AC - QAA a staggering 3.75%

Which brings up another limit on QAA growth...

Since the QAA has to earn enough interest from the portion of its assets that it's holding in loans (rather than cash), AC can't raise the QAA cap without adding more loans to the QAA to generate the income needed to pay the interest on the increased investment.  With the upcoming loan list showing no loans at all at the moment, it probably will be next week at best before any new loan parts could be put into the QAA.  This suggests to me that AC can't raise the QAA cap for a little while.

My account also shows 11+% as the average return, but that includes a number of defaulted loans accruing considerably more than that.  The QAA wouldn't be allowed to hold those loans, and probably doesn't hold a lot of the older loans paying 10-12% because there's very little of that available nowadays, not to mention that some of those will have high LTVs and thus not be eligible for the QAA -- or the GBBA, for that matter.  I'd expect the QAA's holdings to be earning a bit less than 10%, so to pay 3.75% to investors and build up the PF the QAA would need to be at least about half invested.

The reason AC have had to put a cap on QAA investment is that they'd otherwise have a massive amount put into the QAA and the QAA would end up holding too much cash and not enough loans to earn enough to pay that 3.75% interest -- principally because with such low deal flow there's little opportunity for the QAA to put its assets to work earning interest.  (The same dearth of opportunities that would make investors happy to sweep funds into the QAA causes the QAA a problem putting enough of its assets to work.  In short, the QAA can't "use 100% of the swept funds to get 7.7% p.a. to gain the maximum increase in provision fund" because there's very little it can invest in!  If AC can produce the improved deal flow we keep hearing about, then all will be well.)

The deal flow issue has to be impacting AC's GBBA/GEIA investors as well.  Anyone investing in those 'funds' recently probably will be disappointed by how much of their investment is idle and how little is working.  Thank goodness for the sweep of idle funds into the QAA! 

This all helps explain why only 20-30% of recent loans have been assigned to MLIAs -- AC need to direct a large chunk of their new lending to the QAA and GBBA to keep those going.

The more I think about the way the QAA is being used, the more I think it's an absolute stroke of genius on AC's part.  All they need now is improved deal flow.

Perhaps I wasn't making myself clear.  What I was trying to say was that sweeping idle funds into the QAA doesn't, in and of itself, help the QAA.  All it does is increase the QAA balance on which AC have to pay out 3.75%.  Only if the QAA can invest the money coming in into loan parts can AC earn the interest needed to pay out QAA interest. 

If AC were to increase the QAA cap by £1M today, and people immediately put £1M more into the QAA -- either by direct investment or by sweeping more in -- AC would have a problem because the QAA can't earn any more on its assets without acquiring more loan parts.  And with no loans in the pipeline at the moment, where is AC going to find more parts for the QAA to invest in? 

The only other source that I can think of is the secondary market.  AC could buy more of the Midlands Trade Finance Provider loans, but I suspect they've already put as much of that into the QAA as they feel comfortable with, since those parts have been available for quite a while.  (Not to mention that right now there's almost none of that left to buy.)  AC probably treat the QAA as a priority SM buyer so that whenever someone offers a part for sale a portion of that goes straight to the QAA before the remainder is spread among those MLIA investors with active buying instructions and funds available.  I expect the GBBA and GEIA similarly are treated as priority SM buyers as many of those accounts are bound to be less than 100% invested -- mine certainly are.   I haven't a clue how much activity there is in the SM on a typical day, but the need to leave at least a few crumbs of SM parts for MLIA investors probably limits the amount of SM sales that can be siphoned off to feed the QAA/GBBA/GEIA.

All will be better if AC's deal flow increases as hoped, but until then AC have to be very careful about the speed they let the QAA grow so as to make sure it doesn't grow too quickly.

Amen!

"The internal estimate is for between £3.5m and £5m to draw down in the next three weeks."

What is the internal estimate for the % (of this £3M-£5M drawing down in the next three weeks) to be actually available to MLIA investors?

The government's old f***s'  senior citizens' pre election one year "bribe" bonds are not being renewed at sweetener rates, so plenty of £10,000 lumps will be looking for a new home, methinks, over the next couple of months.

That's being worked out now.  Some will be retained by underwriters, some retained in the QAA, and the rest will be split between the GBBA and MLIA (with possibly another lump for the GEIA).

I've also had it formally agreed that it would be nice to show the expected MLIA split in the last few days before drawdown, with an estimate of the per lender allocation, so those responsible for entering that data are currently working out a process for getting it into the system earlier than it is currently entered.