sl75
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Post by sl75 on Nov 17, 2014 20:09:22 GMT
It's trying to split your purchase across all available loans, not exceeding the maximum amount it should be investing in each... At that time, presumably there were 5 available loans (excluding the one it was already over-exposed to), and I had made £10 available to invest. The "obvious" thing to do in such circumstances would be to invest £2 in each (20% of that £10), rather than £2 in the first one it finds, £1.60 in the next, £1.28 in the next, etc... It seems to continue investing only 20% of available cash in each subsequent purchase, and although many suitable units remain available, at time of writing it refuses to spend the last 68p, which it could in principle spend in its entirety on several loans with units available, without exceeding the 20% limit. It's also unclear how to find the current exposure to each green project other than adding up all the GEIA statement entries. Why aren't they included in "your loans"? ... or in the overall total on the individual pages like "You currently have holdings of £60.00 in this loan of which £60.00 has been from manual investment." (actually I have more than £60.00, as I have additional holdings in the GLIA). Has that issue been acknowledged yet?
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Post by mrclondon on Nov 17, 2014 20:10:57 GMT
The biggest single risk with any of the green loans on this or any other p2p platform is IMO retrospective FIT changes. Unlikely, given the noises the governmant has made on the subject, and the relatively short term of the AC loans (vs Abundance Generation's 20 year debentures for example). But its not so far fetched to imagine a situation where the UK government could be over ruled by the EU on the implicit subsidy FIT represents. No provision fund is going to cope with a significant devaluation of the asset value of every single green loan on AC. The adverse publicity that AC would receive in this circumstance, particularly once NISA's become part of the mix, of stating ""Our credit team has judged the expected loss on the loans to be 0%." would be immense.
I have set a maximum exposure to green loans across all p2p platforms, and will reduce holdings in existing loans to diversify into new loans.
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Post by chris on Nov 17, 2014 20:17:18 GMT
It's trying to split your purchase across all available loans, not exceeding the maximum amount it should be investing in each... At that time, presumably there were 5 available loans (excluding the one it was already over-exposed to), and I had made £10 available to invest. The "obvious" thing to do in such circumstances would be to invest £2 in each (20% of that £10), rather than £2 in the first one it finds, £1.60 in the next, £1.28 in the next, etc... It seems to continue investing only 20% of available cash in each subsequent purchase, and although many suitable units remain available, at time of writing it refuses to spend the last 68p, which it could in principle spend in its entirety on several loans with units available, without exceeding the 20% limit. It's also unclear how to find the current exposure to each green project other than adding up all the GEIA statement entries. Why aren't they included in "your loans"? ... or in the overall total on the individual pages like "You currently have holdings of £60.00 in this loan of which £60.00 has been from manual investment." (actually I have more than £60.00, as I have additional holdings in the GLIA). Has that issue been acknowledged yet? I'll double check that behaviour. Each loan is invested in individually, rather than as a batch, so it is reassessing the holdings each time. I'll try and find a smarter way to deal with it - my preference was to try and update the code in a few days time to properly balance across all accounts from the first investment but that is computationally difficult to structure within SQL efficiently so I didn't want to tackle it at the outset. That would produce the perfect balance between all investments all the time. As with the reason the statement is shown there are competing requirements from various aspects of the business (including compliance, legals, etc.) that have led to the current compromise. For the target audience the exact holdings aren't important but seeing the activity if they require is. I'm not personally sure we have the right balance there but have to take advice from the rest of the team, so it may get tweaked further after more discussions and if we can think of a cleverer way of displaying the information.
