Lord Myners may be seen by some as a someone who is scrutinising the P2P industry unfairly but I am not so sure. I believe there is a move towards improving the industry and I am very encouraged by his recent questions of the government on P2P secondary markets. There is also no doubt that Lord Myners is qualified to comment he has worked in the financial sector since 1974. He has also held a number of third sector posts, including chairman of the trustees of the Tate and Chairman of the Low Pay Commission. Immediately prior to his ministerial appointment he was chairman of the Guardian Media Group, publisher of The Guardian and The Observer newspapers, and chairman of Land Securities, the largest quoted property company in Europe at that time. He is a former chairman of Marks & Spencer and deputy chairman of PowerGen.
P2P Finance News reported that Lord Myners tabled a question asking the government what steps they are taking to “investigate delays in and take action to speed activity in, and ensure lenders are properly informed about, secondary market sales in P2P lending.”
This underscores what we have been aiming to achieve at Ablrate and what we are doing at ASMX.
We fundementaly believe that secondary markets are the key to helping the sector become more mature. By giving all interested partcipants from retail customers to institutional investors the ability to pool liquidity within the sector via a secondary market.
We talk a lot about the technology and the delivery of that technology but let me give you and Lord Myners a practicle examples of how a liquid secondary market can improve the experience
We would class most P2P finance into SME’s as ‘impatient capital’. Those lenders want a deal that is secured, paying a decent interest rate and a time frame for the return of their money. Unfortunately the timing element isn’t always set in stone.
A borrower may have taken a loan against a property they are selling, but improvements are delayed and the term ends without a sale of the property. This can result in default, penalties and mistrust an ill-will for the borrower and the lender and legal action all round.
A liquid p2p secondary market gives better optios to everyon in the process. The extension for a borrower can be made giving Lenders the opportunity to sell their holdings and keep to the time frame they invisaged at the beginning of the loan. However, this assumes that there is liquidity. It asumes that those within the market have more time and, perhaps, greater risk appetite than the selling lender, so called ‘patient capital’.
This patent capital is often in the hands of high net worth individuals and professional investors such as institutional investors, asset managers and traders. In the current financial model this capital often, in times of imminent need, (such as the case described above) becomes ‘vulture capital’. What we mean by this is that an incoming lender leverages their ability to act quickly and with the financial capacity to complete a deal by offering terms that could disadvantage existing lenders and the borrower.
Presently P2P secondarty markets are not geared up for professional lenders who have to deal with platforms on an individual basis, pressing the buttons to make investments themselves. Some have ‘auto-invest’ that may help with this, but in most cases the process is inefficent and time consuming beyond what a professional investor would be prepared to commit to smaller platforms.
This is why the largest platforms get institutional money, becuase the pool of funds to deploy into is larger.
Now imagine that all platforms are integrated with ASMX. Professional money will be within the system looking for opportunities to increase returns on there funds with time horizons way beyond that of retail investors. Professional traders will be able to sit on the bid side after evaluating assets underlying trades.
The benefits here will be:
1. Better liquidity for lenders, making risk managemnet much better.
2. It will boost lenders’ confidence to lend into primary loans knowing that there is liquidity into which to sell their loans if needed.
3. It will enhance platforms’ ability to originate because there will be more willingness to invest by lenders, given that they can sell into a liquid market.
4. It will make price discovery better and discourage vulture re-financing. The FCA are concerned that secondary market pricing is fair. That can be acheived by better price discovery create by a large number of liquidity providers, from retail to institutional.
ASMX believes that what we are building can be a massive positive for the market and the integration of ASMX by all P2P platforms would give the boost to the industry that is needed to begin making have a braoder appeal in the investment landscape.