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Post by Butch Cassidy on May 17, 2016 16:01:10 GMT
Can anyone provide a reasoned argument for the ongoing future survival of the MLIA?
I fully accept & believe AC when they say they have no plans to close the MLIA & even that they hope to launch loans at rates that suit all accounts, by definition presumably higher than the 7-9% staple of recent months, but I struggle to see how virtually any sub 10% loans are more suitable to be held directly rather than investing in say GBBA for a stress free, hands/brain off 7%, that also benefits from a provision fund & immediate cost free exit even when suspended/defaulted loans are held. There will of course be the odd exception but as a general rule surely the risks outweigh the couple of % premium?
AC are launching other new accounts going forward so the risk that these & a larger, more powerful QAA actually works against direct MLIA loan investors by imposing financial exit penalties, as QAA has sale priority & suffocating liquidity with increased competition by enabling AC to u/w more sub optimal quality/rate loans that normal investors would not fund is a major threat. MLIA is always seemingly at the back of the queue for selling although the actually process is so opaque it is virtually impossible to tell who has what priority when & by how much; all I know is that as a recent seller minimum 1% discounts were needed to shift loans such as 45 or 207 which is a direct financial loss to me (which I was comfortable with) but the argument that “it’s only a month’s interest” no longer holds when the headline rates are so far below that 12% threshold. MLIA holders also risk the threat of suspension & default of impaired loans, as well as any delayed payments by either the borrower or AC with less than timely dispersals.
I have been with AC since near the start; so as an early adopter, high risk/reward investor I can accept that I am now an unwanted dinosaur & am happy to find new high yielding P2P pastures. I think AC have very capable management & a very professional offering going forward that will mean they are long term P2P winners (so as a shareholder that gives me great comfort) but I have now withdrawn over a third of my investment in the past few weeks because as an investor I can no longer justify the cavernous gap in rates between AC & their competitors, from 18-20% on FC & Rebs to 12% + on MT,SS, Abl, LC, Mintos et al.
Am I missing something or just unable to follow the lower rate, average pooled risk investor majority?
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Investboy
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Post by Investboy on May 17, 2016 16:06:43 GMT
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Post by mrclondon on May 17, 2016 16:17:35 GMT
On the whole it's quite hard to argue against such logic. One (small) mitigation in favour of MLIA is the default interest on bridging loans that are running late but the underlying security appears to be solid.
I think though its a case of "what goes around, comes around" and there may be higher yield loans at AC in the future, but presently very careful cherry picking on FS, MT & SS will suit those looking for 10-12% pa yield* (whilst remembering that most loans on those platforms are under priced for risk, and should be 14 to 16% pa*)
* before capital losses
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Post by Butch Cassidy on May 17, 2016 16:24:33 GMT
No I have a wide range of loans on FC between 17.7% - 18.2% & Rebs offer 20% on a regular basis - obviously not investment advice do your own DD etc..
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mikes1531
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Post by mikes1531 on May 17, 2016 22:24:41 GMT
...GBBA for a stress free, hands/brain off 7%, that also benefits from a provision fund & immediate cost free exit even when suspended/defaulted loans are held. Is it actually quick to exit from the GBBA these days?
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bababill
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Post by bababill on May 17, 2016 23:50:36 GMT
Some very good points Butch Cassidy- I had to take a while to think why I fundamentally disagreed with your viewpoint. 1) 7% handoff and 'secured' makes great sense hence why I also lend with LendInvest. However, I also like the 'challenge' of finding good quality loans that earn more. Frankly I know I should not go for 9/10% loans because considering default rates I probably will be better off with 7% secured... But nevertheless like an addicted gambler I still persevere... (mind you in only what I deem good quality loans). Perhaps you are right it is only the odd exceptional loans that I invest in with the MLIA. But that is enough reason to keep the MLIA. 2) Some of the other sites you mention I would not touch with a bargepole.... i.e. one site in particular I find incredibly misleading. Another site would say the maximum amount you can invest is say £20.00 or £100 per loan (perhaps that has changed) which is just too small. Another site one has to take currency risk.... 3) My final reasoned (hopefully) argument for MLIA is because your suggestion assumes one can invest 100% in the GBBA.. I have been trying to invest further funds since May 1 and nothing but small amounts of shrapnel have gone in. mikes1531 .. I assume other peoples investments in GBBA must virtually be available for immediate withdrawal because people like me are trying to get in.. but not really sure on this point because I can't figure out how allocation of GBBA really works... |
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hendragon
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Post by hendragon on May 18, 2016 5:57:02 GMT
...GBBA for a stress free, hands/brain off 7%, that also benefits from a provision fund & immediate cost free exit even when suspended/defaulted loans are held. Is it actually quick to exit from the GBBA these days? I managed to cash in £1350 of £1400 from the GBBA overnight.
