blender
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Post by blender on May 7, 2020 11:19:22 GMT
The normal repayments at FC are pro-rata, or within what you can get from unsecured lending. That applies also the MLA here, except that it is secured. AC had no choice but to abandon pro-rata in these exceptional circumstances. I think I count as a larger lender. I wanted £10k out from the 90 day account and it just got caught. With the current arrangements I just ask to withdraw the £10k and wait, with pro-rata I would have tried to withdraw £100k to get my £10k quicker. Multiply that up and the problem lasts forever. Apart from that, I do not see why someone needing to withdraw £1k and having £1k invested, should take one hundred times as long to receive it as someone wanting £1k out from an account of £100k. The fault was in the original queueing system which was simplistic and (I think) not stress tested even for the sort of run which happened at FC last year, combined with the FCA scaremongering and its unfortunate timing. I think AC were liquidity-vulnerable before COVID.
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withnell
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Post by withnell on May 11, 2020 8:51:46 GMT
The normal repayments at FC are pro-rata, or within what you can get from unsecured lending. That applies also the MLA here, except that it is secured. AC had no choice but to abandon pro-rata in these exceptional circumstances. I think I count as a larger lender. I wanted £10k out from the 90 day account and it just got caught. With the current arrangements I just ask to withdraw the £10k and wait, with pro-rata I would have tried to withdraw £100k to get my £10k quicker. Multiply that up and the problem lasts forever. Apart from that, I do not see why someone needing to withdraw £1k and having £1k invested, should take one hundred times as long to receive it as someone wanting £1k out from an account of £100k. The fault was in the original queueing system which was simplistic and (I think) not stress tested even for the sort of run which happened at FC last year, combined with the FCA scaremongering and its unfortunate timing. I think AC were liquidity-vulnerable before COVID. That's a fair argument about withdrawing from an FSCS covered account - however in this case, the quality of the loanbook decreases as cash is removed and good loans are sold on, leaving a higher % of default loans. The 1k lender has got out with no issues, the other has 99k of lower quality.
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blender
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Post by blender on May 11, 2020 9:58:58 GMT
The normal repayments at FC are pro-rata, or within what you can get from unsecured lending. That applies also the MLA here, except that it is secured. AC had no choice but to abandon pro-rata in these exceptional circumstances. I think I count as a larger lender. I wanted £10k out from the 90 day account and it just got caught. With the current arrangements I just ask to withdraw the £10k and wait, with pro-rata I would have tried to withdraw £100k to get my £10k quicker. Multiply that up and the problem lasts forever. Apart from that, I do not see why someone needing to withdraw £1k and having £1k invested, should take one hundred times as long to receive it as someone wanting £1k out from an account of £100k. The fault was in the original queueing system which was simplistic and (I think) not stress tested even for the sort of run which happened at FC last year, combined with the FCA scaremongering and its unfortunate timing. I think AC were liquidity-vulnerable before COVID. That's a fair argument about withdrawing from an FSCS covered account - however in this case, the quality of the loanbook decreases as cash is removed and good loans are sold on, leaving a higher % of default loans. The 1k lender has got out with no issues, the other has 99k of lower quality. That is probably true. Eggs and omelettes I am afraid. I think we should view this as a work in progress where these problems are understood and being worked on. I really look forward to the secondary market on Access accounts, and any associated changes to the queueing system. That will be AC's considered response to the liquidity issue, rather than the quick and poor 'fix' we have. I will live with the present system for a while before joining the chorus of criticism.
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mikes1531
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Post by mikes1531 on May 11, 2020 16:14:21 GMT
The fact that you never even noticed that the future tranches were being funded by the QAA (despite it being discussed here previously IIRC) suggests that it isn't really an issue in normal times. ...it would have been obvious that this would be an serious issue in a financial crisis even without stress testing.
Yes, indeed. All it would have taken was a quick look at Lendy and/or Funding Secure.
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alender
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Post by alender on May 11, 2020 16:24:51 GMT
...it would have been obvious that this would be an serious issue in a financial crisis even without stress testing.
Yes, indeed. All it would have taken was a quick look at Lendy and/or Funding Secure. I will repeat this to avoid confusion as being selectively quoted can easily be misunderstood..
"I did not say that I never noticed "these loan facilities that require future commitments, I did, the issue is I did not know how large these commitments are, as I have said I have no idea they would swamp the capital repayments and to make it worse these loans are in the MLA but it is the AAs which pick up these tranches.
