Category Archives: Advisers

The Falling Australian Dollar

When many people think of the idea of a “weaker” Australian dollar, they seem to panic. It’s spread all over the media and positioned as if it was a recession or natural disaster. For investors, the issue is working out the consequences of a falling Australian dollar and the benefits. But first, let’s find the root of the falling Australian dollar, and work upward from there.

 

So, what are some of the possible reasons for a falling Aussie dollar? It isn’t a straightforward answer. It is a sum of certain things happening in the global macro economy over the last few years. The first possible reason is one to do with monetary policy. Many large nations across the globe took part in aggressive quantitative easing over the last 6-7 years. When we increase the volume of a currency, the relative buying power or value of the Australian dollar increases.

 

In addition to this, as growth slows in China, we see a contraction in demand within the commodities market; leading to a plummet in the price of iron ore.

 

A weak Australian dollar isn’t only bad news. The Australian dollar’s strength over the last few years has resulted in a loss of competitiveness within the global economy. A weak dollar should give back some of our much needed competitiveness and contribute to an increase in the volume of net exports. Sectors like tourism, international education, and foreign investment will experience a boost, whilst many of our domestic importers will feel their belts tighten and prices increase.

 

So what’s the market like for an investor? Commodities are not in the greatest place right now, they are sliding down and don’t look to be picking up in the next few weeks. You’ll probably see an increase in demand for domestic goods, instead of buying online from overseas. Companies that rely on exporting overseas and catering to Australian consumers as well are the most attractive investments in these times. The easiest way to do that is through P2P (marketplace) lending, where the borrower is a private company, it’s hard to invest into private companies without connections, and certain Australian marketplace lenders offer investments into lucrative corporate opportunities.

 

In conclusion, a falling dollar isn’t a bad thing at all. It’s probably good news for us right now; there are much bigger fish to fry within the Australian economy. Most diversified portfolios will be able to sustain themselves through this period of economic down turn.

 

Leo Tyndall, CEO of Marketlend,  a P2P lender, Marketlend at marketlend.com.au.

This is not an advice, and any investor should seek independent financial advice prior to investing.

Marketlend was interviewed recently by Canstar to discuss its business and what makes it different in peer to peer lending in Australia industry

Peer to Peer (P2P) lending, sometimes called Marketplace Lending, has been around in Australia for several years, but has only just started to take off. Marketlend, a wholly owned subsidiary of Tyndall Capital Pty Ltd, is one of the newer players to market and we caught up with CEO Leo Tyndall for a quick Q&A. See the article at here .

Q: Why can P2P, or Market Lending, provide a better solution to the borrower?

A: Simply put it gives the borrower direct access to investors. In response to your question:

1. It diversifies the lender base for the borrower enabling them to be able to reduce their reliance on the risk appetite of a lender;
2. It offers the borrowers the ability to build their own investor base for future bond or equity offerings;
3. It gives borrowers flexibility in the terms of their loan;
4. It provides the ability to the borrower to offer security that is not centralized around property real estate;
5. In the case of Marketlend there is flexibility to the borrower in the type of product it can obtain, either line of credit, debt finance or inventory finance;
6. It removes a lot of the additional transaction costs by enabling the borrower to bypass the middlemen and go to the capital markets investors to get money and
7. It enables the borrower to get lenders to understand its businesss.

Q: Why can it provide a better solution for lenders?

A: For lenders, it offers:

1. High returns;
2. Direct access to the borrower;
3. A structured environment that gives them analysis of credit, loan management and collection facilities;
4. First loss protection in the form of insurance or cash collateral support;
5. Real time reporting and
6. Transparency.

Q: Does it provide access to people who otherwise could not get a loan?

A: Marketlend will not lend to borrowers who are unable to get credit elsewhere. Marketlend and the investor can see how many queries a borrower has made, and it is not a lender of last resort. As Marketlend invests with you, it will not offer a listing on the marketplace that it is uncomfortable with the risk profile for. Furthermore it will not list or invest in startups or borrowers with defaults.

