wysiati
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Post by wysiati on Mar 9, 2014 13:48:58 GMT
I am uncomfortable with the certainty that a full exit (bar defaults and zombies) from FC is currently not possible. Loans in each risk band will not sell at par under certain rates, meaning that a proportion of all long term investors' portfolios are locked in. Please don't take this the wrong way but it is probably unrealistic in general to invest in what are, after all, risk assets with the potential returns associated with those and to expect to be able to exit at cost (ignoring fees) at a time of one's choosing. The set up at Assetz Capital is an exception and is a trade off (which some users may well prefer) whereby holders forgo the potential for securing an outright premium or even, in effect, to ride down the yield curve on long-term holdings; even then it still requires another party to want to hold those loans one wishes to exit which, in the absence of some marketmaker with a mandate to offer a price, cannot be guaranteed under normal conditions. The observed level of sales of loan parts at par on FC is only achieved due to a large pool of capital which does not seek to discriminate on qualitative grounds, or to an extent even on price (e.g. autobid will not, or certainly did not, necessarily purchase the highest % buyer rate loan parts available at par for a given loan issue).
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blender
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Post by blender on Mar 9, 2014 20:14:21 GMT
I am uncomfortable with the certainty that a full exit (bar defaults and zombies) from FC is currently not possible. Loans in each risk band will not sell at par under certain rates, meaning that a proportion of all long term investors' portfolios are locked in. Please don't take this the wrong way but it is probably unrealistic in general to invest in what are, after all, risk assets with the potential returns associated with those and to expect to be able to exit at cost (ignoring fees) at a time of one's choosing. The set up at Assetz Capital is an exception and is a trade off (which some users may well prefer) whereby holders forgo the potential for securing an outright premium or even, in effect, to ride down the yield curve on long-term holdings; even then it still requires another party to want to hold those loans one wishes to exit which, in the absence of some marketmaker with a mandate to offer a price, cannot be guaranteed under normal conditions. The observed level of sales of loan parts at par on FC is only achieved due to a large pool of capital which does not seek to discriminate on qualitative grounds, or to an extent even on price (e.g. autobid will not, or certainly did not, necessarily purchase the highest % buyer rate loan parts available at par for a given loan issue). Sorry but you are not taking account of your name in making that post wysiati - if you just go to the FC site and check how it works then what you will see is all there is:- 'Investing at Funding Circle allows you to have access to your money when you need it by selling your parts of loans on to other investors. On average it takes 2 days to access your money, when you sell the loan parts at par value.' FC provide the system and manages the market (trying to maintain some sort of balance between supply and demand). We poor simple lenders do not need to think too hard about the compexities of liquidity and the making of a secondary market, because what there is on the site is all there is, and all we need to know. So I am puzzled that I have had 80 decent C- loan parts for sale at par at 11.5% for the whole weekend and I have sold - none. No doubt there will be some complex explanation of how 'average' is calculated, or perhaps it is working days, etc, etc. But for the average punter FC is not doing what it says on the tin.
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wysiati
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Post by wysiati on Mar 9, 2014 22:29:06 GMT
I can see how being naive (or pretending to be so) can suit one's purposes here but there is no guarantee in place. The quoted FC average timeframe for lp sales at par is perhaps over 2yrs old and may well no longer be valid - in which case expectations should be rebased by the platform. If a user's loan parts are not selling then if they want to sell them they should allow more time or do something to make them more attractive relative to the thousands of alternatives and/or stop moaning about it. Those simply relying on autobid to bail them out of what they themselves now view as relatively unattractive loan parts at a time when rates gone up deserve no special assistance relative to those who have invested time and effort to maintain a competitive assortment of loan parts.
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blender
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Post by blender on Mar 9, 2014 23:02:55 GMT
... The quoted FC average timeframe for lp sales at par is perhaps over 2yrs old and may well no longer be valid - in which case expectations should be rebased by the platform. ... I think the idea of WYSIATI is that we should take things at face value and not try to read in all sorts of complications based on our experiences and predjudices (simply). I guess you had not read FC's advice to its lenders, which the average unsophisticated lender might expect to rely on. It is not two years out of date - it would have worked ok in October 2013 - and I am sure that it represents what FC wish to continue to achieve. FC seeks to provide a simple system for the naive or unsophisticated consumer lender, you buy with Autobid and you sell with Autosale - which only operates at par. At present Autosale simply does not work (though of course I have not used it). FC will be unhappy with this situation - and the solution is not to tell the consumer lender to use the 'sell individually' facility and learn how to choose and price loans to sell in the prevailing market. The requirement is to restore liquidity and create a more stable marketplace where rates are determined by perceived risk and the general performance of competing investments/savings. It is the job of the forum to provide a critique of the operator's performance - to moan perhaps.
