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Post by 4thway on Jan 16, 2015 23:04:20 GMT
Thank you, 4thway, for an interesting and useful article. In it, you observed... This suggests that some other funds are not discretionary. Can you say which those are? One reason I ask is that I was under the impression that these funds had to be discretionary for legal/tax reasons And possibly becoming subject to alternative regulation schemes if they weren't discretionary because they would look too much like insurance. Can you comment on that? Hi mikes1531 and thanks! RateSetter told me on the phone that their fund is not discretionary. In fact the guy was fairly miffed to say the least that a price comparison website had called it discretionary. They don't all agree on all the legal matters, so that's one explanation. Another explanation is that you might be right that legally these are discretionary. I don't know. But in my current opinion is that, as investors, it makes sense to use the wording used on the websites and in the T&Cs as our guide. If these websites are telling us: "In a claim event, the fund WILL pay you back", as just about all of them are, then that promise has strong legal weight. I don't think it makes sense for us to think of it as discretionary just because legally it might have the word "discretionary" in it. It's possible that Wellesley is just being very legally minded in saying its fund is discretionary and the others are being less so. Wellesley does seem particularly paranoid about getting all the legal small print on every web page and in every email/spoken statement. Personally, I am not the slightest bit worried that any of these companies/trusts (so far) will use their discretion not to pay. But we all have to make our own decisions when investing as to the worth of these funds, and decide whether not to invest or whether we need a premium.
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mikes1531
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Post by mikes1531 on Jan 17, 2015 3:55:00 GMT
RateSetter told me on the phone that their fund is not discretionary. In fact the guy was fairly miffed to say the least that a price comparison website had called it discretionary. : Would you care to ask whomever you spoke to whether they've read the RS Ts&Cs? Section 6 is about the Provision Fund, and Subsection 4 says... ...and there, near the beginning of the second sentence, is the magic word! Personally, I am not the slightest bit worried that any of these companies/trusts (so far) will use their discretion not to pay. I don't really have any doubt, either. IIRC, an executive of one platform -- and IIRC it was RS -- said something to the effect that if their PF failed it probably would precipitate the demise of the platform. I expect that's a fair statement, and I expect it applies to any platform with a PF, so they'd be crazy to allow their PF to get into that situation. And if they can't avoid it, then they're probably about to collapse anyway. An incident like that could well have a significant negative effect on all platforms with PFs.
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Post by wiseclerk on Jan 17, 2015 8:36:15 GMT
Thank you, 4thway, for an interesting and useful article. In it, you observed... This suggests that some other funds are not discretionary. Can you say which those are? One reason I ask is that I was under the impression that these funds had to be discretionary for legal/tax reasons And possibly becoming subject to alternative regulation schemes if they weren't discretionary because they would look too much like insurance. Can you comment on that? To my understanding all the UK provisionary funds are discretionary for legal reasons in order not to fall under offering 'Insurance'. The only expection should be Lending Works which openly calls it Insurance.
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Post by sammy on Jan 17, 2015 10:56:04 GMT
Interesting that you brought up the 'Provision Fund' run by Wellesley. They have £1.1m in their provision fund which is around 2% of their current live loan book of £55.6m. Recently Lendy Ltd has been discussing how best to improve investor security and is considering offering a Provision Fund of their own. It would be a discretionary fund setup as a separate company that held 2% of the value of Lendy Ltd's current live book as a cash balance in the fund at all times. The fund would be to cover any potential shortfall when dealing with property disposals, thus improving investor security. In addition, we are still considering the Trust company (as per AC), setup to hold investor assets but some legal questions have arisen as to the workings on this and are still ongoing. If there are any accountants/lawyers with ideas on how best to proceed, we would be happy to discuss. I for one have severely limited my investing in SS simply because of your lack of the security provided by a Trust company or the equivalent. Currently we (the investors) are putting our trust in the ongoing success of Lendy but if anything went wrong with Lendy or its shareholders or directors we could all be whistling in the wind for our money. This is not just my view but is shared by many other of your current investors and other potential investors as well. To underline this fact, I spoke to three different investment clubs before Christmas about P2P lending and whilst many were happy to invest in other P2P providers they were nervous about invest in you for the above reason.
If you could sort this matter out I think you could see your business grow at a very much faster rate. You have a good model and a system that is among the easiest to use. All you now need is the missing security.
I must admit I am not too interested in a Provision Fund. After all we would end up paying for it one way or other just like any other "insurance".