If this is as significant as it proved to be why have AC never published a figure for the commitments and explained the bulk (if not all) will be funded from capital repayments from the AAs. AC are meant to be a professional organisation and this should have been so obvious so I was not expecting to be on the hook for anything of this magnitude. If they had done any stress testing this would be spotted, however if you have access to all the figures, which AC do and we don't, it would have been obvious that this would be an serious issue in a financial crisis even without stress testing. I have worked on the technical and to some extent the business side of investment banking and can assure you this would have stuck out like a sore thumb, I was in charge of decent size project lasting over a year to project all gaps in all asset classes up to 30 years in the future, these accounts would have fallen at the first hurdle."
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dead-money
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Post by dead-money on May 11, 2020 18:11:08 GMT
The question is though, would the institution you work for have done anything to cover those risks, shortcomings and obvious funding gaps?
Having worked on the technical side of asset management and other industries for over thirty years, there's a gulf of difference between identifying a risk & its likelihood and having someone willing to fund and able to fill that gap within the live of your project or programme.
Agree that the unknown size of the committment to future tranches is an annoyance, although it's always been clear that Access account / underwriters fund new tranches and MLA only gets the secondary market access.
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registerme
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Post by registerme on May 11, 2020 18:24:15 GMT
The question is though, would the institution you work for have done anything to cover those risks, shortcomings and obvious funding gaps?
Having worked on the technical side of asset management and other industries for over thirty years, there's a gulf of difference between identifying a risk & its likelihood and having someone willing to fund and able to fill that gap within the live of your project or programme.
Agree that the unknown size of the committment to future tranches is an annoyance, although it's always been clear that Access account / underwriters fund new tranches and MLA only gets the secondary market access.
Or my favourite line "it's easier for me to go and make an extra $250m to cover the capital charge that you're proposing than it is for my business to mitigate the risks you've identified". EDIT: And he was right.
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mikes1531
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Post by mikes1531 on May 11, 2020 19:17:49 GMT
Yes, indeed. All it would have taken was a quick look at Lendy and/or Funding Secure. I will repeat this to avoid confusion as being selectively quoted can easily be misunderstood..
"I did not say that I never noticed "these loan facilities that require future commitments, I did, the issue is I did not know how large these commitments are, as I have said I have no idea they would swamp the capital repayments and to make it worse these loans are in the MLA but it is the AAs which pick up these tranches.
If this is as significant as it proved to be why have AC never published a figure for the commitments and explained the bulk (if not all) will be funded from capital repayments from the AAs. AC are meant to be a professional organisation and this should have been so obvious so I was not expecting to be on the hook for anything of this magnitude. If they had done any stress testing this would be spotted, however if you have access to all the figures, which AC do and we don't, it would have been obvious that this would be an serious issue in a financial crisis even without stress testing. I have worked on the technical and to some extent the business side of investment banking and can assure you this would have stuck out like a sore thumb, I was in charge of decent size project lasting over a year to project all gaps in all asset classes up to 30 years in the future, these accounts would have fallen at the first hurdle." Apologies if my selective quotation created possible a misunderstanding. What I was trying to say was that building up a long list of commitments to fund future drawdown tranches involves considerable risks if a platform cannot continue to bring in new funds at a good rate. IMHO that contributed significantly to the L and FS failures. (And I'll be the first to admit that I didn't see that soon enough, so my losses at L and FS are considerable.)
AC seem to have increased the risk by using supposedly 'accessible' funds to cover those future obligations. And while it would have been a bit more transparent if they had reported regularly just how much future lending they were committed to, they weren't exactly hiding that info from investors -- all the AC development loans show what the total agreed facility is and what has been lent so far, with the difference being a pretty good approximation of the future funding requirement.
But, of course, we don't know how much of that future funding requirement AC were expecting to come from sources other than retail investors, and we haven't a clue whether some of those alternative funding sources have dried up in the current situation.
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mikes1531
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Post by mikes1531 on May 11, 2020 19:43:39 GMT
Agree that the unknown size of the committment to future tranches is an annoyance, although it's always been clear that Access account / underwriters fund new tranches and MLA only gets the secondary market access. From my own experience I would say that in the last year or so AC have generally stopped using underwriters to fund new development tranches. There was a time when those regularly were offered to UWs, but that appears to have decreased considerably of late. There's always a possibility, of course, that I've been dropped off their potential UW list so I just haven't been informed of such funding opportunities. I haven't a clue how much funding AC are getting from other non-retail sources, and I'm a bit surprised that I haven't heard from AC in the past month or so offering incentives to put more funds into the platform so that they could do a better job of meeting their retail investors' withdrawal requests. Perhaps I'm just no longer 'in the loop'.