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wysiati
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Post by wysiati on Mar 9, 2014 23:59:24 GMT
... The quoted FC average timeframe for lp sales at par is perhaps over 2yrs old and may well no longer be valid - in which case expectations should be rebased by the platform. ... I think the idea of WYSIATI is that we should take things at face value and not try to read in all sorts of complications based on our experiences and predjudices (simply). I guess you had not read FC's advice to its lenders, which the average unsophisticated lender might expect to rely on. It is not two years out of date - it would have worked ok in October 2013 - and I am sure that it represents what FC wish to continue to achieve. FC seeks to provide a simple system for the naive or unsophisticated consumer lender, you buy with Autobid and you sell with Autosale - which only operates at par. At present Autosale simply does not work (though of course I have not used it). FC will be unhappy with this situation - and the solution is not to tell the consumer lender to use the 'sell individually' facility and learn how to choose and price loans to sell in the prevailing market. The requirement is to restore liquidity and create a more stable marketplace where rates are determined by perceived risk and the general performance of competing investments/savings. It is the job of the forum to provide a critique of the operator's performance - to moan perhaps. Wysiati can actually be invoked to help explain a number of biases in judgements/decision making. To quote FC directly (from FAQs, Buying and selling loan parts), "You can sell your loan parts easily in the "Sell Loan Parts" tab in My Account . There are two ways to sell your loan parts: 1. Autosale – To use Autosale simply specify the amount you want to raise and click Preview Loan Parts. Autosale will then show you a list of loan parts of a value close to the amount you want to raise. If you are happy with these click Sell Loan Parts and these loan parts will be listed for sale in the Lend section of the website. 2. Sell loan parts individually – Tick the loan parts you want to sell and then click Sell Loan Parts. If you choose loan parts, you can sell these at up to a 3.0% premium or discount. You can sell loan parts for a minimum buyer rate of 4%. These loan parts will then be listed for sale in the Lend section of the website. Loan parts will be listed for sale for a period of 14 days, during which other investors can review the loan parts and buy them if they wish. There is no guarantee that loan parts listed for sale will be bought by other investors. Investors will not be able to see their own loan parts listed for sale so that they do not mistakenly attempt to buy them. You can see your own loan parts listed for sale in My Account if you select “for sale” from the filter at the top of My Loan Parts. You can also see them in the sell tab under “loan parts for sale”." A forum risks losing credibility when it is full of posts which claim to but do not provide a useful 'critique of the operator's performance' but instead are largely self-serving rather than objective, and/or seek to overlook/exclude any inconvenient/contradictory information in favour of confirmation bias. Anything I have listed at par within the past few weeks has sold within 2-3 days but I am not going to extrapolate that to the market as a whole or assume that where you have an average 'on-sale' time this can be relied upon for any given instance of a sale or seek to abrogate all responsibility and simply blame the platform if I have loan parts which are slow to sell.
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pikestaff
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Post by pikestaff on Mar 10, 2014 8:36:15 GMT
I agree with Blender that many lenders, especially newcomers and the more naive lenders who use Autobid and Autosale, will see and rely on the prominent statement 'Investing at Funding Circle allows you to have access to your money when you need it by selling your parts of loans on to other investors. On average it takes 2 days to access your money, when you sell the loan parts at par value.' I also agree that FC should be unhappy that this is not happening at the moment. To an extent, this is just one aspect of the current excess of supply of loans over demand. However, it is also true that FC downplay the risk of rates generally moving against lenders so that, for example, C loans made at 9% may become difficult to shift.
All that said, "on average" does not mean all the time or for every loan. For most of the time that I was lending on FC, my experience was that all loan parts of up to £40 sold at par within minutes of being put up for sale. It was only in the last few weeks of liquidating my portfolio that I had a few parts (all Cs at slighly below the current MBR) which would not shift at par even after 2 weeks. I ended up selling them at a very small discount just to get rid. I suspect matters have got worse since then.
I am sure that the cumulative average remains a long way below 2 days. There would need to be a prolonged buyer strike to change that. But, I don't think FC should argue the cumulative position in support of their statistic. It is reasonable for readers to expect (and I think the FCA would expect) the statistic to be reasonably current. In my view there would be a real issue if the monthly moving average were to be above 2 days.
This is one of a number of areas where it will be interesting to see how FC's website evolves once regulation is in place.
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merlin
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Post by merlin on Mar 10, 2014 9:52:30 GMT
I agree with Pikestaff on the subject of the effects that regulation might bring about. As I have said elsewhere I think we are already seeing a few changes occurring as FC bring their operation into line with the FCA guidelines recently published. All the current P2P lenders are currently operating on and a sort of provisional licence from the FCA and would want to be seen to be coming into line in order to get the FCA's full endorsement in due course.
