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Post by gadget on Aug 21, 2017 14:00:56 GMT
... 4. He said the main reason for the change was that FC considered it unfair that people in autobid couldn't access D or E loans in the primary market or had to pay a premium for them in the secondary market. I have 130 D or E loans and apart from one or two all of them came from the secondary market. Paying a premium was never a problem because you could still get over 17 or 21% which is not bad if you like the loan. More often than not you could get the premium back (or more) if you sold them Agreed, i've never understood the argument about how unfair it was. So other people hoovered up all the high risk loans, that simply allowed me to pick and choose from a smorgasbordi of them in the secondary market at my leisure. Made it easy to get 20% yielding loan parts at tiny mark-ups. It was simply market-making, and if they want to pick pennies in front of a steamroller, i say let them. One thing that i find particularly annoying about the new setup is that you are restricted to "Conservative" (A/A+) or "Balanced"(A+ to E) There is no "High Risk / Adventurous" option which only invests in say C/D/E. I wouldn't want to touch their 6% A / A+ loans with a 20 foot barge pole but in the future it will be impossible to avoid them. Clearly a feature not a bug but disingenuous of them not to admit it. PS: the fact that autobid couldn't access D & E loans is a small technical problem they could easily fix by just changing when autobid fired. Ridiculous to claim that's the "main" reason to change FC's entire business model.
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stub8535
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personal opinions only. Not qualified to advise on investment products.
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Post by stub8535 on Aug 21, 2017 14:08:31 GMT
What will now be very interesting is what model Funding Knight adopt when they relaunch next year (under the Sanctus brand). This decision by FC may free them from any perceived need to retain individual loan selection. LC/ReBS don't seem to offer compelling evidence that lower loan volume plus individual loan selection is a winning formula. Fab quip mrclindon😂 Rebs loan volume and loan selection in the same post🤔 3 of the 20 loans promised over July and August so far I think. Going to be a bumper end to the month if Rebs achieve it unless it was just more hot air from the owner? Not used LC so can't comment.
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Post by GSV3MIaC on Aug 21, 2017 14:20:14 GMT
Agreed, i've never understood the argument about how unfair it was. So other people hoovered up all the high risk loans, that simply allowed me to pick and choose from a smorgasbordi of them in the secondary market at my leisure. Made it easy to get 20% yielding loan parts at tiny mark-ups. Not for granny-autobodge-user it didn't. However, as suggested 1001 times, simply giving autobodge priority over manual bidders/bots would have fixed that, if FC had been competent to do so.
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c88dnf
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Post by c88dnf on Aug 21, 2017 14:20:51 GMT
EDIT - (*) Just noticed that the suggested return on the new "balanced" option is 7.5% per year after fees and bad debt. Yet FC's own graphs in the announcement show expected returns no higher than 7.2% for any originating year so far, with most rather lower than that. Can someone explain to me how FC hope to achieve the 7.5% figure? If the overall loan book return remains around, say, 7%, but a significant number of lenders are expected to opt for the "Conservative" option targeting 4.8% (ie. less than 7%) then those opting for the "Balanced" option must be expected to average more than 7% I can see your logic. I can't help wondering that if it is as you say, then FC are presumably hoping that they can "game" the system and increase their profit (more accurately, turn round a loss making business) by reducing the proportion of income returned to savvy investors. I shall wait on the sidelines and observe.
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ceejay
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Post by ceejay on Aug 21, 2017 14:32:43 GMT
EDIT - (*) Just noticed that the suggested return on the new "balanced" option is 7.5% per year after fees and bad debt. Yet FC's own graphs in the announcement show expected returns no higher than 7.2% for any originating year so far, with most rather lower than that. Can someone explain to me how FC hope to achieve the 7.5% figure? If the overall loan book return remains around, say, 7%, but a significant number of lenders are expected to opt for the "Conservative" option targeting 4.8% (ie. less than 7%) then those opting for the "Balanced" option must be expected to average more than 7% They say (here - www.fundingcircle.com/blog/2017/08/6975/ ): The projected annual return for the overall Funding Circle loanbook, after fees and bad debt, will be 6.7%*. [...] The projected annual return for these lending options, after fees and bad debt, is estimated to be: Balanced – 7.5% Conservative – 4.8%
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bg
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Post by bg on Aug 21, 2017 15:02:11 GMT
FC also called me this morning.
They are fully aware that a lot of people will be withdrawing funds (when I said I estimated 30% of people would withdraw they didn't flinch). They said they want to become a mainstream lending product, you can see where they are coming from when you look at bank savings rates. If they can achieve 7.5% net, black box then demand will be high.
