BondMason's clients have achieved a gross return in excess of 8.0% p.a. in 2015*, 2016 and 2017 (*part period). Here's an overview of the underlying loans and latest performance data.
Statistics and Investment Performance
If you invested £10,000 in October 2015, spread across every loan opportunity, it would be worth £11,470 as at 30 June 2017, a gain of 8.52% p.a.
For transparency, we've emphasised (grey lines) where 6 loans out of 4,351 which led to a write-off of capital and impacted returns.
Remember, your capital is at risk when you invest through BondMason or undertake any direct lending activity.
Security, borrower types, platform concentration and exclusive access
Typically at least two-thirds to three-quarters of the underlying loans are in "well secured" loans. Some loans demonstrate security better than others - with a direct charge and clear realisable market value for that security. For example, a property-backed loans with a first charge. Other loans may look like they have security, but that shouldn't be accepted at face value.
For example, a debenture or floating charge which provides a broad based security against the shares of a company or general pool of assets. The value of the security depends on the strength of the Company's balance sheet and an understanding of other potential creditors before any value can be attributed to the security.
Personal Guarantees are generally not considered as security, but directors may guarantee a certain level of payment if the company cannot make payment on the loan. In reality there can be limitations on the value of these, although are useful to align interests of borrowers and their owners / directors.
We've used the security designations from each underlying platform. However, additional work is undertaken by BondMason to determine whether we actually value that security in each case before allowing Receivables to be sold against the underlying loan through BondMason.
The proportion of underlying loans that relate to Property has increased, and there has been a reduction in the amount of Invoice Discounting loans as a proportion of overall client exposures.
This reflects a conservative focus to the approval of underlying loans. We tend to source property bridging finance as opposed to the riskier property development finance.
We don't currently allow Receivables to be sold through our platform where the underlying loan is a Consumer loan; although we may consider doing this in 2017/18 where good security is provided.
Selecting and approving lending partners, and then diversifying across these platforms is one of the most important aspects to mitigating risk in a direct lending portfolio.
The maximum proportion of loans sourced from a single platform is typically less than 10%, with most platforms providing ~3-5% of total underlying loans that are accessed through BondMason.
We've reviewed over 100 lending partners (including peer to peer lending platforms) and have only approved 26 lending partners to date.
BondMason has established relationships outside the peer-to-peer lending industry with Direct Lending platforms that originate high-quality loans with attractive, risk-adjusted returns.
Traditionally, the Direct Lending market had high barriers to entry for the retail investor; typically only High-Net-Worth and Institutional Investors had access to these markets.
As we have gained entry into this space, our retail investors now have access to these markets and loan opportunities they would not have been privy to before. We will continue to grow and develop relationships with other operators in the Direct Lending sector.
Our focus over 2017 was to increase the number of Direct Lending Partners we worked with; as at 1 March 2018, this equated to 33%.
Loan rates, defaults and cash drag
Underlying loans are approved across the BondMason platform on the basis of a rate that is commensurate with its risk. Just because the rate is low, it doesn't mean the risk is low. It requires an objective assessment of the opportunity in each case.
We source attractive risk-adjusted loans taking into account all the key aspects of a particular loan opportunity. Our overall approach tends to be at the more conservative end of smaller loan investing.
As our proposition of loans from outside P2P lending has continued to increase, we have been able to source loans at better rates for clients, with gross returns averaging ~8.5% p.a.
Losses are disappointing, but unavoidable in lending. Since inception, the total write-off rate is just 0.2%, with a further 1.2% currently in recovery.
Overall, we expect a loss ratio of 0.5% to 2.0% p.a. across the portfolio. This is typically higher for invoice discounting finance and lower for property finance
As at 1 March 2018, ~91% of our loan book is performing as expected. 6% of loans have been placed onto our ‘watchlist’ as we believe they are loans that require closer monitoring.
The vast majority of loans on our watchlist go on to be fully repaid and the watchlist reflects our conservative and prudent attitude towards lending.
Cash drag is most prevalent during the initial deployment period, but can also occur if client funds aren't fully invested at later times.
Over the course of a clients' first 12 months with BondMason the impact of cash drag should be less than 0.1%-0.2% on overall returns. Thereafter the impact should be negligible.
The chart shows the average time for a deposit to be fully invested. In 2017 the average deployment period has been reasonably consistent at around 25-32 days.
Once fully allocated, clients should typically stay between 95-100% allocated at all times. Although this can drop to 90% allocated from time to time in exceptional circumstances.
The term of a loan and whether it repays over time (amortising) or all at the end of the term (bullet) are key considerations when making a loan investment. Repayment loans should have reduced risk over time, assuming that repayments are being made in full and on time.
The average remaining term of the underlying loans is currently 9 months. This enables us to provide good liquidity to clients if they want it.
It also enables our client to create a portfolio of loans which can be re-priced relatively quickly, for example in the event of a rise in inflation.
We aim for clients to be able to sell their positions promptly in the event they would like to exit some or all of their holdings.
In most cases clients have been able to fully liquidate within 24-48 hours, although liquidity isn't guaranteed.
If you have any questions, we're happy to discuss our approach and the performance clients can target.
Please email the team at email@example.com or call us on 01582 820000
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