The Impact of Institutional Investors What does the data tell us? Rupert Taylor, Co-Founder AltFi Data
Origination Volume LTM Industry CAGR 75% Property Backed Lending growing at 109%
Identifying Institutional Activity Activity identifiable on the UK’s top 3 platforms: RateSetter: Non Provision fund Funding Circle: Whole Loans Zopa: Non Safeguard fund
Big Three Origination Zopa, RateSetter and Funding Circle accounted for 62% of origination last quarter The big 3 are no longer ceding market share
Big Three Market Share Inflection point in June 2014 Is this a function of scale alone?
Retail investor growth steady Significant institutional pick up in April % Institutional in September
Retail investor growth steady Identifiable institutional investment accounted for >50% for first time in September
Retail investor base has driven overall growth Institutional involvement light to date Target ‘up to 30%’ institutional going forward
Gross Interest Rates No cost of contingency fund Greater risk appetite 9.45% 6.21%
Gross Interest Rates Pick up since April 2015 Significant spread of lending rates New origination channels 9.53% 5.84%
Gross Interest Rates Further signs of new borrower population 17.60% 4.61%
Gross Interest Rates New channels But no distinction in activity 9.47% 9.13%
Loan Term Institutional investors buying longer dated loans 49.4 months 39.6 months
Average Loan Size Limited difference in loan size Evolution a function of loan type 45% increase in industry average loan size over 18 months
Sector differentiation - SME Institutions underweight: Property & Construction; Leisure & Hospitality; Retail; Other RetailInstitutional
Arrears Higher lending rates showing up as higher risk Indications of a “learning period” 0.82% 0.41%
Bad Debt Rates Bad debt % as a proportion of today’s entire pool Defaults measured after contingency fund 0.47% 0.23%
Returns Measured using LARI methodology based on loan by loan cash flows 6.02% 7.04%
Liberum AltFi Returns Index Calculated using loan by loan cashflows Dynamic, time- weighted, index containing every active loan since inception Significant excess return 5.45% 1.59% 0.30%
Transparency Transparency is a central Liberum AltFi Returns Index eligibility criteria
Disclosure builds TRUST TRUST Central to any relationship with a financial services company Key ingredients that develop TRUST: – Regulation – Governance – TRANSPARENCY / DISCLOSURE
Importance of Benchmarking For the asset class Risk and return What is the excess return? For asset managers Gives context to investment performance Represents best practice Mitigates regulatory risk Facilitates valuations
Industry Best Practice Platforms: – Loan book publication – Peer review of returns Asset managers: – Benchmarking to allow investors to make informed decisions on expected returns
Summary Institutional activity accelerating fast in UK – now accounting for over 50% of origination at the top two UK platforms Evidence suggests opening up new sources of loan origination Investor rates differ between institutions and retail, as does bad debt experience thus far – too early to tell on returns Platform transparency facilitating the development of the asset class
Rupert TaylorSam Griffiths Mobile: +44(0) Mobile: +44(0)