We understand the importance of acting as a careful custodian of our clients' money - your money, operating with a strict Code of Ethics, to ensure our clients' best interests are met.
- We conduct thorough due diligence, which means we only invest in a loan opportunity if it meets our stringent criteria.
- We take a cautious approach to investing, and all the investments are secured against real assets. Most of the loans we invest in are backed by UK property.
- We pursue any missed payments or defaults on your behalf to recover what’s owed.
Keeping things on track
As part of our ongoing due diligence, every week all the loans we’re invested in are monitored by our Investment Team. We classify loans as (1) Performing (2) Watchlist or (3) Recovery during their life on the BondMason platform. If anything raises concern, whether it be the loan going over term or a missed capital or interest payment, it will be placed on the Watchlist. This is an important part of how we manage the portfolio to keep everything on track and is typical of the lending experience.
Here we explain more about the Watchlist, and why it is not something that should cause undue concern.
What is the Watchlist?
The Watchlist is an internal mechanism created by BondMason’s Investment and Operations teams and is monitored weekly.
Investors sometimes make the assumption that if a loan is on the Watchlist, it is as good as ‘written off’. On the contrary, the majority of all capital in underlying loans has been returned. To date, £99.80 out of every £100 invested has been repaid. When combined with an average net return of 6% p.a, this results in an attractive return for clients.
When does a loan move from Performing to Watchlist or Recovery?
The Investment Team closely monitor all underlying loans. Because we adopt a 'hair-trigger' approach for our Watchlist designation, approximately 15% of underlying loans available through the BondMason platform tend to be classified as Watchlist at some point during their life with us. Although this may appear to be a high proportion, it ensures that we are focused on any potential non-performers quickly.
Should the team discover a material piece of adverse news, the underlying loan is classified as Recovery. This stimulates a greater level of activity from the Investment Team. At this point, the team liaise more closely with the Lending Partner to discuss possible outcomes to ensure that all is being done to recover our clients’ investment. Approximately 5% of underlying loans will be classified as Recovery.
A loan designated as Watchlist or Recovery, means that it cannot be sold to someone else and will be held until such time as the underlying loan is remedied or redeemed.
What percentage of the loan book is on Watchlist and how long does it take to remedy?
In 2018, an average of 6.6% of total investments were in Recovery and 5.56% were on Watchlist. Of these, 50% of Watchlist loans repaid within 3 months and 75% repaid within a 7-month period.
As of today, 12.7% of our book is on Watchlist, of which 7.5% is on Watchlist and 5% is in Recovery.
How much have Write-Offs equated to since BondMason started?
Our close attention to the performance of the underlying portfolio, in addition to the careful filtering at the outset, has ensured that the total capital write-offs arising from non-performing loans has been less than 0.4% p.a. to date, since inception in 2015. This statistic excludes interest received on these loans, which improves the position further.
Good news stories
As with most investment decisions, investors should remain focused on their long-term goals when investing. Investors who take a holistic view, with longer-term investment goals in mind, are less likely to be spooked by some uncertainty over loans on a Watchlist.
As an example, in February 2019 we had two long-standing Watchlist loans repay in full, both capital and interest. One had been in Recovery since August 2017 and the other since November 2017. Although it took a while to resolve, there was no loss of interest or capital.
Whilst it may cause some concern seeing loans classified on Watchlist or Recovery, BondMason clients should rest assured that this means that the team is working hard to protect your capital. Even after the loan in on the list, the expected loss on that loan averages at just 2.5%.
At BondMason we focus on capital preservation and our experienced Investment Team conducts ongoing due diligence on the UK’s Specialist Direct Lenders. Before onboarding a platform, we meet with key decision makers to assess their lending criteria, processes and procedures, ensuring they align with our exacting standards. Once accepted, the BondMason Investment team will scrutinize available loan opportunities daily, using rigorous selection criteria, with a focus on property backed lending and diversification. We only select good quality, well-priced loans with a conservative loan-to-value ratio, which means our clients have a good buffer between what they lend and the value of the asset which they have security over. We will never compromise on quality and as such, only 33% of loan opportunities presented to the team are approved.
Spreading investment across different partners and loan types, with a focus on lending secured against property, helps to manage risk and target healthy returns. The BondMason lending portfolio is diversified across 100+ loan positions