As for what happens come 18th Sep - you will still have your individual holding just you will not be able to sell any particular loan. If you have a £100k portfolio and want to withdraw £20k then the auto sell will just randomly sell loan parts (or attempt to sell) to get you £20k cash out. They are confident/hopeful that liquidity will remain good enough for this to happen. I think this is the biggest risk for them, if people suddenly struggle to get their cash out there will be a bit of a panic with everyone putting their portfolios up for sale. That in itself doesn't really matter for them but it will mean less new funds coming in which potentially could matter.
It's a real shame, as others have said it takes a lot of the fun out of it and I really hate black boxes. Given that loan growth of WL has been vastly outstripping PL you can see why they dont want the hassle of all the people that have been moaning about why loan X is banded in loan Y etc. The P2P platforms are becoming more like the banks on a daily basis.
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nrw
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Post by nrw on Aug 21, 2017 15:02:42 GMT
Further to my previous comment welcoming these changes, let's not forget two points: - Posters on this forum are not representative of the wider market - instead representing a small niche with the time / knowledge / intelligence to flip / bid on / evaluate loan parts manually. Commendable, but the business is built on the mass market, so I understand where Funding Circle is coming from.
- For every one of us who outsmarts the auto-bidder to generate outsized returns, there's necessarily a sucker on the other side unwittingly getting stuffed with a lower return or buying ropey loan parts. This isn't fair if it's being marketed to retail investors - doubtless a view which is taken by the FCA, and quite rightly so. Retail investors need protecting, and a complex manual market should be reserved for (highly) sophisticated investors if it's open to exploitation.
So to reiterate my view, this is a great move - and one which most of us would make if we put ourselves into the shoes of FC's board. I'm back in.
[ Runs for cover ]
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bg
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Post by bg on Aug 21, 2017 15:03:50 GMT
I think for the majority of retail investors this is probably a positive. Frankly, FC never has provided the level of detail needed to allow investors to make an informed credit appraisal. It will be much simpler and "fairer" (whatever that really means). I might reinvest via this new model (since it will be "fire and forget") except that I can't really see how it offers much in the way of an advantage over FCIF. Main ones that I can see is that you don't have to pay stamp duty if you invest directly or buy in at the 3% premium FCIF is trading on.
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pikestaff
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Post by pikestaff on Aug 21, 2017 15:08:08 GMT
If the overall loan book return remains around, say, 7%, but a significant number of lenders are expected to opt for the "Conservative" option targeting 4.8% (ie. less than 7%) then those opting for the "Balanced" option must be expected to average more than 7% They say (here - www.fundingcircle.com/blog/2017/08/6975/ ): The projected annual return for the overall Funding Circle loanbook, after fees and bad debt, will be 6.7%*. [...] The projected annual return for these lending options, after fees and bad debt, is estimated to be: Balanced – 7.5% Conservative – 4.8% If the targeted rates on the "balanced" and "conservative" options leave no room for error this would imply they expect approximately 30% of lenders to go for the conservative option. That's likely to be the lower bound because they have probably left in a small margin of error. Describing the 7.5% option as "balanced" is arguably misleading if it is in fact overweight in the riskier loans. FC need to explain this to lenders.
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nrw
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Post by nrw on Aug 21, 2017 15:08:59 GMT
when I said I estimated 30% of people would withdraw they didn't flinch I just don't believe this to be the case. Perhaps 30% of posters on this forum will withdraw their funds, but not 30% of investors. I would confidently bet that the vast majority of FC's investors are not bidding manually - or would rather not be bidding manually if the market were fair (myself included, and I had £six_figures deployed on the platform which I withdrew and will now reinvest due to these changes). FC is not dumb, their board is not dumb and their investors are not dumb. The reason they don't flinch when you tell them that you estimate 30% of people will withdraw, is because they know that isn't the case - they'll have looked at the data and seen that <X% (<10% would be my guess) are manual bidders. Furthermore, there's clearly currently a surplus of investor cash and a shortage of quality loans being originated - so does it matter if a few highly vocal, hard to please investors take their cash elsewhere? I know what my view would be. I think it's a smart business decision - and for the avoidance of doubt I have no affiliation with FC in case I'm sounding like an insider / evangelist!
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Post by mrwilliams on Aug 21, 2017 15:11:10 GMT
FC also called me this morning. They are fully aware that a lot of people will be withdrawing funds (when I said I estimated 30% of people would withdraw they didn't flinch). They said they want to become a mainstream lending product, you can see where they are coming from when you look at bank savings rates. If they can achieve 7.5% net, black box then demand will be high. As for what happens come 18th Sep - you will still have your individual holding just you will not be able to sell any particular loan. If you have a £100k portfolio and want to withdraw £20k then the auto sell will just randomly sell loan parts (or attempt to sell) to get you £20k cash out. They are confident/hopeful that liquidity will remain good enough for this to happen. I think this is the biggest risk for them, if people suddenly struggle to get their cash out there will be a bit of a panic with everyone putting their portfolios up for sale. That in itself doesn't really matter for them but it will mean less new funds coming in which potentially could matter. It's a real shame, as others have said it takes a lot of the fun out of it and I really hate black boxes. Given that loan growth of WL has been vastly outstripping PL you can see why they dont want the hassle of all the people that have been moaning about why loan X is banded in loan Y etc. The P2P platforms are becoming more like the banks on a daily basis. FC have been advertising returns of 7.2% pa on their home page recently. As part of the announcement they have changed their interest rates www.fundingcircle.com/blog/2017/08/6975/ maybe this is where they get the expected increase to an average of 7.5% pa from although there seems to be as many minuses as pluses on the table.
