Secret Investor: FCA concerned about managed funds

Last post: Dec 16, 2016

In their latest report on the P2P sector, the Financial Conduct Authority (FCA) expressed concerns about Managed Funds such as Assetz Capital’s Quick Access Account and Money & Co’s Portfolio Service. As these distribute funds to borrowers who are unknown to investors and are often backed by Provision Funds that imply capital returns are guaranteed, these are similar to bank accounts but P2P companies do not have to comply with the rigorous regulations that exists in the banking sector.

Totals lent to date (15th December 2016)
*All data correct at the time this blog was compiled.

Assetz Capital – £190,372,360
Funding Circle - £1,776,076,756
FundingKnight - £31,220,000
FundingSecure - £80,319,639
Money & Co –  £6 million approx
Rebuildingsociety – £10,400,000
ThinCats - £205,673,000
Invest and Fund - £1 million plus
LendingCrowd - £7,847,141
ArchOver - £26,563,000

Zopa - £1,890,000,000
RateSetter – £1,604,946,326
Lending Works – £38,730,328

Assetz Capital  
Lent to Date: £190,372,360 – fortnightly increase of £8,048,713 – 4.41% growth.
When this blog was compiled, there were 62 upcoming loans with 3 imminently due to be drawndown.
Highlighted Loan: A borrower was looking to raise £340k to purchase a public house in the centre of a Scottish city. A tenant has already been lined up to operate the establishment and the LTV of the property in its current state is 47.6%, although this would increase to 68% should it become vacant. The interesting thing about this loan is that it only offers a return of 6.5% pa which is less than some of the Managed Accounts (below) which are covered by a Provision Fund. Clearly this is aimed at that area rather than active investors such as myself.
Managed Accounts: The following accounts automatically distribute funds on behalf of investors across the platform's loans and are covered by a Provision Fund:
Quick Access Account (3.75% pa return); 30 Day Access Account (4.25% pa return); Great British Business and Green Energy Income Accounts (both of these offer a return of 7% pa).
As per the headline at the start of this blog, it will be interesting to see whether the FCA introduce restrictions on these managed products during the course of 2017 to prevent the public viewing them as comparable to a bank account.

Funding Circle
Lent to Date: £1,776,076,756 – fortnightly increase of £43,645,676 – 2.52% growth.
There were 29 auctions ongoing when this blog was compiled.
Secret Investor's Activity: This remains the site which I have the most exposure to because they have the largest number of manually selectable loans.
Below are highlights from my activity in the past fortnight:
Highlighted Loan Invested in:
Expansion Loan of >£106k to solicitors (D risk rating, 17.9% pa return). The business was looking to take on an extra solicitor having made a £300k+ profit in the 12 months up to last March. Admittedly they are reasonably old figures but for a return of almost 18% pa I decided to take a risk.
Highlighted Rejected Loan:
Working Capital Loan of <£32k requested by a garage (E risk rating, 21.9% return): I rejected this loan simply because of the lack of information provided. The proposal was nothing more than "we require working capital". Annual profits were also below £10k which will be eaten into by the loan repayments, leaving little contingency.
Defaulted Loans Update: Building contractors have set up a CVA to pay creditors 51p in the pound. This is disappointing as repayments on this quarter of a million pound loan only began in June. At least they had been kept up to date. Fortunately, I had only invested 50% of my usual £80 maximum.
Another loan, this time to building suppliers, was defaulted today because they were 3 months behind with their repayments. I had £36 of capital outstanding. At least FundingCircle are transparent about such events, on many other platforms this situation wouldn't trigger a default.

Lent to Date: £31,220,000 – no change.
There was 1 auction ongoing when this blog was compiled.
Highlighted Loan: The first loan to be listed on this platform for some months appeared this week. The request came from groundworks contractors who have previously raised capital via FundingKnight. On this occasion, they requested £50k to purchase equipment currently on hire. Encouragingly, they have a number of blue chip customers although these large organisations can change contractors at the drop of a hat if they think they can get a better deal elsewhere. Nonetheless, the purchase of assets suggests better than usual security. The reserve rate of return was 10.75% pa.

Lent to Date: £80,319,639 at the end of November. Monthly growth of £9,337,301 (13.51%).
Total updated monthly.
Growth in November set a new record while in the first half of December, 2 or 3 new loans were appearing on the site daily. This progress has been assisted by FundingSecure establishing links with brokers in Merseyside who work with property developers to obtain funding.
There were 12 auctions ongoing when this blog was compiled.
Highlighted Loan: Recently all investors had the opportunity to earn 15% pa if they invested in a loan for £120k secured against a recently developed apartment block in Wiltshire. This was a "Top Up" of an earlier capital injection of £1 million. The latest loan ranks behind the earlier one hence the high rate of return but the total LTV is 70% and, as buyers are already interested in purchasing the development, I thought it was worth taking the risk.
Defaults: No progress on realising the value of the assets of my four defaulted loans while another loan secured against a high-end car (this one is of American origin) brings my total up to five.

