Immediate Access to your cash and the Hidden Features of QAA

Yet you are still commenting and shooting me down with no reasonable counter argument on a public forum.

I take it it's because you have no answer to my comments? Please ignore my "fatuous" tone but I think you are making all the other investors a disservice by completely ignoring the points I raised.

What I like about p2p finance is the transparency that it offers investors. Your platform was always one of the better ones since securitised loans seem much safer because on the face of it, as you say, you can just sell the assets and realise some value. I have no problem with this part of your platform because it is relatively transparent and knowing the nature of the loans, I simply ignore the 0.32% loss assumptions going into the future over a full credit cycle and make investments according to my risk appetite and my own assumptions.

What I am criticising (for the lack of information) is the model and assumptions you may be using to promote and advertise the Quick Access Account (as you yourself conceded: it will be far from "quick" and the investor may have no "access" during a loan crunch so the name is entirely misleading, to say the least).

I read on AC page that over 40% of loans have only been funded in the last 12 months so the history of the majority of loans is even shorter than I thought (and your model may be even less meaningful, if it is indeed based on past performance of AC loans, to predict the future).

I don't want to be the telltale but perhaps the regulator will have more persuasive powers to get the answers in order for AC to remain fit for purpose to the general public. They just need to ask the right questions so that stupid and fatuous people like myself and millions of others - who are trying to understand how the account is supposed to offer higher protection and liquidity to investors - can make suitable choices.

I try one last time:
How does AC arrive at the 0.32% loss rate assumption? Is it based on AC's history to date only? Have you looked at data spanning over several credit cycles for comparable loans? (you say you have gone through 50 years of data). Do you, in your mind, classify AC loans as being outside or above the risk bands for comparable loans from the corporate bond market world where the data clearly indicates that during the worst of times, default levels can rise close to 50% and actual loss rates can get close to 40% in aggregate?

It all seems rather crazy to me: it is akin to looking at the last 2 years of stock market history, concluding that the market can only deviate by 2% (because that's what has been happening so far), assigning a 3x cover for this deviation, for the "worst eventuality", taut it as ultra conservative and completely ignore the rest of history and to me worst part is: closing your years to any contrary view or a challenge. If your company is of any worth to you, ignore my "fatuous" comments by all means but PLEASE work through your assumptions again properly by studying history in more detail.
all the best, vi123

valueinvestor123

I'm not going near any of your actual arguments or logic, all I'll say is this... and it's very simple. We understand that you don't like the QAA. So... don't invest in it. Stop flogging the dead horse, and just... don't invest in the QAA.
If you don't find their protection fund information sufficient, then avoid all their PF products. Stick with the MLIA.

Or even just don't invest in AC at all if you really feel that strongly.

You've highlighted your concerns. Your message is received. Right now, all you are doing is proving the point of the platforms who avoid engagement on this forum. PLEASE STOP.

I'm left no choice but to answer again and repeat myself from previous posts and responses to valueinvestor123 .  To everyone else I apologise for this.

There is an extensive page on how we calculate defaults and losses on the website.  I've checked every other P2P lender as well as banks and other investment opportunities and they do not state the detail you are asking for.  Why should AC be any different just because you, individually, are asking for it?

Threatening us with the regulator is childish and petulant.  That aside, we have a very good relationship with the FCA and have been visited by them on multiple occasions.  On no occasion has the regulator found fault with our processes, procedures or assumptions.  I can't stop anyone wanting to report us, but as far as I am aware there is currently no requirement on a firm to state in detail how the assumptions have been made.  If anything, I have no requirement at all to state anything about defaults and losses as we do not provide financial advice.  You as the investor should make your own decisions.

You are the one stating AC only looks at corporate bonds or the stock market and only at short time periods.  That statement is wrong.  I said that we look at data specific to SMEs, that AC pays for, and that data is spread over many years.  I also stated that whilst we have no requirement to, we use a model similar to those laid out for banks under the Basel Rules (known as advanced internal ratings based system or AIRB) for calculating PD and LGD.  We also look at the guidance the PRA has set out for UK banks (some 500 pages) and align models to economic data for the next decade as prescribed by the BoE.  We also use the BoE stress tests on asset values and economic conditions in assessing the book.  I have never mentioned corporate bonds, the stock market or only looking back over a short period of data.  Only you have mentioned that.  Bonds are unsecured debt instruments, there is a risk of 100% loss on those.  Bonds do not have capital repayments and can be split into tranches of risk.  They are very different to secured business loans.  Please stop comparing them as they bear no resemblence to each other.

