Peer-to-peer lending funds
Lending Club raises rates
Lending Club released an update on Friday which included amendments to the interest rates it charges on loans and tighter credit policies. This follows similar measures which were announced in June.
Lending Club continues to observe higher delinquencies in populations with high levels of debt and lower credit scores. The trend is most notable in higher risk loan grades (mainly E,F and G which account for 12% of the overall platform volume). Higher delinquencies are evident in 2015 and early 2016 vintages.
Interest rates on Lending Club loans will increase by a weighted average of 26bps with increases concentrated in Grades F and G with only marginal changes to other grades.
Lending Club's statements regarding the credit performance of the loans is is supported by the loan book data. There has been a divergence in the credit performance of the higher and lower quality loans. Delinquency rates on the higher risk loans (E, F and G) from the 2015 vintage have risen more on a relative basis in comparison to the better quality loans (A, B, C and D) of the same vintage. This trend can also be seen in diverging performance of the gross charge off rates of the various loan grades.
P2P Global Investments invests in Lending Club loans and the majority of its capital is allocated to the better quality loans (graded A-C). The average coupon on the company's loans is 10.8%. As a barometer of the level of risk the company typically takes, the average interest rate on the 36 & 60 month loans from Lending Club's B-graded loans is 10.7%. The average coupon on VPC Specialty Lending's loans is 15.8% and it has experienced credit performance issues with a number of its US investments including Avant (higher risk US consumer lending) and Funding Circle's US loans (SME).|
|Interesting, thanks @davebowler - was unaware of HONY and SMEF.|
|Time for another purchase by the company.............of its own shares.|
|yes true they will have more drag from hedging. fair enough. for myself id have to hedge myself if they didnt, so i guess i dont see as a cost per se.
But anyway if you are right you may be able to pick up the shares cheaper at some point! the discount of 15-20% seems pretty permanent.|
|Although they've not said as much, and so I may well be wrong, I can't see them not having come unstuck again with that spike downwards in the £. ie they'll once again miss their earnings target because they're having to preserve cash to cover margin calls on the hedge.
As long as the £ stays volatile, they'll have to hold a proportion in cash rather than in loans - until they abandon hedging! ;)
No position in P2P co's for the moment - P2P & VSL remaining on watchlist, RDL just too close to NAV.|
|ahhhh shame. what made u sell out. the hedging policy? u switching into rdl?|
|Sold my remaining shares for small loss - so you should be hearing a bit less from me @Aroon001 ;)
Good luck holders.|
|Have u got the link for the SPD RNS?|
|Will check out the RNS.
If you don't want exposure to $ you don't do anything as P2P are hedged into GBP already, if u want exposure you sell GBPUSD.
By not hedging BA, BP etc UK shareholders are assuming the currency exposure of the underlying business. Perhaps they are happy for BA, BP to speculate on fx on them but that's a personal choice.
At any one point I assume you are not aware of the proportion of p2p's loans in euros, dollars and other currencies as it changes constantly. If you don't want p2p to hedge these exposures, all that you are telling me is that you are happy for them to speculate on fx on your behalf. I'm not, as that's not their speciality. P2P nav is about 1000p, its been returning 5% pa so doing what it said on the tin. Once fx vol subsides post brexit and it deploys more leverage, hopefully returns will inch up to 7%. I don't see a problem outside of the discount to NAV. But if you do have an issue, you could switch out of P2P into RDL I suppose and let RDL effectively punt on EUR, USD and various other currencies on your behalf. Any business with unhedged underlying dollar earnings/assets, I probably wouldn't touch now with a barge pole with GBP at a multi decade low.|
|If you don't want exposure to the $, surely you just ring IG and long GBPUSD?
My point remains that P2P is one of the few P2P co's to hedge, and it's cost them money and performance even before a huge move against them. And that hedging doesn't seem to be necessary for the plethora of co's who both earn & pay in currencies other than the one they're listed in. I very much doubt that UK shareholders of HSBC, BLT, BP or British Airways, see the need to hedge.
That SPD RNS is well worth a read btw - funniest I've seen in a long time.|
|If they don't hedge then you would have to hedge the currency exposure. And you would have to hold margin which would be uninvestable. what's the difference between them or us doing it? I don't see what the alternative is here.
If you want exposure to being long the dollar, just call up IG Index and short GBPUSD to your hearts content.|
|Latest £/$ swings will be hammering them - huge intra-day spike down overnight, they'll once again be having to preserve investable cash to rescue their hedge. See SPD RNS earlier.