Money & Co
Lent to Date: £6 million approx. (latest available figure)
When this blog was compiled there was 1 auction taking place.
Highlighted Loan: A "quick sale" property purchasing business was looking to raise over £104k just after the last blog went to press. Initially, there was some consternation that they were requesting the equivalent of the price of just one small house when they claimed to be a much larger operation but it was explained via the Q&A that this loan was just a "toe in the water" and, if successful, the company will return to the site with a request of £3.4 million in the New Year. As the initial request had reached 79% of the required funding on the day it was listed, this looked likely to happen.
In fact, this began to happen as early as the following week when they returned to the site to raise over £208k. Some way short of £3.4 million but perhaps that total is going to be raised in stages.
Platform News: Money & Co have announced a special offer for those investing in their managed fund – the Portfolio Service. Those who sign up for this before 31st December will receive a very nice Christmas present in the shape of a £1,000 cheque. However, this service is beyond my bankroll as the minimum amount required to join is £100k.

Lent to Date: £10,400,000 – no change.
There were 2 active auctions when this blog was compiled.
Highlighted Loan: A property management business was looking to increase their borrowing with ReBS from £75k to £125k. By offering property as additional security they were able to reduce their interest rate by a couple of percent although investors could still see a maximum return of 18% pa. Clearly for such a high return there are risks and, in this instance, the company is facing a loss of income over the next 12 to 18 months when the government bans tenant fees. To counter this, the purpose of the additional funding is to launch a marketing campaign so that alternative revenue can be found through property sales.

Lent to Date: £205,673,000 – no change. We assume this total has not been updated.
There were 13 active auctions when this blog was compiled.
Highlighted Loan: Silk weavers were looking to raise half a million pounds to purchase new looms and, also, to provide working capital. This is currently a loss-making business which has come into new ownership. Those now in charge have already instigated a successful marketing campaign that is expected to put the balance sheet back in the black over the next few years. The loan therefore has a 4 year term with a bullet repayment at the end. Investors' funds will therefore not receive any return for some time in the hope that the marketing campaign is a success. For taking this risk they will earn 12% pa.

Invest & Fund
Lent to Date: Over £1 million
There were 3 active auctions taking place when this blog was compiled as the loan book of this site begins to grow following the strategic decision to focus on bridging loans.
Highlighted Loan: Last week, the first tranche of a loan totalling more than £1.1 million was listed. This is to fund the redevelopment of a house in Staffordshire. Furthermore, as the property includes 0.8 acres of land, there is space to construct 4 new builds. The developers are reportedly experienced but, from an investor's point of view, a return of 9% pa is less than that available for bridging loans on other sites.

Lent to Date: £7,847,141 – fortnightly increase of £173,260 – 2.26% growth.
There were 4 auctions taking place when this blog was compiled.
Highlighted Loan: A business based in the South West which provides various services to landlords came to this site looking to raise >£15k to cover relocation costs. This proved to be a very popular loan as, when I reviewed it with 3 days of the auction remaining, the target amount had been exceeded at an average rate of 10.67% pa. There didn't appear to be anything exceptional about this business, presumably it was the comparatively low target that caused it to be comfortably met.

Lent to Date: £26,563,000 – fortnightly increase of £1,933,000 – 7.85% growth.
There was 1 auction taking place when this blog was compiled.
Highlighted Loan: Building contractors were looking to raise £1.2 million of expansion capital. Investors were offered a return of 6.5% pa. Although this is lower than many other platforms offer in this section of the blog, a greater level of security is offered. For this loan this included an all assets charge and insurance from Coface.

This platform, which lists loans from multiple sites, had 13 auctions taking place today although many were from P2P lenders covered elsewhere in this blog.

Site was launched in early October.
There was 1 auction taking place when this blog was compiled.
Highlighted Loan: I received an email notification of the site's first property backed loan on Saturday and it was fully funded by Monday. It was the first £60k of £117k being raised to convert a retail unit with a flat above into 2 private dwellings. The loan was for 9 months with an extrapolated return of 9% pa. Another similar bridging loan was added to the site today.

Lent to Date:  £1.89 Billion – latest figure available.
Returns: Zopa's 3 accounts offer returns of 3.1%, 3.9% and 6.3% pa depending on the levels of access and whether or not they are covered by the Provision Fund.
Zopa distribute investor's money mostly to unsecured consumer loans.

Lent to Date: £1,604,946,326 – fortnightly increase of £30,680,232 – 1.95% growth.
Returns: Interest rates are set according to supply and demand. They currently range from 2.8% to 4.6% depending on the length of the investment. These have reduced by 0.1% and 0.2% respectively over the past fortnight.
Capital is covered by a Provision Fund. Ratesetter proudly boast that no investor has lost a penny since they launched in 2010.

Lending Works
Lent to Date: £38,730,328
Returns: 3.4% and 4.6% for 3 and 5 year investments respectively. The former figure has increased by 0.2% over the past fortnight.
As well as a Provision Fund to cover investor's finances, this site also insures borrowers against redundancy, fraud, illness and accidents making this a very fair site for all concerned.
Platform News: Lending Works have launched their swish new website.

****Disclaimer: This blog contains the views of the Secret Investor. Your capital is at risk when lending via all P2P Platforms. You're recommended to speak to a qualified Independent Financial Advisor.