I have not stated that the market will only move by 2%, you said that.  I haven't given any figures on that.  It is you throwing "facts" around like confetti that is causing confusion to other investors.  Our facts are on the defaults and losses page on the website.  These have been assessed independently by the likes of Defaqto.  I do not see why I need to stand up to further scrutiny from one individual lender who is trying to compare secured business loans with stocks and corporate bonds.  They are different asset classes entirely.

In terms of different cycles. No two cycles are the same and there are underlying reasons why they are different.  To say we will match the downturn of 91 which ran to 97 until we were at parity is wrong because the business make up was different, deregulation of the banking system was only just starting and was precipitated further by the reforms Gordon Brown put in place around the end of the 90's.  The problems of the 1970's are different to the problems of the 1980's.  If anything the crash of 08 could be rooted back to the 1980's when the Fed cut the links to financial instruments and base rate for base to become a truly independent factor.  This lead to an explosion in bonds linked to the mortgage market in the US and led to a huge explosion in personal debt levels as money became freely available.  It was those bonds that were then sliced and diced to the nth degree that led to a disconnect between the debt taker and where the cash came from.  But hey, who am I but a lowly chap who runs a P2P firm.  I know nothing about my market.

Your final comment about reconsidering the model "properly".  The model has been assessed by Peer to Peer Global Investments, Victory Park Capital, Hadrian's Wall Capital, Duff and Phelps, RBS, Deutsche Bank and Citi Bank to name a few.  These are huge institutions with decades, even centuries of management of debt instruments.  I'd rather take their feedback on whether we are running things properly thank you.  The model is based on my 20 years experience in this market, David Penston's 40 years and countless years of support and back data.  I do not have to justify our models on this forum because of a request from one user.

So again, you have proved yourself knowledgeable in matters not relating to secured business loans.  You have thrown around unrelated facts as "proof" of your arguments but have chosen to ignore what I have said or recognise the consistency in what I have said.

Please stop creating confusion by trying to compare unrelated market sectors.  We have provided ample data on the QAA and how it operates and we are compliant within all the regulatory framework (otherwise the FCA would have told us to shut it down very quickly).  It is not just me that finds your arguments irksome but read the comments of other investors on here.  They feel the same.

Please stop.

Urrgh. I give up. I wish we had this conversation face to face because we seem to be talking completely past each other. And you don't seem to get where I am coming from: I am not going to report AC but one of the (many) prerequisites for successful registration with the FCA and full approval is full transparency from the company's side as well as fair and balanced presentation in their promotion of risk and return to investors. QAA fails on many counts in this respect (starting with the account title!). And in the end, AC actually may have to get their head out of their royal behinds and provide full disclosure on how investors' monies are being treated and under what assumptions, whether you like it or not. The secrecy and defensive nature of responses so far should speak volumes to anyone reading this.

"You are the one stating AC only looks at corporate bonds or the stock market and only at short time periods. That statement is wrong." 

Where on earth have I said this. I was asking you what data you look at, whether you go beyond the timescales of AC's existence in modelling your future assumptions and where do you yourself see AC's loans on the risk scale in the corporate bond/fixed income market. Bigging up your experience and the company's importance in today's market is Trump-speak and doesn't particularly convince anyone of anything except perhaps of some unhealthy degree of delusion.

You are half-right in saying that p2p loans are a different asset class from corporate bonds. It is still a subset of the fixed income market. What does the yield (mostly in the high teens, before it is passed onto the lender) tell you about the credit-worthiness of these loans? I think there is some confusion and heavy (over)reliance on short term data. My suggestion to ALL peer2peer companies is to keep things simple and transparent: the market will find its way to price these securities correctly by itself without the "extensive expertise" from market makers of these securities.

