jo
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Post by jo on Aug 23, 2015 9:10:01 GMT
Hi Andy, I still disagree....and you acknowledge above, that there is, in fact, always a price - it might just not be the one you hoped/wished for. But this is to ignore the possible motivations of potential sellers of p2p portfolios. To take the example of a death: for some, (families, executors etc), there will be just be a desire to 'clear the books' and move on. Legacy accounts, especially for relatively trivial amounts, staying open until organically run-off, or sold, might just be an unwanted 'open-sore', and potentially attract costs. I respect your experience in the bond markets (having myself traded currencies interbank for ~20 years  ), and yes, there are moments of (sometimes extended) market stress, but what we're talking about here will for the most part be the textbook motivated seller pitching an asset at a level which attracts buyers - thus satisfying both parties. It's all about options and some smart platform will do this imo. |
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james
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Post by james on Aug 23, 2015 10:59:44 GMT
the textbook motivated seller pitching an asset at a level which attracts buyers - thus satisfying both parties. Satisfying both parties is insufficient. The executors or administrators party has a duty to the beneficiaries and it's not acceptable to get a low value just to get things over with more quickly unless the amounts are trivial. Base value is the capital owed plus the net present value of all future interest, allowance for defaults and default penalties and for early settlement. How much of a discount below this would you envisage beneficiaries being willing to accept? Say for a five year loan at 28% interest rate with estimated 6% loss to defaults for loans as a whole, but with this pool of loans selected to include a subset with lower but undetermined likely default rate? At present I know of no platform where anything close to the actual value can be obtained on a secondary market even for a loan that is on time, let alone late or defaulted. The closest I know of can commonly achieve single digit percentages above the current amount owed, far, far less than the likely NPV of future interest payments. If an executor or administrator was to sell at such great under-value I'd be suggesting that the beneficiaries consider taking action against the administrators or executors where the value was non-trivial. And against any ISA or SIPP platform which permitted the under-value sales. Sensible executors or administrators won't just make under-value sales like this but will instead do something like splitting the value between beneficiaries and letting beneficiaries decide whether they want to wait to achieve full value or choose to exchange their part at some value with another beneficiary. Eventually, hopefully, leaving the full value to be obtained by willing beneficiaries, while those who want liquidity get that.
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Post by ablrateandy on Aug 23, 2015 13:52:33 GMT
One thing that we were looking at is how to achieve basically the same thing on our (coming-at-some-point) AutoInvest. If someone wants to sell down then we should be able to have a button where we just say "This is your out-price based on the bids available". This would allow people to sell out the entire holding.
The problem comes with (1) potentially distressed loans - there are cases in the market where zero recovery happens due to fraud etc. and so there is no positive price and (2) large holdings where someone needs to sell a substantial position.
That being said, if someone came to our platform in this situation then we (/I pa) would happily make a price to buy their entire holdings assuming that neither 1 nor 2 applied. I'm being cagey just because what no platform (even the biggest ones) will want to do is write a blank cheque to a potentially large group of investors.
What you need to do is attach some sort of buyback option with underwriters or a company/fund sat behind it to cover the risk. I think that the cost of the option may be prohibitively high though. I've mused on the possibility of having some kind of CFD / CFD option traded outside the main platforms to get around the "no trading off-platform" rule and that would probably be a way to do this.
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james
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Post by james on Aug 23, 2015 14:15:57 GMT
Ablrate already has the most important pieces in place: a secondary market with novation agreement. So you appear to at least be able to assign a loan book to assorted beneficiaries as needed. If some beneficiaries don't want to hold then can sell and perhaps realise a loss compared to others. For Ablrate the issues are inability to sell when impaired/defaulted. But I don't think that's an issue for the novation agreement, just the resulting liquidity for beneficiaries who couldn't sell such loans in the standard way.
One general issue with getting full value for secondary market sales is early settlement risk. I don't know of a platform that allows the seller to keep all or part of this risk, potentially encouraging buyers to value the future income stream somewhere above the almost zero value it seems to typically have today. For secured lending platforms or those with good protection funds I think that this risk ends up dominating the achievable value, causing extreme discounting of the interest cash flow.
Bids aren't particularly efficient at Ablrate, just because of the need to commit the whole price in advance including potentially accrued interest. A day or three to settlement would have some value, I think. There are a lot of things and higher amounts that I'd be interested in bidding at but I'm not interested in tying up the money at nil return when I can be getting 12-20% on it. I'd probably be willing to bid 5-10k+ on the loans I'm currently in if I had time to settle, perhaps with an obligation to pay interest or interest and a half myself to the seller until I've settled, with this taking priority over any attempts to withdraw - so in effect secured on my future income and repayment stream.