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Post by stuartassetzcapital on May 18, 2016 9:34:07 GMT
Hi Guys
Thanks for the feedback. We are indeed keeping the MLIA open and I can see there are a few challenges to address to do this in a way that is attractive for people. I think liquidity will always be lower than any accounts that sacrifice some rate for liquidity as well as provision fund protection but perhaps it could be better. We are considering that and also the discount step at 1% in light of rates. In terms of some of those other platforms I would never cast aspersions so I would instead ask myself questions about why such high rates exist given the market is hot and there are lots of willing lenders way below those rates for the right deals and brokers know the lenders and a lower interest rate might mean a higher fee was possible and therefore they could earn a higher fee perhaps for a lower rate elsewhere - unless it was unplaceable anywhere else which then raises the exit risk question too. There are a lot of land-bridges going around too which have an entirely different risk profile to normal bridges with clear exits. If we had appetite for such risk and the eventual wrath it would bring from lenders we would do more of them but the ones we do we are happy with but that isn't many I am afraid. DYOR is all we can say.
Our default and recovery data is about to be published but as a preview the first 9 defaults that have had their cases closed have had 100% of capital recovered and also 100% of interest required by lenders recovered too. We can't carry on at that level as even secured lending can have some catches but the total Expected Loss plus past (zero) losses isn't particularly measurable against the typical 11% IRR lenders are achieving in MLIA historically. The market has moved on with rates and the benign conditions are now becoming hot conditions and we cant have the premium above risk that we used to have, no-one can, and hence the question-mark over high rates and the true risk on some loans mentioned elsewhere.
Of course in the next cycle turn we will again have relatively safe secured loans back again at 15% + borrower rates but we aren't there yet and MLIA will again have a field day with our quality credit team and wide catchment net for loans.
Always happy to listen.
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Post by reeknralf on May 18, 2016 10:41:04 GMT
I think there is a flawed assumption hidden in the pooled vs manual comparison. AC loans are going to yield some amount, x%. The pooled investments will get either x% or 7%, whichever is less. Manual accounts will average x%, some will get more, some less. A scenario whereby pooled investments average more than x% over the long-term is not credible.
I know what profile of loans I want, and back myself to match this profile better with the MLIA. I avoid any investment I don't understand and have a deep-seated mistrust of black box pooled investment schemes in a young lightly-regulated industry. Keeping the MLIA open doesn't cost AC much, and means they keep investors like me. I think they understand that they need a diversifed investor base to get through an economic cycle. The benefits of investor diversity is something the FFF and pooled-investment platforms don't yet seem to have grasped.
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Post by stuartassetzcapital on May 18, 2016 10:50:33 GMT
I agree the diversification point is important and that's why we want it to remain a great option for people. That is independent of market forces driving down the premium above pricing for risk.
