Post by transo on Jan 19, 2015 23:09:52 GMT
There's been lots of debate about whole loans, which I think it's safe to say aren't viewed with universal favour by people who frequent this board. I was pretty disgruntled when they were launched, and nothing FC have done since (in particular their failure to honour the commitment that the "table scraps" nature of loans offered and not taken up as whole loans would be made clear to lenders) has really convinced me otherwise, but I've had to live with it to get any lending done.
However recently my platform provider sent me an e-mail about a new share offering by one of the investment trusts investing in P2P loans, P2P Global Investments plc. (Obviously the prospectus is a financial promotion so I'm not linking to it but you can find it online easily and then read it if you're eligible to do so.) I've had a reasonable skim through and thought board members might find a few points about P2PGI interesting:
I also thought it might be interesting to compare the experience of lending directly via FC or in FC loans via P2PGI (assuming for a moment that it was 100% invested in FC loans, which as stated above it isn't, and can't be):
All in all, looking at that, I feel a bit happier about investing with FC directly, and quite glad to leave the whole loans to people silly enough to pay "performance fees" for any non-negative performance at all. I would still like FC to be more honest and transparent about what's happening, and to allow us to use an API under sensible conditions.
What do others think?
However recently my platform provider sent me an e-mail about a new share offering by one of the investment trusts investing in P2P loans, P2P Global Investments plc. (Obviously the prospectus is a financial promotion so I'm not linking to it but you can find it online easily and then read it if you're eligible to do so.) I've had a reasonable skim through and thought board members might find a few points about P2PGI interesting:
- They invest in loans on a variety of P2P platforms (FC, Zopa and RS in the UK, plus a mixture of US consumer and SME ones). They're limited to 33% of assets in any one P2P platform. They can also take equity stakes in the platforms, but that can't be a major part of their assets.
- Their "European SME loans" (which given the list above must all be FC) constitute 18.2% of the money they ~£180m they invested from their first fund raising early last year, so that's about £32m of whole loans or one third of the total. (Note I've used the loan book today and their figure dates from around November so aren't strictly comparable, one third may therefore be an underestimate).
- Their agreement with FC requires them to pay FC fees, but I can't see any declaration of what these are, or any way of working it out from the (limited) financials supplied. My guess is that these are similar to the fees we pay FC, but are probably at a lower basis, say 50bps (0.5%) rather than the 100bps that we pay, which might reflect reduced cost. The agreement is now on a three month rolling basis and requires them to lend certain (unspecified minimum volumes) with FC each period.
- Their "onboarding" requirements for new P2P platforms includes API access, so suspect they have API access to FC. (Again this is a bit irksome given FC's total failure to launch an API for the rest of us, despite how much this might save their struggling web servers, although I accept a whole loan API would be significantly simpler. I wonder if their agreement has the same ridiculous set of constraints about information obtained via the API as FC's proposed API agreement did last time round?).
- They're looking to raise another £200m by end of January, so that could be another several tens of millions heading for whole loans this year.
I also thought it might be interesting to compare the experience of lending directly via FC or in FC loans via P2PGI (assuming for a moment that it was 100% invested in FC loans, which as stated above it isn't, and can't be):
- Direct bidders get control of the rates they bid at, whereas whole loan bidders get the moving average for the risk band take-it-or-leave it. It's likely that 'active' direct investors get better rates than P2PGI, auto-bidders presumably set a large part of what the "average" rate is at each risk band and therefore probably get similar rates to P2PGI.
- P2PGI (and other whole loan participants) get first-dibs on a random selection of loans (exact proportion seems to vary over time).
- It looks like P2PGI only invest in whole loans, although their investment authority allows them to take loan parts too (e.g. if they saw a loan that was never offered as a whole loan they liked the look of, there's nothing I can see to stop them bidding). If they do both they get a better selection of the market than we do (all partial loans plus a bunch of loans we never get an opportunity to see).
- Direct bidders can sell their loan parts, subject to liquidity in the secondary market, whereas whole loan holders are (as I understand it) generally stuck with them to maturity. (Although they may be able to arrange to sell on their interest in a loan without FC's involvement provided FC are happy to record the change in ownership.)
- Both direct and other bidders pay FC a fee, probably on a similar basis but possibly at a different rate.
- P2PGI's managers charge a fee of 1% of it's net assets (well actually 1/12% per month, which of course compounds to very slightly more than 1% a year). Note that its net assets will include uninvested cash etc (although an investment trust will typically place this on the money markets and earn some interest for the fund in the process, unlike direct investors' uninvested cash at FC).
- P2PGI's managers are also entitled to a "performance fee" of 15% of any increase in the net asset value above a previous high water mark. I use inverted commas as there appears to be no minimum performance they have to achieve to earn this, only that the net asset value increased in the period. If net returns after losses were (say) 5% they'd promptly take 0.75% as a performance fee, leaving investors with 4.25%.
- There are another bunch of fees involved in running an investment trust (depositories, auditors, ...) to fill up the 100 page prospectus with all the legalese. I've not bothered to add these up, but at other funds these often add up to ~0.1-0.2%/year.
All in all, looking at that, I feel a bit happier about investing with FC directly, and quite glad to leave the whole loans to people silly enough to pay "performance fees" for any non-negative performance at all. I would still like FC to be more honest and transparent about what's happening, and to allow us to use an API under sensible conditions.
What do others think?
