Profitable business

Almost identical to me! Are we twins?

Quite so. The sort of publicly obtainable accounts information is completely meaningless and rarely tells the real picture. And beside all that it is always well out of date, being historic information.

I would respectfully suggest that CD would be better off basing his investment decisions on the quality of loan being offered rather than official company account information which will be unreliable.

In addition to that I would suggest that the nose and gut is the most reliable indicator of likely performance you will find. Put away your spreadsheets and accounts and graphs and go back to basics. With accounts and spreadsheets and calculations you can satisfy yourself about whatever you want to be satisfied about. Looking at accounts seems to me like trying to justify your decisions with some rationale when the best way is to just look at the bigger picture,smell the air and the mood, use common sense and act accordingly.

Sometimes you can cloud your vision by allowing numbers and accounts and graphs and statistics to obstruct your plain common sense thinking.

Whatever any accounts may show, Saving Stream is at the high risk end of this type of business and that's why they are paying 12% interest and not 7%.

Old timers like myself who were investing in boat loans in the early days will I am sure have developed the gut feeling that things were fairly safe and sound in the early days but with the passage of time and each passing month the risk level is growing. I would say that two years ago or even one year ago the 12% return on here was very attractive indeed. Today is a different world and we are further down the road in terms of the loan book and I feel that 12% is no longer looking so generous and that is why I have been gradually scaling back the size of my Investments on this platform .

I am not predicting Armageddon but I am suggesting that the game is higher risk than it was two or three years ago and people should exercise caution and personal due diligence and not get blinded by official account books.

>big margin
They must have massive underwriting costs surely? When they absorb some of these huge loans that don't fully subscribe, someone must be lending them a lot of money at very short notice at a huge risk and a huge markup?
Jack P

I am not even sure that the PF is held in a separate bank account. If it is, there is a lot of housekeeping involved in making payments in and out, and since it is discretionary they might just as well maintain it as a notional figure in their working capital account.

littleoldlady :  IMHO the PF needs to be in a separate client account.  In the event of a platform failure, it's important that the PF clearly isn't an asset of SS/Lendy that can be used to satisfy their creditors.  IIRC, there was an occasion where SS published a screenshot of their online account statement showing the then-current PF balance in a separate account, but I don't remember if it was clear that it was a client account.  And that was months ago, so we don't know what the situation might be now.

beechside :  Even if all the 2%s were left in the PF, the PF would only grow larger than the loan book if the loan book was lent and repaid 50 times over and there never was a loan failure requiring any of the PF to be used.  And that seems rather unlikely!  If there really was one failure per 50 loans -- or one half-failure per 25 loans -- then the PF would stay at 2% of the loan book forever.

By taking the 2% out of the loan book whenever a loan repays, the PF would end up depleted when it's needed.  Consider this extremely simplified example...  You have a loan book of 50 loans.  If the 2% stays in the PF, then the PF holds enough to cover one complete failure.  And that, IMHO, is what you want the PF to have.  The alternative is that 49 loans pay off as scheduled, and one becomes a problem.  98% of the PF is withdrawn as the 49 loans repay, leaving just the 2% from the remaining loan -- because the bad loans always drag on longer while recovery is attempted -- to cover its loss.  Which, of course, it can't do, so the PF is nigh unto useless.

I think you need to reconsider your insurance example.  Term life insurance works precisely because the premiums aren't refunded when the holders are alive at the end of the term.  It's the 'unused' premiums from the survivors that are amalgamated and used to make the payouts to those who are unfortunate and don't survive.  And that's how I think the PF should be run.

Furthermore, our loan interest wouldn't drop dramatically because SS/Lendy have built the PF into their model and have decided that they can afford to maintain the PF as well as paying 12%.  Because there is no loan pricing mechanism, there can be no supply/demand balancing, and so the SS returns do not reflect level of risk involved.

Finally, the really screwy part of the way SS/Lendy say they'll operate the PF is their commitment to maintain the balance at 2% of the loan book.  If they actually do that, then any PF payouts actually would be coming straight out of their working capital, as they would have to replace any PF payout made.  Anyone who believes they actually could do that would perceive the risk of lending being reduced to a very low level -- basically just of the amounts that lenders lose that aren't covered by the PF.  I really don't see how SS/Lendy could maintain that policy in the face of numerous defaults.  In such a situation, either they wouldn't and PF would be depleted or the platform would collapse while trying to maintain the PF balance.  Neither option would be pretty and IMHO that's where the real risk is.

The PF maybe discretionary but, according to Lendy Ltd,

"The Directors of Lendy Ltd and Saving Stream are also the directors of the Provision fund; a UK based company called Lendy Provision Reserve Ltd"

This does not specifically state that either the funds are held in a separate account or that it forms part of the assets of another company not the working capital of Lendy Ltd but strongly implies that it is.  LRPL has not filed accounts so it is not possible to confirm what assets it did or did not hold at its accounting reference date, 31 January 2016, those accounts are due to be filed by 20 October 2016.

Not being a lawyer I cannot answer that definatively, but it would depend on what contractual or other (e.g. on either a formal or bare trust for the benefit of SS lenders) basis the funds were transferred to LRPL, and what the custom and practise of the funds usage was.  If a court judged LRPL to simply be a debtor of Lendy Ltd, the monies held by the former would be an asset of the latter; however one would assume that proper advice has been sought by the Directors both qua "directors" of the PF and qua Directors of Lendy Ltd, notwithstanding that in my opinion there could be a conflict of interest between the two.

Edit You would have to seek ckarification from Lendy Ltd and/or LPRL for a definitive answer.