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Post by ablrateandy on Aug 23, 2015 14:47:25 GMT
james not sure what you mean on your second paragraph but happy to look into it. re fully funding bids, there is a potential solution but that would involve allowing people to have a credit limit with us and that may get us into a whole new regulatory situation at a time when we are trying to keep things as straightforward as possible for the FCA. We've discussed it at length and I think that when we have underwriters we will probably implement this or something similar. Our initial thought is that we would credit people with up to X% of their current holdings on the platform to effectively allow temporary leverage and, as you say, because we control withdrawals we can stop people breaching their limit. And sorry - I sort of hijacked this thread and will retreat from it and back to my holiday 
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james
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Post by james on Aug 23, 2015 14:54:09 GMT
Holiday? You're as bad as I sometimes am on holiday Second paragraph is what happens if I buy a loan at 90% of the combined capital and net present value of the anticipated income stream, then the borrower repays a week or year later. This probably leaves me with a significant capital loss. So I am not likely to place anything like full value on the future income stream. That in practice is what I've observed happens as well: buyers just aren't willing to pay for much future income. |
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Post by ablrateandy on Aug 23, 2015 15:52:34 GMT
Ah ok. So an early repayment risk? That's always a difficulty and not an easy one to address. With us, there is only a right to request an early redemption by the borrower and then we would try to agree on a price that would compensate lenders. However, if someone had paid massively over 100 they would still lose out I guess. hmmmmm. I'll take a look at how traditional ABS deals with it.
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james
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Post by james on Aug 23, 2015 16:29:29 GMT
Yes, early repayment risk. And yes, not simple to address. |
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jo
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Post by jo on Aug 23, 2015 21:05:27 GMT
(The bold response isn't snark, it reflects my inability to part edit!) How much of a discount below this would you envisage beneficiaries being willing to accept? How about we let them have the opportunity to tell us - and by the magical clearing mechanism properties of price discovery, we'll find out if that's realistic - deal?If an executor or administrator was to sell at such great under-value I'd be suggesting that the beneficiaries consider taking action against the administrators or executors where the value was non-trivial. And against any ISA or SIPP platform which permitted the under-value sales. If the beneficiaries are willing sellers at x price then no foul.
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jo
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Post by jo on Aug 23, 2015 21:16:09 GMT
That being said, if someone came to our platform in this situation then we (/I pa) would happily make a price to buy their entire holdings assuming that neither 1 nor 2 applied. I'm being cagey just because what no platform (even the biggest ones) will want to do is write a blank cheque to a potentially large group of investors. I like that........I always like companies having 'skin' in their own game
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Post by ablrateandy on Aug 23, 2015 21:27:53 GMT
I make no secret of the fact that I invest in (and actively make bids and offers in) all of our loans if I have a position. . I'll muse on your suggestion too...... |
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registerme
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Post by registerme on Aug 23, 2015 23:51:08 GMT
But nobody likes forced seller / buyer situations, do they.
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james
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Post by james on Aug 24, 2015 4:30:11 GMT
How much of a discount below this would you envisage beneficiaries being willing to accept? If it is the beneficiaries trading and accepting the 50% or so loss for the loan I described, fine. If an executor or administrator was to sell at such great under-value I'd be suggesting that the beneficiaries consider taking action against the administrators or executors where the value was non-trivial. And against any ISA or SIPP platform which permitted the under-value sales. The beneficiaries would not normally be the ones offering to sell. It would normally be the administrators or executors. Sometimes the executors or administrators might be every beneficiary and might agree, other times not. The general solution to this is to let the account be split and transferred to the beneficiaries, so the beneficiaries can individually decide what they want to do with their portions. Though in the SIPP case the executors or administrators have no power to act and cannot do that because a SIPP like all pensions is outside the estate and not controlled by them..
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jo
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Post by jo on Aug 24, 2015 6:51:46 GMT
But nobody likes forced seller / buyer situations, do they. Who said anything about forced? I'm just looking for more flexibility so that p2p accounts don't end up a 'zombie' asset class estate wind ups.
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Post by westonkevRS on Sept 7, 2015 21:14:22 GMT
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), and yes, there are moments of (sometimes extended) market stress, but what we're talking about here will for the most part be the textbook motivated seller pitching an asset at a level which attracts buyers - thus satisfying both parties.
