ejohn
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Post by ejohn on Jun 2, 2014 9:13:05 GMT
Over the weekend I read about a company called P2P Global. Spun out of a hedge fund, it has created an investment trust, with a main purpose of investing in p2p platforms in Europe and USA. I searched for the prospectus ftalphaville.ft.com/files/2014/05/Prospectus.pdf and then started to have some concerns. The Investment trust has raised £200 million with an aim of paying out between 6-8% a year. They also have significant expenses paid to the manager. Importantly, it has formed definite agreements with Zopa, Ratesetter, Funding Circle, Crossflow and a couple of big American ones for whole loans and loans, albeit with some initial restrictions on the value it will invest. Even more concerning it has formed direct computer links with these organisations supposedly in order to evaluate information and monitor loans. Now I have only glance read this prospectus and will need to do so again, but the initial concerns I have which would apply to any investment institution are:- 1) The amount of money coming in will put downward pressure on the interest receive by lenders – I suppose I can't complain too much about that. 2) The institution looks like they will receive far more than is currently possible for the crowd through the market leaders(6-8% plus fees implies 9%+). 3) They could be able to cherry pick loans. If they don't want them they could then be offered to the crowd. 4) The weight of the Institutions money could hoover up most of an available loan leaving little over for members of the crowd. 5) The IT connection could allow them unfair advantage in getting documents and information first. 6) The IT connection could allow them to beat the crowd to a fixed rate loan simply through having an electronic connection as opposed to the crowd who have a finger and button to press. I will read the prospectus again rather than glance read it, although I do invite others too as well to see if you share these concerns. I sense, if I am not persuaded otherwise, that there is possible unfairness if institutions adopt tactics that the crowd cannot replicate. The platforms may not mind much as they have a ready slice of cash from Institution money, but the ones with the most to lose are individual members of the crowd. Anyone else have a view on this? |
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Post by oldnick on Jun 2, 2014 9:32:56 GMT
This sounds like the 80's when banks swallowed up building societies. Members used to benefit from small lean organisations, but became shareholders in large profligate banks.
No sweeteners for us this time though, just the elbow.
I know it isn't really the same because we aren't member/owners of the p2p, but it's whales against minnows time again.
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Post by davee39 on Jun 2, 2014 9:40:26 GMT
Firstly, there is nothing an individual saver can do, so just look to optimizing your own opportunities.
The Retail Market has possibly reached a limit to growth without increasing P2P marketing budgets, the industrial cashflow will enhance growth and this could strengthen the major platforms leading to a reduction in the perception of risk. Ultimately this will lead to lower rates but also the development of new products and opportunities. If there is ever any political will shown to tackling the very real issues relating to housing shortage in the South, and housing and land dereliction in the North, there will be a huge demand for alternative lenders to participate where banks continue to fail.
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j
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Post by j on Jun 2, 2014 11:05:49 GMT
It had to happen at some point, I think. Unfortunately for us small lenders. The platforms, regardless of their sweet talk, are there to make money & make their founders rich (sorry, the cynic in me!), and you can't blame them, we would do the same too.
What are the possibilities of existing p2p lenders amongst us who are fairly learned in the financial world can start a platform(s) that are small & lean & are owned by its members (like a building society-type entity) to cater for those of us who do not want big corporates taking over & amalgamating operators out there, or even pushing some out of business, which I'm sure will happen at some point.
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Post by easteregg on Jun 2, 2014 11:15:16 GMT
Over the weekend I read about a company called P2P Global. Anyone else have a view on this? The fees charged by this fund from the investors point of view are quite large, so that will reduce the overall returns, unless they have negotiated a corresponding reduction in the fees that the platforms charge them.
I have spoken to several of the bigger P2P companies about this and most tell me that they want to remain lender focused, rather than relying on these funds, but perhaps I'm told that because that is what I want to hear. There is also a risk to their business if they rely too much on institutional investors as they can wield huge power.
Provided institutions and retail lenders are treated the same then I don't have any problem, but where there is a difference - and there may be - then this is when I would get concerned. The platforms involved need to be transparent with their relationships.
