a deep dive into platform performance€¦ · a deep dive into platform performance. ... platform,...
TRANSCRIPT
A Deep Dive into Platform Performance
Tech enabled lending represents a revolut ion: Financial Intermediat ion can be done better ‘onl ine’
Improved Borrower Experience
Removal of ‘bricks & mortar’ cost
Access to new data sources to improve
pricing of risk
Brand new asset class Originate to distribute model requires originators to
demonstrate alignment
But…..
AltFi Data Analytics: Web based analytics subscription service
Investors have now discovered these high return / low correlation assets
Scaling this opportunity requires:✓ Ability to perform ‘like for like’ analysis of standardised metrics✓ Verification of asset performance by an independent third party✓ Analysis needs to extend beyond return to risk adjusted return
UK SME Originator EU SME OriginatorUS Consumer Originator
Bad News = Calculation of performance of
4
Good News = Availabil i ty of Data
thousand of loans, with distinct characteristics, is:• complex• diff icult to standardise
• Performance varies between loans• Cohorts and pools wil l not behave consistently• Makes l ike for l ike comparison diff icult
- Between platforms- Versus other asset classes
We need to capture the track record of an entire platform, or of an entire platform loan type
5
Challenge 1 - Sampling issues
AltFi Data Analytics: Web based analytics subscription service
Challenge 2:Seasoning
Default profile creates distortionsCohort analysis can be misleading until loans have fully matured
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
0 6 12 18 24 30 36 42 48 54 60
Generic Cumulative Net Loss Curvedefaults net of recoveries as percent of original principal by months since origination
Source: AltFi Data
0%
1%
2%
3%
4%
5%
6%
7%
8%
2 4 6 8 10 12 14 16 18 20 22 24 26 28 32 34
Months Since Origination
Seasoning Distribution of Young Portfolio% of total outstanding loan amount
Source: AltFi Data7
Challenge 3 - Variable origination growth rates
0%
1%
2%
3%
4%
5%
6%
2 4 6 8 10 12 14 16 18 20 22 24 26 28 32 34
Months Since Origination
Seasoning Distribution of Aged Portfolio% of total outstanding loan amount
Source: AltFi Data
Fast growing book:• high proport ion of young loans• lower default rate• higher net return
Slowing growth book:• high proport ion of old loans• higher default rate• lower net return
• Reflects a portfol io perfectly diversif ied across all loans• Is equal t ime weighted to capture cohorts of al l ages• Naturally adjusts to variations in origination growth rate
To create metrics that:• Are genuinely comparable• Are free from ‘ageing’ distortions• Capture the impact of al l lending activity• Are comparable with other asset classes• Can be viewed as a t ime series
8
One solution is to use a methodology that…
‘Equal t ime weighted, constant portfol io’ metr ics• Exposure to every loan• Equal exposure to each cohort
• Imagine that every Q you invested a perfect ly diversif ied $1,000
• Output is the annualised rate of that portfol io
0%
1%
2%
3%
4%
5%
6%
7%
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34
Months Since Origination
Equal Vintage Seasoning Distribution% of total outstanding loan amounts
Source: AltFi Data
AltFi Data Analytics: Web based analytics subscription service
12 month trail ing return from equal t ime weighted, constant, portfol io
• Net of fees and defaults • Adjusted for recoveries
• Defaults written down to historic recovery rate / asset proxy
UK SME Originator EU SME OriginatorUS Consumer Originator
AltFi Data Analytics: Web based analytics subscription service
Same analysis can be applied
to all constituents of
net return i.e. interest
income and net loss…
AltFi Data Analytics: Web based analytics subscription service
…providing us with a standardised, L4L comparable, measure of r isk…
AltFi Data Analytics: Web based analytics subscription service
So by disaggregating our net return methodology, we can create comparable metrics of r isk to be viewed alongside comparable metrics of return
…result ing in a l ike for l ike appraisal of risk adjusted return.
Net Return Loss Coverage
UK SME Originator 6.47% 2.8x
US Consumer Originator 5.12% 1.7x
EU SME Originator 5.42% n/a
AltFi Data Analytics: Web based analytics subscription service
Yield Net Return Net Loss
UK SME Originator
Loss CoverageMultiple by which interest income covers net loss
Yield Net Return Net Loss
US Consumer Originator
Loss CoverageMultiple by which interest income covers net loss
D I S C L O S U R E
I S S U E R S
EU SME Originator
Yield Net Return Net Loss
Loss CoverageMultiple by which interest income covers net loss
• Calculating platform performance is complex• Standardisation can bring clarity• Return should be viewed in tandem with risk• Analysis suggests that digital ly enabled loan
assets offer a signif icant return premium versus conventional assets of similar duration
17
Conclusion