BondMason's clients have achieved a net return after fees of at least 6% p.a. in 2015*, 2016, 2017 & 2018. Below is an overview of the underlying loans and latest performance data. (*part period).
Statistics and Investment Performance
We have experienced a steady inflow of investment from new and existing clients enabling us to grow month-on-month, year-on-year.
Retail and institutional deposits are aggregated and deployed into various lending opportunities including residential / commercial bridging and development opportunities, corporate loans and invoice discounting.
To date, we have invested over £49m on behalf of our investors.
Investments have been made across 32 Direct Lending platforms (including Peer-to-Peer).
Security, borrower types, platform concentration and exclusive access
Typically between 75-80% of underlying loans are secured by UK property via a first or second ranking charge. The remainder of loans are secured by other assets such as debentures, floating charges and personal guarantees.
Debentures and floating charges provide a broad based security against the shares of a company or a general pool of assets. Directors of the borrowing company or the individual borrower may guarantee a certain level of payment if the company cannot make payment on a loan.
Whilst property charges are more appropriate for the recovery of assets in the event of default, personal guarantees are useful in aligning the interest of borrowers and their owners / directors.
Additional work is undertaken by BondMason to determine whether the security designations from each underlying platform are adequate before allowing Receivables to be sold against the underlying loan through BondMason.
A core function of the Investment Team is the selection of lending partners. Over 120 lending partners (Direct Lending and Peer-to-Peer) have been assessed, with just 32 being selected as ‘approved’ lending partners.
To mitigate risk in a Direct Lending portfolio, we diversify lending across these platforms with no more than a 15% concentration in a single platform. Most platforms provide ~3-5% of total underlying loans that are assessed through BondMason.
For a platform to be accepted as a lending partner it is required to pass our rigorous due-diligence process. Once accepted, BondMason will continue to review our relationship with each respective Lending Partner and regularly review processes, procedures and lending patterns.
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 assessed on a risk-adjusted basis. A low rate does not necessarily mean the underlying risk is low, conversely higher rates may not necessarily compensate adequately for a step up in the level of risk being taken.
We take a balanced approach towards pricing and risk with a tendency to focus on the conservative end our target market.
The weighted average rate being received per loan opportunity decreased from 8.73% to 8.27% from 2017 to 2018. This in the main was a result of a decline in the rate being offered on invoice discounting loans.
Having experienced some losses in the early days due to more risky invoice discounting loans, we have developed new relationships with more established invoice discounting partners.
Losses are disappointing, but unavoidable in lending. Since inception, the total write-off rate is just 0.1% of total lending.
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 Jan 2019, 87% of our loan book is performing as expected. 5.23% of our 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.
When making a loan investment, key considerations are the loan term and whether the principal is repaid periodically (amortising) or in full at the end of the term (bullet). The risk of an amortising loans should be lower 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 a good level of liquidity to clients.
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.
Our aim is to enable clients to sell their positions promptly should they choose to exit some or all of their holdings.
In most cases clients are able to fully liquidate within 24-48 hours. Liquidity is not guaranteed and excludes Receivables on Watchlist or in Recovery.
If you have any questions, we're happy to discuss our approach and the performance clients can target.
Please email the team at firstname.lastname@example.org or call us on 01582 820000
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