When it comes to statements which can be seen as "inducements to trite", like quoting average rates earned etc. FC could also involve the wrath of the Advertising Standards Authority if they make wild or unjustified claims. There have been plenty of examples of the intervention by ASA into financial advertising this in the past and it only takes a few complaints from Joe Public to get ASA on the case.
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blender
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Post by blender on Mar 10, 2014 11:09:02 GMT
In truth I am not too bothered about selling my loan parts at present because I was just churning - do not need to sell. But I do expect to be able to exit as I need to. Else I should join TC. Liquidity and the use of Autosale is a key part of the value of FC's offering and it is best that we flag these problems up to FC before they start to become a feature of the landscape and the consumer lenders panic. FC's two day statement applies specifically to Autosale, ie at par. Of course I could offer at a discount, but in doing so I immediately exclude all Autobidders from purchasing and have to rely on the much lower numbers of secondary market manual purchasers who are looking for the best deal. At present there are 10,000 loan parts for sale at par or better including 280ish at a discount; this is pathological, IMO. It has gone on too long.
The point about regulation is well made, and I am sure FC are on to it. If there was some other general market based explanation for the liquidity prolem, such as a hike in base rates or the ISA panic at FY end (which is coming), then FC would have some defence. But both the trading system and the current FC market position are within the control of FC. And they have just been helped with £40M of public money. Their promotions to increase borrower loan value have been more successful than those aimed at lenders, and they seem unwilling to spend on advertising - which is clearly needed, IMO. The market leader in an emerging market is often loathe to spend on increasing awareness of the market because it give a free leg-up for the smaller operators. But FC needs to increase its brand awareness and therefore has to help grow the market generally. That's how the market leader stays the market leader as the sector grows.
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blender
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Post by blender on Mar 10, 2014 22:40:18 GMT
Liquidity is now at its worst ever with over 11500 loan parts unsold at par or a discount. And someone seems to be selling a portfolio at -3%, about 65 parts left worth over £30k.
I tried taking the advice of wysiati and found that 11.5% C- parts will go at -0.2% discount, 11.7% buyer rate.
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Post by davee39 on Mar 11, 2014 18:40:53 GMT
Two possible causes.
1) lower liquidity = higher rates on the primary market. Loan traders still buying significant numbers of parts but not getting the desired premium when new loans look so attractive. Loans therefore being offloaded at par.
2) Selling of older lower rate loans to re-invest in newer higher rate loans.
Anyone now complaining about selling would have been delighted in the past as loans went at a premium.
FC are currently preparing their property launch. I fully expect to see a major marketing initiative from April once regulation kicks in.
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wysiati
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Post by wysiati on Mar 12, 2014 17:32:22 GMT
Liquidity is now at its worst ever with over 11500 loan parts unsold at par or a discount. And someone seems to be selling a portfolio at -3%, about 65 parts left worth over £30k. I tried taking the advice of wysiati and found that 11.5% C- parts will go at -0.2% discount, 11.7% buyer rate. What is clear is that users have wildly different experiences w.r.t. FC's secondary market. I have been selling down many of my (mainly unsecured) holdings since the start of the year which should have provided a reasonable test. So far YTD I have sold all but a handful of the loan parts at a premium (only c0.1% of the total number sold at par and none at a discount) with a weighted average premium achieved of c.2.5%. Granted, the sales have been lumpy and have included a lot of loan parts >1-2yrs old which, despite not matching the top rates currently available in each category, still commanded good premiums (scarcity value?). Perhaps I have merely been lucky not to have experienced what others have described in terms of an effective inability to sell in any meaningful way? Even so, blender's latest comment suggests that price discovery can at least be relatively quick on FC. On ThinCats, where I have been conducting the same exercise, the processes are so slow and manual that you get perhaps 2 (3 if you are lucky) back-to-back secondary market variable rate listings of 5 days duration during the course of a whole month (with no payment either for accrued but unpaid interest upon sale and a minimum fee of £25 per loan part) and if you do make a sale it can take another week or so for the funds to be credited to your account for withdrawal - by comparison with FC it is a wretched process. When the MBRs were introduced and then rejigged to create a more gradual escalation it was speculated that it would not be worth bidding for/keeping much at MBRs for the next several months if the ability to exit at lowest cost in the shortest time frame was likely to be an important consideration for users. That still applies as long as the rate escalator is in place.