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bg
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Post by bg on Aug 21, 2017 15:14:02 GMT
when I said I estimated 30% of people would withdraw they didn't flinch I just don't believe this to be the case. Perhaps 30% of posters on this forum will withdraw their funds, but not 30% of investors. I would confidently bet that the vast majority of FC's investors are not bidding manually - or would rather not be bidding manually if the market were fair (myself included, and I had £six_figures deployed on the platform which I withdrew and will now reinvest due to these changes). FC is not dumb, their board is not dumb and their investors are not dumb. The reason they don't flinch when you tell them that you estimate 30% of people will withdraw, is because they know that isn't the case - they'll have looked at the data and seen that <X% (<10% would be my guess) are manual bidders. Furthermore, there's clearly currently a surplus of investor cash and a shortage of quality loans being originated - so does it matter if a few highly vocal, hard to please investors take their cash elsewhere? I know what my view would be. I think it's a smart business decision - and for the avoidance of doubt I have no affiliation with FC in case I'm sounding like an insider / evangelist! I don't think it's the case either but I wanted to see how they reacted. 27% of investors are bidding manually, not all will withdraw and the pot of gold is the millions of retail investors they hope to pick up.
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nrw
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Post by nrw on Aug 21, 2017 15:19:18 GMT
I think for the majority of retail investors this is probably a positive. Frankly, FC never has provided the level of detail needed to allow investors to make an informed credit appraisal. It will be much simpler and "fairer" (whatever that really means). I might reinvest via this new model (since it will be "fire and forget") except that I can't really see how it offers much in the way of an advantage over FCIF. Main ones that I can see is that you don't have to pay stamp duty if you invest directly or buy in at the 3% premium FCIF is trading on. FCIF and the FC platform have a few differences AFAIK: - FCIF invests across global FC loans, (UK) FC only invests in the UK. I *believe* the UK to be a longer established, more stable loan book.
- FCIF is debt leveraged, amplifying returns (up and down).
- FCIF *should* provide better liquidity, enabling 100% of a holding to be sold in short order. FC doesn't enable 'bad' loans to be sold. FC requires buyers in the market place (as does FCIF, but to a lesser degree as market makers will generally mop up modest-sized sale orders).
- FCIF is currently trading at a premium (and could result in capital gains/losses as the share price is not pegged to underlying asset value), and trading costs comprise include stamp duty and a significant spread.
- FCIF's returns are higher on a like-for-like (gross) basis - however as they are paid as a dividend (rather than FC's interest income, taxed at a higher rate) they are partially tax paid. Holdings in an investment company are therefore not subjected to any further tax and can be reinvested gross (unless extracted from the investment company, obviously).
- FCIF is allocated random loans in their entirety, levelling the playing field for passive investors who don't have time to manually bid (though FC's impending changes level this playing field).
- FCIF is fully regulated and therefore subject to more onerous governance (though FC's recent FCA regulation is somewhat levelling the playing field).
- As a publicly traded fund, FCIF can be held in a SIPP or ISA (though FC is shortly launching an ISA).
I was invested on platform, I am currently invested in FCIF (prior to it rising to a premium) and intend to add to this holding by returning to FC investing as a result of the recent changes.
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Post by thewizard on Aug 21, 2017 15:23:05 GMT
How can the auto bid be fair. This means I'll be getting the poor loans from companies that are reporting losses or the companies that have 2 others loans already. I don't want that.
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nick
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Post by nick on Aug 21, 2017 15:28:41 GMT
I think for the majority of retail investors this is probably a positive. Frankly, FC never has provided the level of detail needed to allow investors to make an informed credit appraisal. It will be much simpler and "fairer" (whatever that really means). I might reinvest via this new model (since it will be "fire and forget") except that I can't really see how it offers much in the way of an advantage over FCIF. Main ones that I can see is that you don't have to pay stamp duty if you invest directly or buy in at the 3% premium FCIF is trading on. I don't think stamp duty is payable on FCIF as it is Guernsey based and its share register is held held there rather than the UK so UK stamp and UK ad valorem duty do not usually apply, but the premium and bid-ask spread are considerations.
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