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j
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Post by j on Jun 2, 2014 11:27:10 GMT
Over the weekend I read about a company called P2P Global. Anyone else have a view on this? The fees charged by this fund from the investors point of view are quite large, so that will reduce the overall returns, unless they have negotiated a corresponding reduction in the fees that the platforms charge them.
I have spoken to several of the bigger P2P companies about this and most tell me that they want to remain lender focused, rather than relying on these funds, but perhaps I'm told that because that is what I want to hear. There is also a risk to their business if they rely too much on institutional investors as they can wield huge power.
Provided institutions and retail lenders are treated the same then I don't have any problem, but where there is a difference - and there may be - then this is when I would get concerned. The platforms involved need to be transparent with their relationships.
I would be sceptical ( and I sincerely hope I'm proved wrong). I think large financial institutions can & will wield a big stick if & when they get into p2p to align the platforms to their way of doing business. Whether some platforms will survive that & stubbornly refuse to allow them a different level of input than your average Joe lender will remain to be seen
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Post by jackpease on Jun 2, 2014 12:35:44 GMT
They will be attracted by current rates which are very high - too high to allow Assetz etc to keep up the dealflow.
Presumably if the big boys started putting in a lot of money it'd drive rates down to more realistic FC-type levels and then the returns would presumably be uninteresting for the big corps.
Any platform that let big firms cherry pick would alienate investors - but FC doesn't seem to care about it's reputation on this forum.
Of course if big corporations did cherry pick loans then it'd be really interesting to find out whether their lending criteria is smarter than the crowd. I doubt it.
Jack
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j
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Post by j on Jun 2, 2014 13:20:52 GMT
They will be attracted by current rates which are very high - too high to allow Assetz etc to keep up the dealflow. Presumably if the big boys started putting in a lot of money it'd drive rates down to more realistic FC-type levels and then the returns would presumably be uninteresting for the big corps. Any platform that let big firms cherry pick would alienate investors - but FC doesn't seem to care about it's reputation on this forum. Of course if big corporations did cherry pick loans then it'd be really interesting to find out whether their lending criteria is smarter than the crowd. I doubt it. Jack You've hit it on the nail there jackpease. FC were only ever interested in one thing & that wasn't always centered around small lender relationships. I got out around 12 months ago & am grateful I had the sense to do so with just a small loss.
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blender
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Post by blender on Jun 2, 2014 16:56:23 GMT
We had a discussion on whole loans on the FC part of this forum - but good to make it general. I had wondered about the ID of the FC whole loan lender(s) who has taken just over £1M of A,B&C loans during May. Trial now ended. But let us just talk about possible investment funds in general.
First I think it is good because it grows the market and gives economies of scale, and in the case of FC they should be able to adjust the number of whole loans dynamically to bring some balance and stability to the main market. ie, if there is an excess of loans over cash, then send more of those loans to the 'institutions' undivided. As long as all is visible and with no preferences (as FC have promised). Most lenders want predictablilty - traders are the few noisy ones which do not. Also it is good because these whole loan purchasers will be all over the operator to avoid defaults, and that should up the game generally.
Second, I have some problems with this being P2P, in that peer to peer for me means a direct lending relationship between people and companies. If the investment funds just buy loans, bundle them up, and give all investors the same general results, then that is not P2P, in my book. It is not enough to buy your loans through a P2P platform operator. They could of course allow their investors to pick and choose parts of the whole loans they have bought - but that is too much hassle, and why bother. There should be a distinction between lenders and investors, and between P2P and investment in funds containing business loans, or distinctiveness will be lost.
Third, and most important is tax. These investment funds will offer ISAs containing business loans, and I imagine that it is the tax-free status of the investment which will provide the scope for the promised improved results, after tax. Maybe the A,B&C loans give the required risk/reward profile. You can already, I believe, invest in loan stock though an ISA and presumably that applies to whole loans bought through an agent such as a P2P platform. We were of course hoping that our direct loan portfolios would be allowed within some form of self-select ISA - but I imagine that there will need to be an ISA provider and that the P2P operators are not going to wish to to this directly, too diversionary. These investment trust may be the route to an ISA, and maybe whole loans the only practical element.