Merlin fully agree with you and have been pointing these issues out for quite a while, but very little notice has been taken! More interestingly SS recently assured us a Trust fund was going to be set up in 2015, now they say they are still considering it!!!! I posted questions on this board, if its such a simple matter, why haven't SS already set the Trust up! I also commented that it obviously isn't, as SS have already spoken to all the relative bodies, who can't give then an anwser. Thus it would appear I was correct as SS are now asking us for ideas! This also concerns me, as it would seem SS would have just continued motoring on and hoped not too many others mentioned the Trust Fund again, which you and others are now doing, so they could let sleeping dogs lie! I for one and others alike, are not investing any more monies in SS, until they resolve this very important issue, as I don't want all my eggs to go, because of one rotten one in the basket!
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Post by 4thway on Jan 17, 2015 15:03:47 GMT
RateSetter told me on the phone that their fund is not discretionary. In fact the guy was fairly miffed to say the least that a price comparison website had called it discretionary. : Would you care to ask whomever you spoke to whether they've read the RS Ts&Cs? Section 6 is about the Provision Fund, and Subsection 4 says... ...and there, near the beginning of the second sentence, is the magic word! Personally, I am not the slightest bit worried that any of these companies/trusts (so far) will use their discretion not to pay. I don't really have any doubt, either. IIRC, an executive of one platform -- and IIRC it was RS -- said something to the effect that if their PF failed it probably would precipitate the demise of the platform. I expect that's a fair statement, and I expect it applies to any platform with a PF, so they'd be crazy to allow their PF to get into that situation. And if they can't avoid it, then they're probably about to collapse anyway. An incident like that could well have a significant negative effect on all platforms with PFs. Next time I talk to the RateSetter guy I'll bring up the T&Cs. I think, one day some provision funds will probably fail. Would it certainly kill all those platforms? I don't know about that. It might depend how they manage the situation and how they set expectations. RateSetter's provision fund is extremely fat though and the closest to being impregnable. If it failed, even during extreme times, that might rattle many people's faith considerably.
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Post by 4thway on Jan 17, 2015 15:06:06 GMT
Thank you, 4thway, for an interesting and useful article. In it, you observed... This suggests that some other funds are not discretionary. Can you say which those are? One reason I ask is that I was under the impression that these funds had to be discretionary for legal/tax reasons And possibly becoming subject to alternative regulation schemes if they weren't discretionary because they would look too much like insurance. Can you comment on that? To my understanding all the UK provisionary funds are discretionary for legal reasons in order not to fall under offering 'Insurance'. The only expection should be Lending Works which openly calls it Insurance. Lending Works has both insurance to cover losses from things like the borrower being unable to pay due to becoming unemployed. Its provision fund is a different thing, working in the same way as the others.
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max
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Post by max on Jan 17, 2015 17:07:23 GMT
Interesting that you brought up the 'Provision Fund' run by Wellesley. They have £1.1m in their provision fund which is around 2% of their current live loan book of £55.6m. Recently Lendy Ltd has been discussing how best to improve investor security and is considering offering a Provision Fund of their own. It would be a discretionary fund setup as a separate company that held 2% of the value of Lendy Ltd's current live book as a cash balance in the fund at all times. The fund would be to cover any potential shortfall when dealing with property disposals, thus improving investor security. In addition, we are still considering the Trust company (as per AC), setup to hold investor assets but some legal questions have arisen as to the workings on this and are still ongoing. If there are any accountants/lawyers with ideas on how best to proceed, we would be happy to discuss. This is a really interesting news. A provision fund would provide a peace of mind to many investors like me. I believe 2% of SS loan book would be enough to support a security that falls short of its estimated market value. Indeed it might be forward looking for SS to cover a "small loss" than letting some of their investors getting the hit and others feeling a panic attack "it could have been me!" The Trust Fund is also really important. Otherwise, investors might find difficult to commit a large amount of capital. I think this is key to increase the size of SS loan book to 9 digits like LendInvest. Looking forward to both!
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Post by wiseclerk on Jan 17, 2015 21:48:40 GMT
I don't think it would change much.
Actually the comapny itself kind of is the provision fund. Since investors lend to the company, and the company lends to the borrowers at a higher interest rate, it would be able to 'absorb' losses from a default and still pay investors - of course only to a certain amount of shortfalls. So a 2% provision fund would not really change much, as - if they wish - the company probably could cover shortfalls of that degree already.
The above is based on my assumptions, not on analysis of their accounts, which would allow an more accurate assessment.
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Liz
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Post by Liz on Jan 17, 2015 23:12:11 GMT
I like the idea of the way 2%(3% would be more days disirable) as we will have evidence the firm has the buffer, at the moment we have no idea how much capital ss has, and how much of a shock it can absorb.
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mikes1531
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Post by mikes1531 on Jan 17, 2015 23:22:54 GMT
So a 2% provision fund would not really change much, as - if they wish - the company probably could cover shortfalls of that degree already. While it wouldn't make any real difference to what happened to investors, I think the main difference is the reassurance and comfort it would provide to investors. And that would encourage more money into the platform, allowing SS to make more loans and expand more quickly, so it would be beneficial to them.
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