24 October, 2018

ThinCats ‘Diversified Loan Portfolio’: Overview

ThinCats ‘Diversified Loan Portfolio’: Overview

Peer to peer lending (P2P) platforms are split between those who offer auto-invest products where your funds are automatically diversified across the loan book and self-select platforms where you can select individual loans. Platforms typically launch with self-select offerings, and recently we’ve seen a trend with these platforms migrating to auto-invest solutions. This is often due to a limited availability of loans - a requirement for auto-invest products - in the early stages of a platform’s growth.

This trend has become even more apparent with five historically self-select P2P platforms (Proplend, ArchOver, ThinCats, Lendy and HouseCrowd) recently launching auto-invest options. This is a first look at ThinCats offering.

ThinCats Quick Facts

Founded 2011
Cumulative Lending £293 million
Investment Products Self-select loans & Diversified Investment Portfolio (DLP)
Expected Return 7- 15% self-select (gross) & 6.38% DLP (net)
Min Investment £1,000
Early Access Yes for self-select loans & No for DLP
Loan Type Business loans (SME)
Loan Security Asset security on all loans
Fees - 10% of investors return (1% fee on 10% yield) - Additional 1% admin fee for DLP - 1% fee to exit early on self-select option
Provision Fund No
FCA Registered Fully Authorised
IFISA Available Yes, both self-select and DLP accounts ISA transfers are currently not accepted so new subscription money only.

Diversified Loan Portfolio

ThinCats have begun to offer what they call a ‘Diversified Loan Portfolio (DLP)’. This gives investors the ability to invest directly in a pool of between 20 and 40 loans. When selecting individual loans on the ThinCats platform, the minimum investment in a single loan is £1,000. The key benefit of investing in a DLP is that diversification can be achieved for the same minimum investment.

Diversified Loan Portfolios are a very new product offering for ThinCats and there has only been one issue or auction to date. The offering is not run continuously, however, ThinCats have said there is likely to be another issue before the year-end.

How it works?

Institutional investors, including ThinCats’ majority shareholder ESF Capital, invest in loans listed on the ThinCats platform. After a period of time, a proportion of these loans are bundled together in a portfolio and resold to retail investors through a DLP auction. The involvement of institutional investors is necessary to build up the portfolio of loans over a period of time as it’s unlikely that 20-40 loans will be available at any one time on the ThinCats platform.

What is the investment term and can funds be accessed early?

Each DLP has a target term date which is typically 2 years. Investors are not able to sell their holdings early on the secondary market.

Who are the borrowers?

The loans included in a DLP are no different to the borrowers when investing in the self-select option. ThinCats provide finance to SMEs looking to borrow between £100k and £10m. Historically, the average loan size is £310k, however, this is rising with the average loan size in 2018 being £714k.

What security is present?

All lending on ThinCats is secured against the assets of the borrowers. In the event of a borrower defaulting, ThinCats have the right under the terms of the loan agreement to take control of the asset to recover any potential capital losses as a result of the default.

What are the investor fees?

Across all accounts, ThinCats charge 10% of the investors return. Therefore, if you are due a 10% return from a borrower, your net after ThinCat’s fee will be 9%. For an 8% gross return, you will pay 0.8% in fees, providing 7.2% net.

When investing in a DLP, ThinCats charge an additional administration fee of 1% on top of their standard investor fee. If selling individual loans on the ThinCats secondary market an additional 1% fee is charged.

ThinCats Positives

  • Large backer in ESF Capital
  • Institutional investor presence on the platform
  • Transparent
  • Asset secured
  • History of lending
  • IFISA eligible

Specific Positives of DLP auctions

  • Achieve diversification at £1,000 minimum
  • Hassle free investing

ThinCats Negatives

  • Limited availability of loans
  • The website is slow and clunky
  • No ISA transfers
  • High minimum allocation to single loans

Specific Negatives of DLP auctions

  • Not a continuous offering

Conclusion

The Diversified Investment Portfolio is a drive to attract retail investors and the offering has clear diversification benefits which may appeal to mainstream ISA investors in particular. It is, however, still very new and the offering is not continuously available. If executed correctly, it does have the potential to progress into a great offering for retail investors.