So some mixed feelings about these P2P investment funds. Perhaps someone who knows what they are talking about might comment on the tax and ISA issues. It's a miracle that a pig can even post.
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oldgrumpy
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Post by oldgrumpy on Jun 2, 2014 17:11:23 GMT
"It's a miracle that a pig can even post"
Hey Porky...don't do yourself down!! Love to read your views on various developments. 
Banana?? (or maybe you prefer some apple sauce). 
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j
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Post by j on Jun 2, 2014 17:18:03 GMT
P2p investment funds have a place as such. It will be used by those who either want hassle free use of this type of investment & are happy to pay for the privilege, or by those who aren't that familiar with investing in general or p2p specifically & feel a more experienced fund manager can do the job for them (though imho some of the fees quoted are exuberant if they turn out true, you might as well use auto-invest features & place small amounts in every loan going to average out losses). As such, it will introduce more people to this area, which is a good thing in general. It is a very fine edged sword though to get the balance right between the above whilst not giving big fund managers any extra powers over everybody else.
I sill hope the bulk of the platforms will resist the temptation of a quick buck & remember who helped launch their businesses in the first place. Alas, the financial world doesn't work on sentiments though
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j
Member of DD Central
Penguins are very misunderstood!
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Post by j on Jun 2, 2014 17:20:32 GMT
It's a miracle that a pig can even post. Same goes for penguins. I won't even mention gorillas in case he cuts of my banana supply........hang on a minute, don't I eat fish?! I'm so confused  
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Post by davee39 on Jun 2, 2014 17:21:05 GMT
A simple tax guide here. www.moneysavingexpert.com/savings/ISA-guide-savings-without-taxMy limited understanding is that the fund will pay dividends net of 10% tax to all investors, but within an ISA higher rate taxpayers would have no further tax liability. If the P2P platforms come up with their own ISA offer this should be completely tax free, but I am not holding my breath for April 2015. April 2016 would be more likely - the govt needs the time to invent all the Red Tape and irritating restrictions. After all the talk of squeezing out individuals, this also flows the other way. Factoring funds and some P2P investment platforms are only open to High Net Worth Individuals. An investment trust could, for example, create a diversified Thin Cats portfolio. Since these trusts are trade-able there is also a way into property without worrying about liquidity. Furthermore Investment Trusts will be largely held by other institutions, providing income to pension funds etc. This looks like more useful development than the deranged instruments created by Goldman Sachs |
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baz657
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Post by baz657 on Jun 2, 2014 18:26:19 GMT
Typical.
They don't want us to have a bit of fun and play - they want to take it all over and tell us they can do it better and make us more money. Like they're the experts and have never screwed things up before.....
It's a crock of (insert your own word here).
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Post by bengilbert on Jun 2, 2014 19:00:55 GMT
This specific investment trust (it's clearly not a hedge fund though backed by one) implies it can offer dividends of 6-8% from a combination of platforms. I'm assuming this is net of fees (which seem to be a 1% management fee and 15% performance fee). So pre-fees they are looking to deliver at least 8%-10.5%. This seems rather high on face value given two of the platforms are RS and Zopa (which yield 4-6%) and it's not clear that FC delivers more net of defaults. I am assuming the fees they are paying to the platforms will be a fraction of what retail investors pay which may add 50bp. However, it seems that they are intending to use a very mild amount of leverage (I noticed they can leverage 1.5x NAV in the prospectus) to deliver these returns. I am sort of surprised about the performance fee of 15% since it's hard to argue on platforms such as RS and Zopa that the fund manager is adding 'alpha'. I wonder also if their investments on RS and/or Zopa will be on different terms to retail investors, in particular if they will have access to the protection funds. The prospectus says that they will be buying whole loans from both platforms according to agreements which have been made - perhaps the fund will be buying the loans without protection fund cover but also getting paid the additional interest that, on RS at least, is usually diverted to the provision fund.
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