Stephen Findlay (pictured), chief executive of direct lending specialist BondMason, explains the importance of due diligence and diversification for peer-to-peer investors
PEER-TO-PEER lending is not a homogenous asset class, in the same way equities aren’t,” asserts Stephen Findlay, chief executive of direct lending investment manager BondMason.
“In the equity world, you could buy shares in Apple or Google or you could buy shares in the next biotech start-up. You have a huge range of opportunities you can expose yourself to and the same thing applies to P2P lending.”
With a plethora of P2P platforms covering a wide variety of lending opportunities, investors would be forgiven for feeling unsure about where to allocate their funds. Findlay says the most important thing is understanding the platforms you invest in.
“It’s important to know things like how the platforms are incentivised, what their experience is, whether they can originate borrowers sensibly at good rates and what their recovery processes are like,” he explains.
“However, this creates a real challenge if you’re a small retail investor in value terms. You can do some due diligence by using portals like Companies House or LinkedIn, but you’re not going to get the chance to meet with these platforms directly.
“In our opinion, the face-to-face conversations we have with all these groups at their offices, which take a few hours each, are invaluable.”
This is where BondMason comes in, enabling investors to take advantage of its vetting processes to gain attractive and sensible risk-adjusted returns from P2P lending. The firm works with a carefully curated selection of lending partners, giving its clients an extra layer of due diligence.
“We currently work with 27 lending partners, including P2P platforms, having reviewed over 100 to date,” Findlay says. “From those approved partners, we review the loans they originate and approve approximately one in four of the loans that we review. We have around 1,500 loans on our online platform now.”
Findlay counts BondMason’s highly experienced team of financial services professionals and its strong technology offering among its attractions for investors.
Furthermore, investors have the ability to diversify their portfolios very quickly. Most clients use an auto-bid system, which means that their funds can be spread across 50 or 100 separate opportunities.
“They can do that in a very passive way, so that they don’t have to review each underlying loan and select or bid at a certain time,” Findlay explains.
“That passive allocation is particularly attractive to our clients combined with the transparency
to see what’s going on at any time through our online platform.”
Of course, the proof of the pudding is in the eating and ultimately, investors are looking for yield.
“Over the last couple of years, our clients on average have achieved a gross return of eight per cent per year, so there’s a high degree of consistency in the returns they are achieving with very low volatility,” says Findlay.
“Loss ratios are extremely small, coming in at less than 0.4 per cent. So the clients who have been with us for some time appreciate the quality of the returns they achieve.”
Going forward, it’s business as usual at BondMason, enhanced with some additional wrappers for investors. An ISA service for clients is set to launch during this tax year and the firm is looking to develop an institutional product focused around fixed-income securitisation vehicles.
On an industry-wide level, Findlay expects to see more convergence between P2P platforms and traditional City firms.
“If you grow to a certain size and scale in financial services and asset management, you will inherently work with and interact with lots of other groups,” he says. “It’s a multi-layered, multi-faceted industry.
“That’s really what’s going to happen with P2P lending. The operators will continue to grow, but the boundaries that define P2P lending will be harder to draw.”
For more information on BondMason, go to https://www.bondmason.com.