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Post by chris on Nov 17, 2014 20:26:14 GMT
There's no statement about what happen if after three years, as expected and predicted, the provision fund hasn't been called upon. It's just going to get bigger forever. It can't go to AC as the terms don't allow it beyond the normal 1% - 2% fees. Surely there should be a provision for some kind of discretionary dividend to lenders? Otherwise this is effectively a with-profits fund without the profits... One for andrewholgate
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j
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Post by j on Nov 17, 2014 20:58:45 GMT
From AC email: Automatic inclusion in a separate provision fund to protect investors from income delays or income and/or capital losses on a discretionary basis. I can see the appeal to certain clientele in this fund but, a choice of doing a little bit or work/reading CR, etc & earning an extra 2.5-3% for it, I know which would be my choice. Assuming a yield give-up of 275bp to most wind deals on AC (average yield 9.75%) then for a 0% taxpayer (or an ISA/SIPP wrapper) the breakeven loss rate is around 2.5% (say 5% default probability with 50% recovery). For a 20% taxpayer the breakeven loss rate is around 2.05%, 40% taxpayer the loss rate is 1.55% and for a 45% taxpayer the loss rate is 1.45%. So this product really should be of interest to higher rate taxpayers (or those who see a credit crunch) but probably will find most support from ISA investors who want simple front and centre. Of course this assumes the provision fund can guarantee a 100% recovery rate in a credit event which clearly it can't. , My concern was the 'discretionary' part. The provision fund will certainly not cover 100% losses (rare as that may be to happen), probably not even 25% losses could be met in total by the fund. So, whilst I take your tax point on board, whether you pay 0%, 20% or 40%, your profit would still be more after tax if you are willing to do a bit more work & take a little more risk (if there was any real deemed difference between the two options as many think WT are safe as houses due to govt tariffs) than dumping the same funds into the green fund direct. My opinion only, of course 
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Post by batchoy on Nov 17, 2014 21:13:00 GMT
Assuming a yield give-up of 275bp to most wind deals on AC (average yield 9.75%) then for a 0% taxpayer (or an ISA/SIPP wrapper) the breakeven loss rate is around 2.5% (say 5% default probability with 50% recovery). For a 20% taxpayer the breakeven loss rate is around 2.05%, 40% taxpayer the loss rate is 1.55% and for a 45% taxpayer the loss rate is 1.45%. So this product really should be of interest to higher rate taxpayers (or those who see a credit crunch) but probably will find most support from ISA investors who want simple front and centre. Of course this assumes the provision fund can guarantee a 100% recovery rate in a credit event which clearly it can't. , My concern was the 'discretionary' part. The provision fund will certainly not cover 100% losses (rare as that may be to happen), probably not even 25% losses could be met in total by the fund. So, whilst I take your tax point on board, whether you pay 0%, 20% or 40%, your profit would still be more after tax if you are willing to do a bit more work & take a little more risk (if there was any real deemed difference between the two options as many think WT are safe as houses due to govt tariffs) than dumping the same funds into the green fund direct. My opinion only, of course Another issue that arises from the GEIA and has been partially discussed elsewhere is who controls the voting rights for loan parts held in GEIA when a loan defaults and a decision needs to be made on moving forward as you now have two groups with potentially different priorities GEIA investors who couldn't give a monkey's because they are covered by a provision fund and MLIA investors who are looking to minimise any losses of capital and accrued interest. At present there has been no change in the Ts&Cs and as a result GEIA investors appear to get a vote (unless their holdings and rights pass to APFL when the provision fund pays out), also there has been no change to signify whether or not APFL become Lending Member when and if they pay out and whether they are considered to be a normal lending member or have a different priority when recovered funds are dispersed. These are potentially key changes to the Ts&Cs which should have been notified to existing members 30 days ago and should have been in place on the website when the GEIA was launched.
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Post by chris on Nov 17, 2014 21:40:43 GMT
Ok. One more. I'm not in a position where I would wish to be investing in the green account but I can see that it might be very attractive for some, particularly if the position on if the provision fund eliminates the tax disadvantages of being hit with bad debt as an individual. But how would a person go about moving existing eligible loans to the new account? I guess via the AM? Is the tax statement generator already configured for the new green account? Is it just going to show the interest, all at 7% over the tax period and nothing else? Perhaps someone who's trying it out could try running the tax report to see what it says. At the moment there's no mechanism for transferring loan units from one account to another. Whilst on the surface it sounds very complex I think the system would already cope, but I think there could be complications legally. We'll tackle it down the road. The tax statement is driven by repayments, principal and interest will be recorded as previously with the interest being paid at the capped rate.
