17 May, 2016

BondMason Investment Review

The UK Peer-to-Peer Lending (P2P) market is maturing with a number of new investment instruments on the market offering different methods of investing in P2P. The following article, BondMason review takes a closer look at the P2P platform. We recently caught up with Stephen Findlay, the CEO of BondMason, one of the first P2P asset managers to enter the market. BondMason actively select P2P investments, building portfolios and allowing retail investors to ‘effortlessly earn 7.0% p.a’. Asset Management seems a logical progression for the P2P market so we thought we would take a deeper look into the BondMason investment offering.

BondMason Review: Key Investor Statistics

BondMason is offering retail and intuitional investors access to the P2P market through a managed portfolio.

Figure 1: BondMason Review

BondMason’s targeted return of 7% appears appealing, particularly since they are outperforming their targets with a past performance of 8.6%, since April 2015. Although BondMason favour asset-backed P2P investments, they do invest across a mixture of borrower types, including: consumer, business and property.

How does investing in BondMason work?

Simply put, after depositing your funds into your BondMason account, you entrust the BondMason management team to invest your funds across a number of P2P investment opportunities. The diagram below provides an overview of how BondMason operates:

Figure 2: BondMason Review – How it works?

It is important to note that the underlying assets are the same whether investing directly through a P2P platform or through BondMason. It is the loan selection process which differs.

Benefits of investing through BondMason

Due Diligence: If you find conducting investment due diligence daunting, then it might be a good option to employ professionals. Stephen Findlay, CEO of Bond Mason, commented that they undertake a strict due diligence process. ‘We approve 1 out of 3 platforms and 1 out of 3 loan opportunities within the P2P platform. Investor funds are diversified across a minimum of 50 loans.’

7% Targeted Returns: BondMason target a reasonable 7% net return. This is net of a 1% annual fee and a 0-2% bad debt estimate.

Double Diversification: Investors in P2P are commonly recommended to diversify across a number of loans within a platform, however, it is less commonly highlighted that investing across a number of peer-to-peer lending platforms also adds to diversification. By investing through BondMason you are able to diversify your funds across a number of P2P platforms and across a number of loans within the P2P platforms. We call this double diversification.

Reduced Cash Drag: Cash drag is a consideration that is often overlooked when investing in P2P. Cash drag is created when your funds sit in your account earning no interest, waiting to be lent out. This generally happens when there is too much investor capital on a P2P platform for the level of borrowers on the platform. This is a common occurrence on platforms such as Zopa, particularly around the end of the tax year when more investors come on the platform wanting to invest. BondMason reduces the effects of cash drag by investing their own capital in loans prior to these loans being made available on the BondMason platform.

What are the risks?

In addition to the common risks associated with investing in P2P there is one principal risk associated with investing through BondMason that should be considered.

When referring to the peer-to-peer lending industry as a whole, Cormac Leech, a P2P analyst at Liberum Investment Bank recently stated:

“Fraud risk is the biggest issue because you basically have to trust the management that they’re doing what they say they are”

There is an argument to say that there is two layers of fraud risk when investing through BondMason. In addition to investors having to trust that the P2P platforms are operating truthfully, they also have to trust BondMason. BondMason are appointed representatives of ESynergy’s regulatory permissions given some level of comfort to investors that they are governed by FCA regulations, albeit indirectly. Bond Mason provides each investor with a dashboard to demonstrate how their investment is performing.

The principal risk when investing in BondMason is that Stephen Findlay and his team make bad investment decisions. For investors it is therefore important that they have faith in BondMason’s ability to select quality loans. This leads to questions around the composition of the BondMason team. On the BondMason website it states that Stephen Findlay and his seven-person team have over 50 years’ combined investing experience. Taking a further look into the CV of Stephen, he has an impressive career as both an entrepreneur and Wealth Manager, notably holding key positions at Fidelity. The Bond Mason team also operate under a code of ethics which is described on the Bond Mason about page.

A risk that may not be as obvious to retail investors is that the peer-to-peer lending platforms may not wish to cooperate with the BondMason team. Traditionally, retail investors invest directly through P2P platforms and not through intermediaries such as BondMason or even comparison sites like Orca Money. It is our opinion that this will drastically change in the coming years with the growth of portfolio managers and investment platforms offering P2P investments. In the interim, however, the P2P platforms hold the power and if the P2P platform doesn’t want to play ball they may make life difficult for the BondMason team. This presents a risk that that loans are selected by default and not by choice.

Possibly not a risk, but more of an annoyance, is that you are unable to see the underlying loans or P2P platforms which BondMason invests in prior to depositing the min deposit of £1000. For us, and potentially some investors, it would be comforting to see the logos of some of the top platforms which BondMason are dealing with before depositing the £1000.

BondMason Review Conclusion

Asset Management is a logical step for the peer-to-peer lending market and the BondMason proposition appears to be a good one. Targeting above market rates whilst offering investor diversification may be a good option for retail investors. Ultimately, as an investor you will need to trust that the BondMason team can select loans that deliver the promised 7% targeted return.