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alender
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Post by alender on May 11, 2020 19:55:17 GMT
I will repeat this to avoid confusion as being selectively quoted can easily be misunderstood..
"I did not say that I never noticed "these loan facilities that require future commitments, I did, the issue is I did not know how large these commitments are, as I have said I have no idea they would swamp the capital repayments and to make it worse these loans are in the MLA but it is the AAs which pick up these tranches.
If this is as significant as it proved to be why have AC never published a figure for the commitments and explained the bulk (if not all) will be funded from capital repayments from the AAs. AC are meant to be a professional organisation and this should have been so obvious so I was not expecting to be on the hook for anything of this magnitude. If they had done any stress testing this would be spotted, however if you have access to all the figures, which AC do and we don't, it would have been obvious that this would be an serious issue in a financial crisis even without stress testing. I have worked on the technical and to some extent the business side of investment banking and can assure you this would have stuck out like a sore thumb, I was in charge of decent size project lasting over a year to project all gaps in all asset classes up to 30 years in the future, these accounts would have fallen at the first hurdle." Apologies if my selective quotation created possible a misunderstanding. What I was trying to say was that building up a long list of commitments to fund future drawdown tranches involves considerable risks if a platform cannot continue to bring in new funds at a good rate. IMHO that contributed significantly to the L and FS failures. (And I'll be the first to admit that I didn't see that soon enough, so my losses at L and FS are considerable.)
AC seem to have increased the risk by using supposedly 'accessible' funds to cover those future obligations. And while it would have been a bit more transparent if they had reported regularly just how much future lending they were committed to, they weren't exactly hiding that info from investors -- all the AC development loans show what the total agreed facility is and what has been lent so far, with the difference being a pretty good approximation of the future funding requirement.
But, of course, we don't know how much of that future funding requirement AC were expecting to come from sources other than retail investors, and we haven't a clue whether some of those alternative funding sources have dried up in the current situation.
Thanks for the explanation, I did not fully understand you post as I thought you were saying I should have been aware of the issues with tranches in AC as I would have known about L and FS which I did not as I never used or intended to use these platforms.
If you look at individual loans I sure you could get a good idea of future tranches but as I only invested in the AAs short of going manually though about 580 loans I cannot see a way to finding out this information and have no idea if some/most is covered from other sources. If there is a way I would be most grateful for the information.
My point is that AC are now using the AAs for this funding but we were never warned how much funds would be required and this would prevent AAs lenders getting back most of their repaid loan capital in a liquidity event. This has proved to be a real issue and a significant risk and I have not seen anywhere AC ever mentioned this, given how import this has become, I believe that AC should have clearly stated this as part of the AA information as they had this information but chose not to inform AA holders.
The point of stress testing to to determine you weakness in poor market conditions like the current one, however just a simple report of future funding commitments against guaranteed funds would have rang alarm bells, you should not be promising money you don't have and expect AA holders to pick this up for you, AC got the commission and all the AA holders get is locked in, interest rate reduction and higher risk.
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alender
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Post by alender on May 11, 2020 20:19:33 GMT
The question is though, would the institution you work for have done anything to cover those risks, shortcomings and obvious funding gaps?
Having worked on the technical side of asset management and other industries for over thirty years, there's a gulf of difference between identifying a risk & its likelihood and having someone willing to fund and able to fill that gap within the live of your project or programme.
Agree that the unknown size of the committment to future tranches is an annoyance, although it's always been clear that Access account / underwriters fund new tranches and MLA only gets the secondary market access.
Or my favourite line "it's easier for me to go and make an extra $250m to cover the capital charge that you're proposing than it is for my business to mitigate the risks you've identified". EDIT: And he was right. I was working for investments banks perhaps a bit different from Asset Management companies but of course they did have Assert Management departments. It was not my job to cover risks but to identify them but given the interest in the risk analysis, the importance placed on this information, the costs to produce it I would be very surprised if it was ignored.