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mikes1531
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Post by mikes1531 on Nov 17, 2014 22:01:08 GMT
There's no statement about what happen if after three years, as expected and predicted, the provision fund hasn't been called upon. It's just going to get bigger forever. It can't go to AC as the terms don't allow it beyond the normal 1% - 2% fees. Surely there should be a provision for some kind of discretionary dividend to lenders? Otherwise this is effectively a with-profits fund without the profits... I'm afraid it is. The last line on the page describing the Provision Fund makes that crystal clear -- to me, anyway... I expect it says "may" for the same sort of legal reasons that the fund has to say it is "discretionary", and I expect AC to use the PF as an income generator to the extent that the interest rate 'spread' produces contributions to the PF that exceed what is necessary to maintain the PF size at 5% of of covered loans. With respect to other comments observing that a 5% fund might not be adequate to deal with one single large disaster... ISTM that would be a real problem only while there are very few loans in the portfolio. At the moment, AC have ten WT loans. There are two more on the Upcoming list, and no doubt there will be more in the near future. Once AC get to the point where they have 20 WT loans in the GEIA, the 5% PF would be enough to cover a complete loss of one of them -- or would be if they all were the same size. With secured loans, of course, the chance of a 100% loss ought to be very low. And as the number of loans in the portfolio increases, the ability to stand a single loss would improve. The main risk to the PF then would appear to be some event that affected the whole industry -- such as the suggested failure by HMG to keep the pledges regarding the irrevocability of the FIT payouts.
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bugs4me
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Post by bugs4me on Nov 17, 2014 22:11:44 GMT
The main risk to the PF then would appear to be some event that affected the whole industry -- such as the suggested failure by HMG to keep the pledges regarding the irrevocability of the FIT payouts. Keeping to those pledges/guarantees has always been the main reason I have steered clear of WT's or anything else with a FIT. Call me a cynic but I simply don't trust our political masters who will do anything for a vote here and there. On second thoughts, I don't believe anything promised by politicians (even when it happens).
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Post by chris on Nov 17, 2014 22:12:31 GMT
However, we can see from RS and Zopa that PF's are a winner for P2P platforms. "Simple" products offering a flat yield, no management and "no risk of loss" are going to have mass appeal. I don't like where AC is going as a lender but if I was a shareholder I would heartily approve of the business strategy. Don't overlook that it's optional, nor that it's not going to be the only product we offer and not all will be provision fund protected. You'll even be able to create your own. We'll never be able to cater to all but we plan to cater to as wide an audience as practical.
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j
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Post by j on Nov 17, 2014 22:18:58 GMT
I don't like where AC is going as a lender but if I was a shareholder I would heartily approve of the business strategy. Alas, we're not
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j
Member of DD Central
Penguins are very misunderstood!
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Post by j on Nov 17, 2014 22:20:15 GMT
On second thoughts, I don't believe anything promised by politicians (even when it happens). I could think of a few words to describe politicians. None of them suitable for this forum 
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Post by bracknellboy on Nov 17, 2014 22:26:55 GMT
Why should potential changes have been notified 30 days ago ? Only actual changes should have been notified, surely ? The fact that they haven't means that currently there have been no Ts and Cs changes. I would therefore conclude that all lenders on a loan would be covered by current Ts and Cs, unless as part of investing in one of these accounts you are asked to sign up to new, different ones. If not, the current position still stands for all lenders.
