Financial Advisory

Financial Advisory

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Expert: Jake Wombwell-Povey, Goji

Facilitator: John Chapman, Owen James

The expert presented the case for advisers to consider lending as an asset class which should be part of an advisors discussion with clients.

Key points:

  • With interest rates at historic lows and forecast to remain so, advisors Ned to consider alternatives to find yield.
  • The direct lending sector has grown rapidly with over £11bn invested by over 200,000 retail investors globally.
  • The development of Direct Lending Platforms has been key to this growth. Direct Lenders (Retail, Family Offices, Institutions and Funds) have been able to lend via the platforms to Borrowers (Consumers, Corporate, Property, Leasing and Receivables).
  • It should be stressed that P2P lending is only a small percentage of the overall direct lending market.
  • Platforms operational efficiencies enable them to compete on cost and service. The cost advantage over banks include savings on branch infrastructure, money collection, deal origination costs, FSCS fees, administration and marketing.
  • Institutions are investing in the sector.
  • The investment landscape shows that wealth preservation is critical with an ageing demographic ; cash accounts offer meagre returns ; inflation is eroding real returns ; yields on traditional fixed income is low; and volatility, driven by political uncertainty, remains high.
  • Direct Lending has the following attributes – attractive risk adjusted returns; Uncorrelated performance; highly diversified; low volatility; and capital protection “Through the cycle”.
  • Discussion around the table covered the following:
  • Detailed discussion on the regulatory status of the direct lending platforms and the direct lenders on the platforms. Goji is regulated by the FCA.
  • Goji is the first fund of funds manager in the direct lending space.
  • It is difficult for IFA’s to undertake Due Diligence on individual asset classes and goji’s solution provides a single asset class on a platform.
  • Goji’s management fee is 95bps including the platform and the target return is 5% net of fees.
  • It is important to understand that Direct Lending does not focus on adverse credit opportunities – the actual default risk is low.
  • The benefits of Goji are that the investment diversifies risk by investing in a number of platforms and a number of loans; only invest in asset backed loans; and average duration is 3.5 months.
  • This asset class cannot be risk profiled.
  • Goji invests on a monthly basis across 7 businesses.
  • It is envisaged that little will change for the sector in an economic recovery. Banks lend to safe businesses, but businesses need quick and positive lenders to provide additional financial support. In addition, BASLE III penalises banks capital requirement on SME lending.
  • Goji will be integrating with Intelligent Office – Nick Eatock is a NED at Goji.