at which point the priority would be meaningless.
This reminds me of a colleague who flying Easyj** paid the extra for 'speedy boarding'. Unfortunately at that time of year the destination was primarily a business destination and when speedy boarding was called everyone stood up.
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Post by batchoy on Nov 29, 2014 21:05:14 GMT
The second issue is a more difficult one. If someone puts money into an instant-access account, they get instant access. If they put money into a fixed-rate bond, they might have no access at all until maturity, or they might be able to have access before maturity by paying a penalty. But the point is that they know what access they have at the time they make their investment and that's where the GEIA is different -- accessibility is an unknown, and that's bound to put off investors. The simplest remedy I could suggest would be to give GEIA units priority for Aftermarket sales. That shouldn't be disruptive as long as GEIA holdings are small relative to total holdings, and it would give AC an opportunity to market the GEIA with a reasonable withdrawal expectation -- though clearly not guaranteed -- and develop a feel for how GEIA investors use their accounts and what the typical level of withdrawals is. And AC could charge a fee for that priority, which could be handled automatically by the system as soon as the ability to apply a discount selling parts is restored. There is another relatively straight forward and easily implementable option if AC were prepared to use underwriters and if there were underwriters prepared to take on the role. If a lender wishes to have an immediate withdrawal from the GEIA they pay an exit premium, the loans are then purchased by an underwriter who also receives the exit premium as payment for their action. This would mean that there was no need to skew the operation of the AM which would disadvantage other investors and underwriters on the AC platform, and the lender is immediately freed of their investment. This option could also be used premium free with any interest paid and accrued passing to the underwriter to implement a 14 day no-loss cooling off period which would be a coup for AC.
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niceguy37
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Post by niceguy37 on Nov 29, 2014 22:44:29 GMT
I would guess that the 5% level set for the provision fund is designed to have sufficient margin to accommodate the hoped-for growth without AC having to continually add to the PF themselves, as well as hopefully eventually recover their seed money. : Can you explain the relationship between the 5% and the growth of the GEIA? I would have thought that the 5% would have been set because AC felt that would provide a fund robust enough to cope with likely defaults, and I don't see how the amount of GEIA investment might affect that percentage. What am I missing? Sorry Mike. My post was not clear at all. I meant that the 5% seed investment is probably designed to be a generous cover initially (depending on how quickly the GEIA grows), together with the 2.5-3% interest premium, which is probably on the generous side and enough to cover each investment plus a little bit more, to keep the provision fund well supplied in the event of growth.
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Post by Ton ⓉⓞⓃ on Nov 30, 2014 12:09:05 GMT
One way to sort out mikes1531 two problems might be: To have sellers and buyers of GEIA trade together first and then go to the AM if needed, so that the 'spare' money sitting in every GEIA gets used as required. I'd be happy for it to work this way. AC (or someone else, perhaps chris) said in the beginning that it(?) was based on a shares trading account. There's a feel of a unit trust about it or an OEIC. Are there tax implication if all the money and holdings are all thrown together in one big pot? |
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mikes1531
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Post by mikes1531 on Nov 30, 2014 23:44:40 GMT
... An alternative might be for AC to pay interest on all the investor's money whether or not it has been invested. That might be a messier solution because the payments have to come from the borrowers rather than from AC or AC would start looking like a bank and fall under a different set of regulations, and I'm sure they don't want to go there. But Zopa have managed to do something similar... I don't think Zopa do this. I think that the rate promise covers only those funds invested. That is why people are very concerned about the 0.1% - 1% which isn't invested. : Apologies for not being clearer. I wasn't trying to suggest that Zopa pay interest on idle funds. You are correct -- they don't. What I was trying to say was that Zopa have managed via their Rate Promise payments to top up lenders' interest earnings to the desired level without making themselves look like a bank and need a different licence. So I was hopeful that AC could do something similar and top up GEIA earnings so that lenders actually did earn the 7% rate AC are advertising. It still would be a lot simpler if the GEIA investing rules were tweaked so that all funds were invested when there are suitable loans available, as opposed to the current situation which leaves some funds idle for no apparent reason. And for anyone who is interested, there has been no activity in my GEIA for over three days now, so 1.7% of my investment still is sitting idle.