"...(unless their holding and right pass to APFL when the provision fund pays out),...": Not knowing how this is currently structured...but unless these are structured to guarantee a monthly income, as opposed to simply a capped max return (as I read it), then presumably a different strategy could equally (more equally ?) apply: namely that provision fund does not recompense until a loss is actually crystallised: which in most cases will be some time after a default, and possibly after all need of any vote has been passed. Not withstanding, clearly there is potential for a future change in Ts and Cs, and in particular for a different set of Ts and Cs for lending done under the different account structure, and no doubt those will be flagged as and when they are due to come into effect. And no doubt one would have implications for the other: if as in all likeliehood (?), the bulk of future loan ownership will be via combination of underwriters and 'blind' investors, I would think it is increasingly likely that the process will move more to an FC like model where it is AC which is making all the decisions (perhaps after consultation with primary underwriters). Based on some comments on Ipswich, that would appear to be an attractive option for a number of manual lenders. Personally I like the current TC'like model: if nothing else it gives me the illusion of some semblance of control, even if in reality all it actually gives me is evidence of duck like underwater activity rather than perturbing surface based serenity.
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Post by bracknellboy on Nov 17, 2014 22:30:21 GMT
following on rapidly from the forum's 1st birthday: have we passed a new landmark I wonder ? 79 posts on a single thread in 7 hours (make that 80). I thought the whole point of Green Investing was to reduce the amount of hot air ? :-)
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mikes1531
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Post by mikes1531 on Nov 17, 2014 22:40:40 GMT
It's trying to split your purchase across all available loans, not exceeding the maximum amount it should be investing in each... At that time, presumably there were 5 available loans (excluding the one it was already over-exposed to), and I had made £10 available to invest. The "obvious" thing to do in such circumstances would be to invest £2 in each (20% of that £10), rather than £2 in the first one it finds, £1.60 in the next, £1.28 in the next, etc... It seems to continue investing only 20% of available cash in each subsequent purchase, and although many suitable units remain available, at time of writing it refuses to spend the last 68p, which it could in principle spend in its entirety on several loans with units available, without exceeding the 20% limit. It's also unclear how to find the current exposure to each green project other than adding up all the GEIA statement entries. Why aren't they included in "your loans"? ... or in the overall total on the individual pages like "You currently have holdings of £60.00 in this loan of which £60.00 has been from manual investment." (actually I have more than £60.00, as I have additional holdings in the GLIA). Has that issue been acknowledged yet? already had made the adjustment to the purchasing algorithm by the time I tried my £10 experimental investment, so my first investment 'round' was spread over the six WT loans on the Aftermarket, putting £2.00 into the first and successively shrinking amounts -- 20% less each time -- into the other five, with the last of those getting 65p. It then did another round, starting with 52p into the first loan and decreasing to 17p into the last. It made the second round purchases in the same order as the first round, so by the end of that round the first loan on the list had a £2.52 investment (being £2.00 + 52p) and the last loan having 82p (being 65p + 17p). At that point, I had 25.2% of my account in the first loan -- in violation of the 20% limit -- 8.2% in the last loan, and 7.1% uninvested. And that's where the buying stopped -- despite all six loans still having lots of availability on the Aftermarket and some of my holdings being well below the 20% theoretical maximum diversification setting. A little while later, someone must have offered some Cum**** WT on the Aftermarket, so 14p (being 20% less than the previous 17p purchase) of that was purchased for my account. Why the system didn't use all of my remaining 71p for that purchase is beyond me. If it had, my Cum**** WT holding still would have been the smallest in my GEIA. So, chris, while the current purchasing algorithm is an improvement over the initial one, it's still not working appropriately. And if each investment is limited to 20% of the available funds it will be impossible to deploy all the funds in my GEIA -- no matter how many WT loans are available to purchase. It's back to the drawing board, I'm afraid! As sl75 has pointed out, the statements on the individual loan pages and on the 'Your Loans' ignore the holdings within my GEIA, and therefore are incorrect, and need fixing. And I do want to be able to see a summary of the holdings in my GEIA without having to construct one myself from my GEIA transaction statement. How else can I tell how badly the diversification algorithm is failing -- as we've shown that it is? Perhaps what's needed is another tab on the Your Loans display so that people can toggle between looking at their MLIA holdings and their GEIA holdings. And with respect to the previous sentence, I see that something similar has been done on the GEIA statement, where there's a link near the top that allows me to go from there to my MLIA statement. But that's a one-way trip, I'm afraid, because there's no corresponding link on the MLIA statement that allows me to move from there to my GEIA statement. 
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