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Post by Butch Cassidy on May 18, 2016 11:00:47 GMT
Whilst a fully accept AC is at the conservative end of the P2P spectrum & there are huge volumes of building Soc/RS/Z/W type investors who will leap for joy at rates of 4-7% & that is a perfectly sensible, rational growth strategy to pursue it still doesn’t help the typical MLIA investor. Other platforms use higher rates, default buybacks, first loss provision etc. to help mitigate any perceived higher risks but having studied thousands of different proposals I would argue, with a little work, it is still possible to cherry pick a portfolio that is no more risky than an average AC loan & that yields at least a 50% premium return. So to address the point raised by reeknralf why chose the AC/MLIA instead of an option that yielded a much higher return for similar risk? AC has a very good recovery record & long may that continue but I would point out getting any access to the funds tied up in such loans can often takes a very long time, which prompts the question - Why not allow trading to take place? & most investors would prefer fewer defaults to start with, especially when rates are so much lower than available elsewhere. I also see the increasing use of QAA to u/w loans as a significant threat, potentially increasing default risk, as it strips away genuinely independent peer review of loans (from an u/w panel that were risking their own money) that used to provide a very useful overarching DD, revision, amendment function that ultimately benefitted all investors. Now AC are effectively marking their own homework & the pipeline, whilst welcome, is so lacking in detail that any meaningful investor DD is almost impossible until the loan draws down. Who knows what the next cycle might bring or when it will happen? |
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gibmike
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Post by gibmike on May 18, 2016 11:23:26 GMT
I have to agree with Butch Cassidy with regards to the MLIA, I have 0 interest in flat rate 7% or even a flat rate 9% as it removes the enjoyment (did I really just say that). I think I am wise in my own way, I spread my risk and loan purchases across numerous loans with higher investments in lower LTV and rates with smaller investments in higher LTVs. However I invest however is my choice which is how I want it to stay. If you look at their rates: 10% - Manual Loans 7% - Green/UK Funds 4% - Access Account These to me are perfectly balanced, any movement towards 7% for manual loans would upset the product offering by skewing the risk of manual investments. All in my uneducated opinion of course. Mike |
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Post by mrclondon on May 18, 2016 12:05:58 GMT
there may be higher yield loans at AC in the future, but presently very careful cherry picking on FS, MT & SS will suit those looking for 10-12% pa yield* (whilst remembering that most loans on those platforms are under priced for risk, and should be 14 to 16% pa*)
* before capital losses but having studied thousands of different proposals I would argue, with a little work, it is still possible to cherry pick a portfolio that is no more risky than an average AC loan & that yields at least a 50% premium return.
I'm currently struggling to justify investing in sub 10% loans on AC. In many cases the pricing vs risk is not unreasonable (although with LTV's approaching 70% some of the sub 9% loans are questionable). Its just I can find better deals on other platforms and manage to get a larger slice of the loan than the £100-£200 max allocation to MLIA holders we are currently seeing.
When AC's 10% care home redeems this week the funds will be heading across to MT's 10% 1st charge 5 year loan (60% LTV) that TC have the 2nd charge. A recent (small) withdrawal from AC will be heading to FE's 10% BLX HP loans. A previous withdrawal went to an "A" tranche loan on TC at 10% and a inner London residential project on MT at 10% (both 70% or less LTV).
I'm probably far more cautious than many on the forum, but I don't view the 10% deals I've just outlined as being significantly higher risk compared to the typical 8% to 9% loans on AC.
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Post by reeknralf on May 18, 2016 17:00:27 GMT
I don't think it's adequate to treat risk as a one-dimensional parameter: high, medium or low. For example let's say there's a 50% chance of an economic downturn. An overall default risk of 10% might be 11% in current conditions, and 9% in a downturn. For a different loan it might be 0.1% in current conditions and 19.9% in a downturn. I want some of both these sorts of loans. Piling into SS and MT might well give a higher yield in current economic conditions, but I want a portfolio that doesn't implode in a downturn as well. I am happy to sacrifice some current yield for a better safety net.
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mikes1531
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Post by mikes1531 on May 18, 2016 17:13:50 GMT
If you look at their rates: 10% - Manual Loans 7% - Green/UK Funds 4% - Access Account These to me are perfectly balanced, any movementupset the product offering by skewing the risk of manual investments. Any movement towards 7% for manual loans also would cause problems for AC's 7% managed portfolios, as they need a significant differential to fund the PFs. The actual default risk has to be less than the differential for the PF to have any chance of growing at all, so increasing the PF balance from where it is now -- 1.0% for the GBBA -- to the 5% target is quite a challenge. Even with the current differential it will take some considerable time to achieve. It obviously would take even longer with a smaller differential.
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