Out of interest - ftse350 non-£ dividends:
BHP Billiton, Hochschild Mining, Anglo American, John Wood Group, Experian, Vedanta Resources, Kaz Minerals, Evraz, Micro Focus, Ferrexpo, Polymetal, Lancashire, SABMiller, Gem Diamonds, Lamprell, Sophos, Smith & Nephew, Acacia Mining, Carnival, Hikma, AstraZeneca, HSBC, Lonmin, Centamin, Standard Chartered, Fresnillo, Antofagasta, Indivior, Inmarsat, Petrofac, Randgold Resources, BBA Aviation, Petra Diamonds, Nostrum Oil & Gas, Glencore.
Stock Spirits, Tui, GVC Holdings, Smurfit Kappa, Hostelworld, CRH, UDG Healthcare, International Consolidated Airlines, Playtech, Coca-Cola HBC and Mondi.|
|Theres no issue here for myself so I don't require a solution personally.
I accept that hedging is not free, and there will be some drag from hedging into GBP. Sure they could issue a dollar share class and I could buy that but then I would have to start converting the proceeds into GBP myself which involve even larger retail bid offer hedging costs and id have to readjust the hedging proportion constantly and hold margin and so on. I don't see how that is any better than the current set up?|
|True, but as it is you've lost 20% of your investment anyway! :(
I guess one solution is to buy a mixture of the p2p ITs.
Major dollar earners like Shell, BP, Diageo, Glaxo, AstraZeneca, RELX & Shire don't hedge their $ exposure, though some do pay divis in $s.|
|Yes there are costs to hedging in terms of bid offer and margin calls and so on. But most investors into p2p ln have gbp liabilities. E.g. School fees. Rent. Etc. So prefer an asset denominated and hedged into gbp like myself. If they didn't hedge, or I had to buy a $ class of shares then imagine if gbpusd now went from 1.3 to 1.6. I'd would lose 20% of my investment. What do you think.|
|As per previous posts, hedging costs money. Beyond the obvious cost of actually taking out the hedge, it caused P2P to have to supply substantial sums for margin calls, money that earned zero when it could/should have been invested into loans. They cited it as a major reason for their underperformance, though it's even more nuanced than that since they also had to make a call on how much more could have been needed, further restricting investment.
Your "hedge fund share classes" will most likely be listed in the specified currency, something P2P could very easily have done by quoting in $.
Speculating in currency can take several forms, one of which is deciding to fix at a particular rate with a hedging product. If it was completely free then it would just be a judgement call they got wrong, and which as you say could have gone the other way. It's the fact it's not free.|
|I don't understand what your point is with regards to fx hedging I'm afraid. Like I said most hedge funds I have invested in have share classes for each currency and returns are hedged to that currency. I don't want this fund to be speculating on gbpusd personally. I can do that myself. Presumably if gbp goes higher p2p will outperform rdl? What am I missing.|
|@Aroon001 - see my RDL example above. It's not the type of business, it's this business.
And at risk of banging the same drum - hedges are for gardens.|
|well its odd that the underlying loans dont trade on a 15% discount, but as soon as P2p buy them they are valued as such. Market clearly not enamoured with the outlook for this type of business.|
|NAV of £10+
Price £8.50 - top buying price by company
Dis of 15%+
Not sure what price/discount this should be...........but I still think the market does not really like this concept in much the same way that it used to hate HP/Leasing stocks many moons ago.|
|Is this the new policy?
Simon Champ, CEO of MW Eaglewood Europe LLP, the manager of P2P GI, said: "This transaction marks a positive step in enabling us to deliver on our objective to both diversify the sources and reduce the cost of our funding. The funds raised by the issue will now be progressively deployed in line with the investment strategy and our intention remains to steadily increase our leverage ratio to 100%."
"We believe our target rate of return, mostly paid out in dividends, is particularly compelling in this ultra-low interest rate environment."
Has anybody else got an idea as to what this may do to the share price over the next year? For me I just think that Champ and his mates were to cleaver and got it wrong but I am surprised that shareholders have not been more vocal with the directors.|
|Interesting comparing P2P to RDL - RDL didn't waste money hedging, & has delivered the returns it said it would:
"The Company announced last month that July marked the sixth consecutive month of achieving its investment target returns (70-80 bps per month unlevered). The Company's returns have also outperformed the Liberum Index by 104 bps over the 3 months to July 2016."
Just to confirm - that's RDL not P2P!
Everything has its price tho, & I'm in the latter and not the former. But clearly if buying from the start, RDL by far the better punt.
Another tuppence ha'penny share buy from P2P RNS'd.|