A: Can borrowers expect better priced loans than through traditional lenders?

Q: When a comparison is made for business loans not secured against property real estate, trade credit or debtor invoicing, it is definitely cheaper, varying between 4-8% in some cases.

Q: How do you manage the investment risk for lenders?

A: Other than the fact that investing in a term deposit has the backing of a rated bank, with insurance and cash collateralization, we would argue that the only increase in risk is the infancy of the industry and lower performance history, to date we have had all loans paid on time and no defaults.

Q: What is the approval process for a loan? How long does it take?  Is it faster than traditional lenders?

A: Approval process is as follows:

1. Borrower enters his details through a website application form on marketlend.com.au;
2. After a 10 page completion, he either electronically signs his application or prints his application and returns the signed application back to Marketlend;
3. Our credit officers are notified of the completed application, they will assess its merits, and determine whether to forward it  assessment through the grading model or reject;
4. Prior to grading, the application, the financials will be assessed by chartered accounts, and a report provided to assist in the grading model;
5. The application is then put through a grading model, which is an automated model that takes approximately 65 factors into account to give a result as to the likelihood of the repayment of principal and all interest to the lender;
6. After the result, the borrower is contacted to advise his grade, expected rate of interest and a commentary is prepared based an interview with the borrower about his business
7. A listing is then put on the marketplace, where investors can bid on the loan
8. This process usually takes around 12 hours, and as it is small business lending, I am told by brokers that this is quite quick and faster than the banks.

A: What risk profile of investor, in your opinion, is suited to P2P lending?

Q: Investors suited to the platform are investors seeking strong returns, with transparency. The investor must understand that this is not a bank, and that the industry is still young. We find we get investors from all areas, and it is the fact that they are disclosed all the facts that they can make their own assessment and chose different risk.

Cynicism, Resentment, and Misinformation: A look at the current criticisms of P2P lending.

As someone involved with a P2P lender and generally interested in new forms of investment through utilisation of new technologies, I’ve noticed the huge amounts of hype and excitement that have been following P2P lending. However, more recently, I’ve also noticed the blatant misinformation and cynicism that have been increasingly circulated through media and journalism.
Firstly, I’d like to state that I’m quite obviously not impartial. I’m quite strictly “for” P2P lending, I think that it’s a lucrative and quite simple technique to diversify. No, I am not against conventional investment at all. The purpose of this article is not to refute the purchase of shares, property or any other sort of conventional investment, it is to refute the people who are quick to shun and discourage P2P lending.
To begin with, I’d like to highlight the value of credibility. The banking sector as a whole has extremely high barriers to entry. Omitting the cost of branches, hiring of labor, and the cost of a proficient and skilled work-force; the cost of obtaining credibility is very expensive. It takes years of experience and existence to develop this credibility, and typically years of little success and profit. However, once credibility is developed, it is an extremely lucrative tool. Once the perception of credibility is developed, banks are able to increase their margins in almost every facet of revenue generation; without much or any significant objection from their customers and clientele.
Often, when I discuss P2P lending with someone who has not quite researched the topic, they are quick to tell me that it sounds like a scam. I agree, sometimes it sounds too good to be true. High rates of return, relatively low fees from the facilitator of the lending, and the ability to gain complete information about the borrower; this sounds like a scam, right? This leads back to my point of credibility. P2P lending is something that is relatively new, although P2P facilitators are growing in number and reputation, they must still make a trade-off to incentivize new customers to switch over. To borrowers, they offer loans that can be quickly funded with much less paper-work. On top of this, they typically offer more affordable interest rate repayments.
To lenders, they offer high interest rates, attempt to inform the lender as much as possible about the risks that the loan possesses, and ease of lending. On a platform like MarketLend, lenders are able to invest as little or as much as they want. They can diversify their own portfolio, by investing in high-risk ventures and lower-risk ventures.