Unfortunately future funding is more than an annoyance, it is preventing AA holds getting most of their capital repayments and increasing their risk. Agreed we knew some of out funds would be used but it was never clear the extent that the AA holders funding would need to be used for these tranches. Given it is so large to swamp the bulk of capital repayments this should have been clearly stated not left as an excise for the lenders to go through all loans, calculate the funding required, calculate repayments schedule assess the risk of non/late repayments and somehow guess the extent of other underwriting/alternative funds for these loans to know how much AA holder are on the hook for.
Not sure about the $250m, what I do know is AC are finding it a lot easier to use my money.
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Post by Ace on May 11, 2020 20:35:31 GMT
The question is though, would the institution you work for have done anything to cover those risks, shortcomings and obvious funding gaps?
Having worked on the technical side of asset management and other industries for over thirty years, there's a gulf of difference between identifying a risk & its likelihood and having someone willing to fund and able to fill that gap within the live of your project or programme.
Agree that the unknown size of the committment to future tranches is an annoyance, although it's always been clear that Access account / underwriters fund new tranches and MLA only gets the secondary market access.
Is this a fact? I had the impression that I've bought later tranches of loans via my MLA accounts. I can't be sure that my outstanding bids were satisfied directly from the new tranches rather than indirectly via the SM, but I don't see why that wouldn't have been the case.
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ilmoro
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Post by ilmoro on May 11, 2020 20:50:10 GMT
The question is though, would the institution you work for have done anything to cover those risks, shortcomings and obvious funding gaps?
Having worked on the technical side of asset management and other industries for over thirty years, there's a gulf of difference between identifying a risk & its likelihood and having someone willing to fund and able to fill that gap within the live of your project or programme.
Agree that the unknown size of the committment to future tranches is an annoyance, although it's always been clear that Access account / underwriters fund new tranches and MLA only gets the secondary market access.
Is this a fact? I had the impression that I've bought later tranches of loans via my MLA accounts. I can't be sure that my outstanding bids were satisfied directly from the new tranches rather than indirectly via the SM, but I don't see why that wouldn't have been the case. How would you know? Anyway there have certainly been examples where the loan has drawndown and then MLA buys have been actioned subsequently. I see no reason to assume that the tranches don't operate in the same way, QAA funds, then MLA buys are actioned. It is kind of moot point anyway. Whether the QAA has to commit all of the funds and then instantly get some/all back or actually only commits some/no funds, the account still has to factor in a requirement to fund all new tranches into its operating cash levels. Funds will only be free to be withdrawn once they are not potentially required elsewhere
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alender
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Post by alender on May 11, 2020 20:56:32 GMT
Is this a fact? I had the impression that I've bought later tranches of loans via my MLA accounts. I can't be sure that my outstanding bids were satisfied directly from the new tranches rather than indirectly via the SM, but I don't see why that wouldn't have been the case. How would you know? Anyway there have certainly been examples where the loan has drawndown and then MLA buys have been actioned subsequently. I see no reason to assume that the tranches don't operate in the same way, QAA funds, then MLA buys are actioned. It is kind of moot point anyway. Whether the QAA has to commit all of the funds and then instantly get some/all back or actually only commits some/no funds, the account still has to factor in a requirement to fund all new tranches into its operating cash levels. Funds will only be free to be withdrawn once they are not potentially required elsewhereSo what you are saying is that AC are using the AAs as a lender of last resort, they have to buy these no matter what and get stuck with these if nobody else wants them. This means other people get the pick of these loans so therefore can select the the less risky and AA holders are left with the rest.
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dead-money
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Post by dead-money on May 11, 2020 22:53:59 GMT
How would you know? Anyway there have certainly been examples where the loan has drawndown and then MLA buys have been actioned subsequently. I see no reason to assume that the tranches don't operate in the same way, QAA funds, then MLA buys are actioned. It is kind of moot point anyway. Whether the QAA has to commit all of the funds and then instantly get some/all back or actually only commits some/no funds, the account still has to factor in a requirement to fund all new tranches into its operating cash levels. Funds will only be free to be withdrawn once they are not potentially required elsewhereSo what you are saying is that AC are using the AAs as a lender of last resort, they have to buy these no matter what and get stuck with these if nobody else wants them. This means other people get the pick of these loans so therefore can select the the less risky and AA holders are left with the rest. You're assuming that MLA investors prefer the 'less risky' loans. That might not be true. They may well prefer the riskier ones if the interest rate is higher.
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