ThinCats Newsletter May 2017 31/05/2017
P2P investments can play a vital role in retirement planning.
Over the coming months, we will be taking a look at key issues around P2P loans and retirement planning. Challenges for retirement planning include:
- Finding income-bearing securities that produce a sufficient yield in a low interest environment,
- Generating sufficient income from your portfolio without eroding capital at a rate that threatens future needs,
- How to manage the risk of selling assets in market dips which can severely erode the value of your portfolio over time, and
- Managing the potential illiquidity that is inherent in peer to peer lending.
In a world of squeezed yields, we will analyse how P2P loans compare with other income-bearing assets, whether conventional bonds or equity income, and how these may fit into a portfolio.
We will also look at the various merits of holding within pension wrappers such as SIPPs or SSASs versus the impending Innovative Finance ISA, and the tax implications of each.
Most importantly, these articles should serve as a reference for you, our lenders. We therefore want to know what your questions and concerns are. If there is anything you would like addressed, please contact us at firstname.lastname@example.org, and we’ll get back to you as soon as possible.
If you have been paying particular attention, you may be aware that there is a general election on the way. You may also have heard Theresa May and other Conservative grandees utter the phrase “strong and stable”, just once or twice. Contrarywise – and to provide balance – Jeremy Corbyn’s Labour has come up with “For the many, not the few” (echoing Shelley’s Mask of Anarchy, for the literary-minded among you).
We are certainly not going to venture into political punditry here, let alone express favour: not since the sad demise of Screaming Lord Sutch, at any rate, who in today’s political climate looks increasingly mainstream. It is, however, worth casting a weather eye over the two main parties’ manifesto commitments, to gauge the likely effect on asset markets and personal wealth.
The Conservatives have said that winter fuel allowance will be means tested. The manifesto also proposed that while the cost of care threshold will be raised from £23,000 to £100,000, the value of your home will be included when calculating assets for home care. May dramatically pulled back from this on 22 May, in the face of accusations of imposing a “dementia tax”, but the details are yet to be fleshed out. The pensions triple lock will also be abolished and replaced with an earnings/inflation-linked ‘double lock’. Overall, this furthers the Conservative’s approach to shift the duty of care from state to individual, and you will have to be increasingly cognisant of this in your investment decisions.
Labour, on the other hand, will reintroduce the 50p tax rate for those earning more than £150,000 a year, retain the 45p rate for those earning more than £80,000, and significantly increase Corporation Tax. Alongside this, the party promises significant spending around such areas as childcare, health and education. This all needs to be funded: both through the tax measures above, and government bond markets. That, in turn, will likely see an increase in borrowing costs and stoke inflationary pressures.
So, if you’re sitting on a fixed income portfolio of gilts yielding not much more than 1%, or corporate bonds of less than 2.5%, you could find the income portion of your portfolio underwater pretty quickly if you’re relying on ‘conventional’ fixed-income securities. Indeed, with April’s year-on-year UK inflation rate being 2.7%, some investors may be in need of a snorkel already.
Given this, an annualised return of broad P2P loans of more than 5% looks attractive: ThinCats’ return of between 7 and 8.5%* even more so. High-yield bonds are still yielding more than 5%, but their indices are volatile, reflecting the fact that the securities are heavily traded. P2P loans are more likely to hold till maturity – they are less liquid, but consequently less volatile. If you’re a retail investor, you probably don’t have ready access to other income-bearing assets such as infrastructure debt, private placement, leveraged loans and the like. That just leaves commercial and retail property. In other words, sources of un- or low-correlated income paying above inflation are few.
Whatever the outcome on 8 June, investors will need strong and stable yields, available for the many and not just the few. This has always been the mantra at ThinCats. The case for allocation of a significant portion of one’s investment portfolio to P2P business loans has never been better.
*Estimated weighted average annual interest after all costs and provisions for losses of actual defaulted loans after forecasted recovery of security but before income tax (2012 to date). Past performance is not indicative of future results. Capital is at risk. For more detail see our statistics and default rates.
Our recent survey revealed a fascinating glimpse into the world of our lenders, and we would like to thank you again for taking part. We asked some slightly unusual questions, and you gave some very candid opinions and descriptions, and some extremely useful information and suggestions.
We asked you to describe yourselves in a sentence, and it seems that we have a full spectrum of personalities, interests and passions amongst our investors. You range from 29-year-old investment professionals to lively 70-year-old retirees, have interests in everything from tree surgery to international firework displays, and work in industries as varied as microbiology, mechanical engineering and data integration.
Your motives for investing are equally varied; with some stating that it is fuelled by, ‘a need to make my savings work for me’, or ‘a passion for earning a decent return on invested capital’ to those who, ‘treat P2P as a part time job’.