The other term thrown around a lot is, “P2P Lending wouldn’t last a recession”. This term thrown around a lot by armchair economists and “financial gurus”. To begin with, the idea is unsubstantiated. Why would it not last a recession? Sure, riskier classed loans would probably not net a positive return on investment, but what aspect makes P2P lending so much more likely to fold in comparison to conventional banking? Mind you, there have been several banks that have folded in America in the trough of the GFC, it is not like banks are immune to recession. Secondly, empirically, using data from NSR on the LendingClub, a prominent P2P lender in the U.S between 2007-2009, the R.O.I. had significantly decreased, but relative to the stock market and property market, it had been relatively unscathed.

Finally, the resentment and cynicism held by many people stems from fear. Not a fear that P2P lending will crash down the door and kidnap their first-borns, but a fear that their financial knowledge may become increasingly irrelevant in the future. This isn’t true. There is nothing to be afraid about. P2P lending is a new and innovative way of utilising technology and generating benefits for both lenders and borrowers.

So, if you’ve yet to invest into P2P lending, give it a shot. It costs almost nothing to begin with, and is a great way to diversify your portfolio. As P2P lending grows in awareness and reputation, the cynicism and resentment will fade away. Maybe it won’t, but that just means a little less money in their pockets.

 

Chinese Stockmarket crisis and how it is a worry

What do the Casino, a dart board, and the Shanghai Stock Exchange all have in common? Luck, and a little bit of skill. It’s important to realize this when you invest in volatile areas. As the heavy, iron wheels of the Chinese economy begin to slow, we, as investors, must think about the repercussions this has on our own economy.

The Chinese and Australian economies are very closely intertwined, as China demands much of Australia’s top exports, Minerals and Education. As a result, the recent Chinese stock market scare has also put fear into the hearts of many Australian investors. So, as an investor, what do you need to know about the Chinese Stock Market crash?

Well, I will summarize in a few brief points:

1. The term “down a third over the past month” to describe the Chinese stock market has been thrown around a lot on the news. However, a figure that they aren’t showing, is the fact that the Chinese stock market is still up 80% over the last year. Which would be amazing growth… for any other country but China.

2. Essentially, the other sectors of the Chinese economy are performing fine, including property and money-markets.

3. It is important to remember that any sort of over-valuation will require correction, and the Chinese stock market was simply over-valued at the time. When I put it like this, you are probably scratching your head, wondering why the entire globe seems to be up in arms about it.

Well, it is the Chinese Government’s response to a relatively common economic phenomena (over-valuation, and subsequent correction), that has investors worried. The Chinese Government decided to cap short-selling and employ central-bank funds to purchase stocks on the Chinese Stock Market.

You don’t need an Economics degree to see why that can have some adverse side-effects. By capping short-selling, the government further raises the price of the listed shares, listed pre-cap, hence distorting the over-valued shares even further, but more probably leading to a decrease in growth, in the long-term. So what does this emphasize?

The importance of valuation, and choice. P2P lending provides an opportunity to invest into companies that you can truly trust and gain full information on their business. It allows you to cross different sectors of the economy, whilst receiving a higher rate of return than most blue-chip stocks on the ASX. But more importantly, it is immune from politics.

 