"I also stated that whilst we have no requirement to, we use a model similar to those laid out for banks under the Basel Rules (known as advanced internal ratings based system or AIRB) for calculating PD and LGD."

I know all about Basel rules (and I am the one with the technical terms to confuse investors?). Please don't compare yourself to a bank. You are not a bank.

"I said that we look at data specific to SMEs, that AC pays for, and that data is spread over many years."

How many years. And what was the worst case scenario in the last 3 recessions for the lower end of the SME loan market. That's it. I am not asking you to reveal any secrets.

I like you: because you seem to believe passionately in AC's ability to innovate and bring new products to the consumer market. However it is my belief (and I know nobody gives a monkey's ... on this board what i believe) the consumer market would be better off with simplicity and transparency. The only reason the CDO/ABS market caused financial armageddon worldwide because it was complex and people had no idea what they were buying but trusted financial institutions and their experts who they thought knew better. 

edit: This is my last message and I abide by the wishes of this board.

No unsurprisingly we cannot supply licensed data.  We would be in breach of contract were we to do so.

This also isn't unique to the QAA like you imply.  The models are relevant to the entire loan book via all investment accounts, and the QAA has since been loosely copied with similar implications of rapid access to cash by both RS and Zopa with the main difference being the cash component to the QAA that improves liquidity and the extra engineering required to make that work.  


I don't believe that to be true or unique to the QAA. Do you pick and choose which loans to invest in with any of RateSetter's or Zopa's investment accounts, or do you take what you are given by the algorithms including loans of much longer term than the market you're investing in (with RS at least)? Even where you pick and choose which loans to invest in you are reliant on the information provided by the platform, which on AC is certainly amongst the most comprehensive available. We recently tried to refinance a loan currently on another platform which looked like a good deal on paper until the valuation came back at a fraction of that used by the other platform putting the LTV well over 100%. Yet lenders on that other platform are none the wiser and we cannot publish the details. People have carefully chosen to invest in that loan based upon the information presented.

As I've mentioned the QAA has three specific benefits that lenders pay for in the return given - a large cash component to provide a measure of liquidity; priority within the marketplace to aid liquidity; a provision fund to mitigate the risks of lending. If those are inadequate for you then don't lend.



That's an incendiary comparison don't you think? The thing is you haven't discovered plutonium or even that it may contain plutonium, you merely have an inkling that there's a possibility our model may be a bit wrong and you extrapolate that into calling for the account to be renamed or shut. Even then you try to link that back to liquidity, erroneously in my opinion.

Our model may be wrong, but then the provision fund has a multiple of coverage not 1 times coverage (or 1.1 as with one of our peers that is highly dependent on their PF performance). If our model is more wrong than even that then we can still top up the PF should we have the capital and desire to do so. If market liquidity dries up then the account still needs new investment to cease and the full cash component to be used up before people cannot withdraw from the QAA. Even then capital repayments will occur across the loans held all of which are channeled back to those investors waiting to withdraw. The more invested the account is as a percentage of the total funds (i.e. the smaller the cash component) the faster the PF grows from inflowing interest payments, reducing default risks to those that remain in the account.

No P2P offering is fool proof but I personally believe the QAA to be as well mitigated as possible and certainly reflective of the interest rates on offer.


Which is tacit admission, do you not think, that you're extrapolating and clutching at straws? You do not have the data we do, yet we cannot release that data because it is not ours to release. If you do not trust us as a platform nor believe in the oversight the regulator provides (alongside that of our institutional investors for that matter) then you shouldn't be lending with us full stop.

"Even if the model is out by enough for the PF to become overwhelmed the account remains liquid unless there is a simultaneous run on the account"


But this is precisely what is much more likely to happen at the same time, rather than independently of each other. How can your 50 years of data not tell you this? (Not a "run" as such but lenders may not be able to run anywhere because they will be tied up to loans which have become illiquid and which will kill the whole purpose of the QAA). It's just an extra layer of unnecessary convolution and added risk which may be decisive whether AC is going to receive a full licence from FCA or not. Do you really need to put your resources into this unknown rather than diverting the resource into sourcing better-quality loans (and more of them) & improving recovery process?