Some of the most interesting answers came from the question, ‘How would you describe peer-to-peer to a friend?’ We had some impressively concise and accurate summations:
- “Beat the market if you are brave and patient, but spread the load”
- “A way of earning realistic rates of interest in a low interest world, with some risk”
- “Exciting: risky, but offering potentially high rewards”
- “An investment area in which the investor has full control, and can make his own mistakes”
- “Opportunity to invest in a range of companies with interest rates (and risk) above the market” 
We then asked for the reasons that you were attracted to invest in ThinCats loans – the top three reasons given were the competitive interest rates, access to secured loans and the ability to choose your own investments. The quality of information available and the fact that you are able to support UK businesses were also popular factors.
In answer to the question, ‘What is the one main thing that ThinCats could do to improve?’, you had some very useful ideas, many of which we are already addressing. The most popular suggestion was an improvement in the website / user interface. This is, as we have talked about in many a newsletter, a hefty, ongoing project, and one which we are firmly prioritising. System performance improvements are continuing, slicker processing of payments, deposits and repayments are all on the cards, and we have taken note of the other ideas put forward.
The next suggestion was for an improvement in communications; another area that we have been working on. We are investing resources to revise and enhance the communications that are sent out, and are working on keeping all investors as well informed as is possible.
The other popular improvement was an increase in the breadth and number of loans. Our Origination team has been growing over the past six months, with just that purpose in mind. Most of the team has now settled into their positions, and the loan pipeline contains a large variety of loans, based on size, industry and region, and you should notice these coming through very soon.
We are listening, and working hard behind the scenes to provide the best service that we can – some improvements take longer than others, but we are doing our very best to make the ThinCats experience a rewarding one.
 ThinCats, Lender Survey – Easter 2017, 4/13/2017
John Brooks has joined ThinCats to build our loan origination capacity in London and the south east.
John joins from NatWest, where he was a senior relationship director with the bank. He has spent 42 years working with UK businesses – 30 of them working with different areas of the SME market. For the past 12 years he specialised in the professional services sector in NatWest. Clients included solicitors, accountants, insolvency practitioners, property managers and architects with turnovers of up to £50m.
John kicked off his working career in Peckham, where he was born and raised, and worked weekends in a fruit and veg shop from the age of 12. He says: “The bloke who owned the shop liked the horses. By the time I was 13, he was down the bookies and I was running the shop.” Alongside this, he harboured ambitions to be a professional footballer. That never quite panned out, and the world of banking beckoned for the next four decades – and then to ThinCats.
John explains: “I was interested in the new environment of P2P, and ThinCats stood out. The business understood the value of human beings – one good person talking to another – rather it being just a transactional platform.”
John, we reckon, is a man who knows his onions.
ThinCats’ is further bolstering core operations with the hiring of Samantha Gray as General Counsel.
Samantha provides commercial and legal advice across the Group and is involved in the development of the operational and transactional processes. She also oversees the securities, monitoring and recoveries teams.
Samantha comes with a strong legal background. She has over 16 years’ experience in the profession, having previously been a Partner at Langleys Solicitors LLP and headed up their Finance Law unit which covered financial services, banking, insolvency and restructuring matters.
Wander through the Surrey market town of Guildford, and you’ll see an unusual amount of young people with a variety of musical instrument cases. Chances are, they’re not busking, but students at the Academy of Contemporary Music (‘ACM’).
ACM was founded in 1997 to provide higher education courses for students in the contemporary music and arts arena. It has done this with considerable success, with Ed Sheeran and Emma Stevens being amongst its former students. The benefits that studying at ACM offers include a formal partnership with Metropolis Studios, Europe’s largest independent recording studio, based in Chiswick. This provides students with use of facilities and masterclasses from visiting performers, including Rudimental, and Chad Smith from Red Hot Chilli Peppers, along with internships.
Kainne Clements is the sole shareholder in ACM (along with Metropolis). Since his acquisition he has developed the business such that is highly regarded within the sector and trades profitably.
ACM has invested considerable sums into its infrastructure, focused on the delivery of world class market leading courses. These courses being rolled out from the Guildford site to a new site in London. This has led to an increase in student numbers from 1400 to 2600.
The growth in the business led to ACM approaching RSM’s SME Debt Advisory Team to assist in securing a funding partner who could help capitalise on their expansion plans.
Damian Webb, debt advisory partner at RSM, said: “We approached a number of funders as part of this process, but what really appealed to ACM was ThinCats strong understanding of the business, and their ability to structure the funding appropriately. The ability to speak to real people who can respond quickly was a real factor in choosing ThinCats ahead of other lenders.”
The loan is for £2m over four years, paying 8%, and was fully underwritten by ESF Capital. Bringing together the best aspects of marketplace lending in a simple and easy to understand process helped set ThinCats apart from other lenders. Competition was stiff to list the deal, and this is reflected in the rate. It is secured against a first lien debenture over the group and all assets, among other guarantees. A further loan of £400,000 is expected to be drawn down in June, which will rank equally with the current loan. It carries a three-star credit rating and three-padlock security rating.
Dave Sherrington, who heads business origination across London and the south east, said: “Working with RSM on this deal was a real pleasure. The level of information and understanding of both parties’ requirements allowed us to deliver a compelling solution, quickly. We are pleased to be supporting such an ambitious and successful entrepreneur as Kainne Clements and look forward to supporting his future plans for the business.”