The Greek Economic Crisis and Peer to Peer Lending

Commentary
The Greek Economic Crisis:
Greece has experienced a tremendous amount of attention, after the strenuous and frustrating months of negotiation between creditors and the Greek Government have come to a crescendo.
Creditors had given Greece another opportunity for a bailout, under the provision that strict austerity must be practiced. Alternatively, Greece could vote ‘no’ to these provisions, and default on these loans.
The Greek Government put its decision to a referendum. One side, led by the opposition leader, was ‘Yes’, we will adopt austerity and accept the bail-out, and on the other, campaigned heavily by the Greek Prime Minister, was ‘no’, which risks default and exit from the euro-zone.
From the moment that the votes were rallied, and a resounding majority voted ‘no’, Greece had stepped into uncharted, yet dangerous waters. It has an opportunity to create history, and hold its own destiny in its hands, a dangerous, yet empowering situation.
Businesses and institutions are struggling to manage, as imports become increasingly harder to obtain, the entire country is strapped for cash, and more importantly the political effects of default will soon resonate throughout the euro-zone, potentially leading to Greek exit. This has led to shockwaves in the world economy, as the Australian dollar fell to a six-year low, and almost all major economies were negatively affected.
Investors have a big question mark over their heads. What does this mean for them? The Greek Economic crisis highlights the importance of independence and information in investing. Investors should know where their money is going, and it is very easy to lose sight of this idea when you are investing.
Peer to peer lending platforms, like MarketLend, and other P2P lending hubs show the importance of this idea. Banks, Governments and Politicians are not always secure, typically not transparent and it is the unknown that seems to surprise us.
Statements we are hearing from super fund participants are “I didn’t know my fund was at risk, or took risks in countries where I would not invest”. To a lot of those funds, the answer is simply it is all interconnected. But how do you know?”
Investing and transparency should go hand in hand, so that you can invest knowing the risks. It’s in situations like these, it comes to be known that directly investing is favourable because you can know your risk. Peer to peer lending offers such investments.

Demand for Working Capital Business Loans is staggering – 7.1M listed within weeks, with another 1M in pipeline

The obvious need for working capital business loans in Australia is evidenced by recent demand from the newly launched only Australian business peer to peer lender, Marketlend.

Within a month, Marketlend has  7.1 Million loans listed on the marketplace from borrowers with strong credit and significant asset positions, and another 1.2Million in the pipeline. It is obvious that the need for working capital business loans is not filled by the major banks, or corporate credit providers.

The borrowers are strong corporates who seek to improve their bargaining power with suppliers or consolidate debts that are charged at rates in excess of 20%.  Without the security of property collateral, competing products to Marketlend are corporate cards or expensive factoring solutions that are limited by high interest rates or limit to the lending amount.

Investors – Self Managed Super funds and others

With a burgeoning Australian self managed superannuation market looking for yield, it is a no brainer for these investors. Marketlend provide a stringent credit and rating process, and offer investors net returns between 10-14% dependent on the risk. A personal property security interest is created over the supplies and the business, complimented by director’s guarantees. This is fully transparent and accessible to the investor.

For the borrower the ease of an application process that takes less than 10 minutes to complete, with approval and listing within 1 hour, there are few competitors in this space.

“These are borrowers  have bank facilities, and strong credit performance but seek for an alternative for their working capital that offers transparency, speed, reduced finance and administration costs. We return to the borrower the ability to bargain with its suppliers by paying them overnight, and to the investor, a strong yield that is stable and easy to collect” Leo Tyndall, Founder of Marketlend.

Financial System Reform – Recommendation 18- facilitate crowdfunding for debt – SME finance – Marketlend well poised for the future.

Financial System Review – click for the full report

Government should continue its current process to graduate the fundraising regime to facilitate securities-based crowdfunding. This would enable entities to make public offers of securities to a potentially large number of people (the ‘crowd’). The risks associated with crowdfunding investments would require some adjustments to consumer protections, including capping individuals’ investments and clearly communicating the risks.

Government should then use the policy settings for securities as a basis to assess wider fundraising and lending regulation to ensure it facilitates other forms of crowdfunding, including peer-to-peer lending.

A range of crowdfunding models are emerging globally. Crowdfunding facilitates the funding of projects or businesses, where small amounts of money are raised from the ‘crowd’ via an online facilitator (or platform).⁶⁸ Financial crowdfunding models include:

• Securities-based crowdfunding, where the ‘crowd’ invests in an issuer in exchange for securities — either equity (crowd-sourced equity funding, CSEF) or debt.⁶⁹
• Peer-to-peer lending, where an online intermediary facilitates lending between individuals, often in the form of unsecured personal loans, potentially to fund a business.⁷⁰

Objectives

• Graduate fundraising regulation to facilitate innovations in fundraising emerging from new technologies and ensure policy settings are consistent across funding methods.
• Provide firms, particularly small and medium-sized enterprises (SMEs), with additional funding options.