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blender
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Post by blender on Mar 12, 2014 21:00:27 GMT
My success at selling C- loan parts at a 0.2% discount was a flash in the pan, unfortunately. Some 15 parts from two loans were all taken by one purchaser, and only one other part, at par at 11.5%, has been sold since Friday (5 days) - I now have about 75 C- parts on sale at between 0% and -0.3% and they sit there. I have no real need to dispose of them urgently. I have sold a few other loan parts at a premium. I have to conclude that autobid is not working its magic on the secondary market, whether by design or by choking on the 13,500 loan parts at par or a discount that await sale. Clearly liquidity is getting worse still, and mijewen's post on the FC forum confirms that. It is suggested there that decent parts will shift at -1% but for most of the time on FC it has been the large parts or the poor rates which have required that sort of offer. A portfolio of ex £500 loan parts is being sold at -2%, or perhaps not being sold.
I hope that davee39 is right about an April advertising push. It is too much of a roller coaster ride at present.
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min
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Post by min on Mar 13, 2014 7:17:45 GMT
My success at selling C- loan parts at a 0.2% discount was a flash in the pan, unfortunately. Some 15 parts from two loans were all taken by one purchaser, and only one other part, at par at 11.5%, has been sold since Friday (5 days) - I now have about 75 C- parts on sale at between 0% and -0.3% and they sit there. I have no real need to dispose of them urgently. I have sold a few other loan parts at a premium. I have to conclude that autobid is not working its magic on the secondary market, whether by design or by choking on the 13,500 loan parts at par or a discount that await sale. Clearly liquidity is getting worse still, and mijewen's post on the FC forum confirms that. It is suggested there that decent parts will shift at -1% but for most of the time on FC it has been the large parts or the poor rates which have required that sort of offer. A portfolio of ex £500 loan parts is being sold at -2%, or perhaps not being sold. I hope that davee39 is right about an April advertising push. It is too much of a roller coaster ride at present. Don't know what's changed things but 6 C- loan parts at 0% gone overnight where previously not sold one for days. Only another 37 to go!
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merlin
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Post by merlin on Mar 13, 2014 8:32:44 GMT
My success at selling C- loan parts at a 0.2% discount was a flash in the pan, unfortunately. Some 15 parts from two loans were all taken by one purchaser, and only one other part, at par at 11.5%, has been sold since Friday (5 days) - I now have about 75 C- parts on sale at between 0% and -0.3% and they sit there. I have no real need to dispose of them urgently. I have sold a few other loan parts at a premium. I have to conclude that autobid is not working its magic on the secondary market, whether by design or by choking on the 13,500 loan parts at par or a discount that await sale. Clearly liquidity is getting worse still, and mijewen's post on the FC forum confirms that. It is suggested there that decent parts will shift at -1% but for most of the time on FC it has been the large parts or the poor rates which have required that sort of offer. A portfolio of ex £500 loan parts is being sold at -2%, or perhaps not being sold. I hope that davee39 is right about an April advertising push. It is too much of a roller coaster ride at present. I have sold 8 C loans at par in the last 24 hours. All these items were what most could call mature with more than 6 payments being made. Had previously tried to sell them at .5% premium with no luck. My guess is that the market is just being a bit fickle at the moment but exacerbated by a shortage of buyers.
I guess our problem in understanding what is going on is that we really have no clear indication of what FC's long and short term strategy is. We see lots of speculation about what it might be but no hard facts.
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blender
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Post by blender on Mar 13, 2014 23:22:51 GMT
Liquidity problems are now attracting comment and a reply on the FC forum. The reply needs a bit of analysis:
'The average time to sell a loan part at par value is currently 27.7 hours. For context, in February 2014 it was 19.7 hours, and in January 2014 it was 2.9 hours. In March 2013 it was 1.4 hours.' The average time to sell a loan part at par presumably includes only those parts which are sold, and excludes the loan parts which are not sold, either timing out after 14 days, or removed by the seller before that, or still waiting to be sold. This is not the same thing as liquidity nor how long it takes to get your money back. If your parts do not sell then you do not have your money back, and it is small comfort to know that those that did sell did so in an average of 27.7 hours. It is noticeable (or it seems to me) that those parts which are going to sell do so quickly, while the rest time out. I hope that FC's resident statistical illusionist is not going to use that figure to imply that if you ask Autosale to sell a certain sum then at present on average that sum will be in your available funds in 27.7 hours. Not the same thing at all, though I think in March 2013 it would have been much closer since almost everything at par was selling.
(I could misuse those statistics to confirm the dramatically worsening liquidity problem by noting that it now takes, on average, nearly ten times as long to sell a loan part at par than it did in January)
'We have had record numbers of investor sign ups to match the large numbers of borrowers applying for loans following advertising (you may have seen some of our adverts on the London Tube).' Yes but if for each new borrower you sign up a new lender, that does not help unless the lender lends as much as the borrower borrows. The average borrower takes £50k at once, the average active lender lends £5k over a period, and half are active. Have the new lenders actually lent as much as the new borrowers have borrowed? (BTW the growth of borrowers is a good thing - FC should be congratulated).
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