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mikes1531
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Post by mikes1531 on Dec 1, 2014 4:19:16 GMT
One way to sort out two problems might be: To have sellers and buyers of GEIA trade together first and then go to the AM if needed, so that the 'spare' money sitting in every GEIA gets used as required. Sounds like a brilliant idea! niceguy37: Can you explain the relationship between the 5% and the growth of the GEIA? I would have thought that the 5% would have been set because AC felt that would provide a fund robust enough to cope with likely defaults, and I don't see how the amount of GEIA investment might affect that percentage. What am I missing? Sorry Mike. My post was not clear at all. I meant that the 5% seed investment is probably designed to be a generous cover initially (depending on how quickly the GEIA grows), together with the 2.5-3% interest premium, which is probably on the generous side and enough to cover each investment plus a little bit more, to keep the provision fund well supplied in the event of growth. : Thanks for the clarification -- it makes sense now. If the target is a 5% fund, and the income is 2.5-3% p.a. then I'd expect it would take a couple of years to build the PF up to the target level. Until it gets there, the fund is very vulnerable. That's why the seed money was necessary. IIRC, the seed money was £50k, which would provide the 5% coverage until there's £1M in the GEIA. Since I expect it will take a while before AC attract that amount of money into the GEIA -- especially if they do the smart thing and iron out all the wrinkles before campaigning very hard to sell it -- they're safe for a while. As it is building up, there will be a bit of money adding to the PF -- including the 0.068p and 0.182p I reported last week! -- and that will allow the total GEIA to grow beyond £1M and still stay within the 5% limit. But presuming they get to £1M in less than two years, they'll need to top up the PF with more AC funds. And depending on how quickly money comes into the GEIA, AC might have to continue to top up the PF after the two years. I expect, though, that eventually the PF will become self-financing, and at that point AC can start withdrawing their seed money. And probably a lot more besides, as I don't expect that the actual losses incurred will come anywhere near the 2.5-3% p.a. that will be coming in as long as there is money invested in the GEIA.
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bugs4me
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Post by bugs4me on Dec 1, 2014 10:19:05 GMT
IIRC, the seed money was £50k, which would provide the 5% coverage until there's £1M in the GEIA. Since I expect it will take a while before AC attract that amount of money into the GEIA -- especially if they do the smart thing and iron out all the wrinkles before campaigning very hard to sell it -- they're safe for a while. As it is building up, there will be a bit of money adding to the PF -- including the 0.068p and 0.182p I reported last week! -- and that will allow the total GEIA to grow beyond £1M and still stay within the 5% limit. But presuming they get to £1M in less than two years, they'll need to top up the PF with more AC funds. And depending on how quickly money comes into the GEIA, AC might have to continue to top up the PF after the two years. I expect, though, that eventually the PF will become self-financing, and at that point AC can start withdrawing their seed money. And probably a lot more besides, as I don't expect that the actual losses incurred will come anywhere near the 2.5-3% p.a. that will be coming in as long as there is money invested in the GEIA. My impression was that AC would kick start the GEIA with a 50k PF element. Their financial involvement in the PF would be reduced as the pennies from GEIA investors bought in - a few pennies here and there. Looking at the differentials between the market WT loans c9.5% and the GEIA projection of 7% I would have thought that the 50k seed money would have been 'repaid' well before £1M. The 5% PF cap will always be self financing provided of course that WT loans continue at c9.5% with any 'excess' going into the AC pockets. At least that's how I understand things but as there's been a stack of posts on the GEIA maybe I've missed something.
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Vero
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Post by Vero on Dec 1, 2014 10:38:08 GMT
mikes1531 - GEIA update:
Interest I still have not received interest payments for Aberdeenshire or Swansea WTs (or any other WTs) held via my GEIA. I have asked AC (via the QA) for an explanation.
Exit I cancelled (adjusted investment to 0) and attempted to withdraw all funds from GEIA on 22 November. Of the £100 paid in, £10.76 was never invested at all, £26.29 has been sold and £62.35 remains unsold, "awaiting withdrawal".
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sl75
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Post by sl75 on Dec 1, 2014 10:44:19 GMT
I'd also tend to think there's little point in AC investing more than this initial £50k until or unless the account proves popular enough to require more than that.
Although they don't appear to have locked down the PF money as tightly as RateSetter did, my recollection was that RateSetter also initially used £50k of seed capital, and then increased this (to £150k) only when the service became popular enough to justify it.
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