 

Financial Reform Recommendations for allowing the development of crowdfunding options for business to access

Article by Neil Slonim – Financial Reform Report released on 7 December 2014

If adopted, the financial reform recommendations made by the team headed up by businessman David Murray could usher in some of the biggest changes to Australia’s banking system in recent history.

The recommendations are broad, but the key ones impacting small business are those calling for super funds to drop their prices and the government to relax rules around governing crowdfunded equity.

The big banks will be required to hold much more common equity capital against their mortgage business if the inquiry’s recommendations are adopted, while financial planners would need to hold a relevant tertiary degree and be able to prove their competence in managing superannuation.

The inquiry has recommended a ban on self-managed super funds borrowing to buy assets and says the corporate regulator, the Australian Securities and Investments Commission, should be granted more power to crack down on white collar crime.

Numerous professional bodies expressed their support for the recommendations yesterday, including CPA Australia, whose chief executive Alex Malley said in a statement that the report “addresses some of the fundamental issues facing Australia’s financial system and signposts some of the critical work that needs to be done”.

“Recommendations for allowing the development of crowdfunding options for businesses to access, the establishment of a new ‘innovation collaboration’ and an emphasis on removing unnecessary regulatory impediments to innovation all have the potential to help business prosper,” said Malley.

However, SME banking expert Neil Slonim says that the 2.1 million small Australian businesses have missed out.

Slonim, who heads up advisory firm ‘The Banking Doctor’ told SmartCompany the report’s lack of specific recommendations relating to the SME banking sector is “disappointing”.

“There was really nothing specific in the 44 recommendations that related to SMEs and startups, other than a generic statement that the inquiry wants to encourage the development of crowdfunding and peer-to-peer lending, which would potentially give SMEs more funding options than they currently have,” says Slonim.

“But other than that, there is really very little if anything else in the inquiry that would give SMEs hope they would get better access to funding.”

Slonim says the two key banking issues facing SMEs are a lack of access to finance and the need for greater competition between the big four banks.

“The inquiry makes some recommendations that would level the playing field between the big four banks and smaller providers of mortgage finance, which will help the consumer sector, there is nothing similar for SMEs,” he says.

“There is a lack of genuine competition between the big four banks, which control more than 80% of the marketplace, in an environment in which it is very difficult for smaller players to compete for SME business.”

And while the Murray report recommends that the government extend protections from unfair contracts for SME loans, Slonim says that “assumes” small businesses are able to sign a contract with a lender in the first place.

Slonim believes it is likely the government will adopt most of the recommendations contained in the Murray report, but says there will be another period of consultation with Treasury before the government officially responds at the end of March 2015.

“Joe Hockey will now be lobbied by all and sundry, particularly the banks” he says.

Marketlend – New Theme Picture

Marketlend new theme picture

We have also have established our new theme picture, meaning new kids shining light on a stagnant banking industry

Trust Documents executed by Trustee, Marketlend, Tyndall Capital and Jardine Lloyd Thompson

In a first for the peer to peer industry, Marketlend from inception is operating a securitisation trust structure to offer investors the most secure and protected funding opportunity available.

Master Trust Deed, Security Trust Deed, Sale and Origination Deed, and Back Up Servicer Deed were executed on 24 December 2014.

AET, a wholly owned subsidiary of IOOF, who manages approx. 123 Billion of wealth funds in Australia was appointed the Trustee, and Security Trustee.

Jardine Lloyd Thompson, listed on the UK stock exchange will perform the role of back up servicer.

“We have structured our lending platform with a solid foundation, that will be built to last. From the mom and dad investor to the large financial institutional investors, all investors are protected and purchase a secured bond where the underlying asset is a loan in the trust or part thereof if the investor wishes. These notes will have the traditional trading aspects to them, and whilst liquidity take a while to build, the notes are tradable instruments in the capital markets.” Leo Tyndall, Founder and CEO.