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Is Assetz Exchange Going To Go Like Assetz Capital?
Assetz Exchange* shares a name with Assetz Capital, which recently announced it's winding down its P2P lending side to focus on lending that is funded by financial institutions.
While Assetz Capital expects lenders to continue to lend profitably as the loans are repaid, it did shock lenders by saying it's going to start charging them additional fees to cover costs. This could greatly reduce their returns.
As is usual during wind-downs, lenders are unable to sell their loan parts early. So, barring legal recourse or compensation through the Financial Ombudsman Service, lenders could be paying those higher fees for up to six years while they wait for all their loans to be repaid.
Some lenders are not happy that they're facing these fees, saying they're only doing so because Assetz Capital wanted to change its business strategy.
Meanwhile, Assetz Exchange – a different P2P lending company – initially benefited from its decision to use the Assetz name. Now, at least in the eyes of some lenders, its brand is sullied by association.
But how connected and how similar are the two businesses and their situations?
Assetz Capital's CEO, Stuart Law, became the largest single shareholder in Assetz Exchange after he was introduced to Peter Read, the CEO of Assetz Exchange.
Stuart's is still a minority stake, however, so he doesn't have the votes or authority to control Assetz Exchange and he's not one of its executives.
Assetz Exchange has a very small, independently assembled team that is not linked in anyway to Assetz Capital.
The character of the people
The part of our job at 4thWay that probably consumes most of our time is attempting to correctly identify – through a wide range of means and ways – whether information P2P lending companies are telling us about themselves, their businesses and their results is truth or fiction.
While we do all that, we're also assessing the character of the key people and trying to ascertain whether the signals they're trying to give off about themselves are genuine. So far, we have an excellent record in this.
(To the extent that we now believe we should increase the weight we put on our character analysis. Nine years has shown we're better at these qualitative judgements than we thought we would be; we had previously, cautiously, assumed that we might be deceived by strong personalities more easily or that we would put too much weight on blurry signals about character traits.)
Assetz Exchange's key people
To describe the two key people at Assetz Exchange*, they're business-like and passionate about their business, yet they're not stereotypical executives like you might see in Hollywood films. I mean you can read them better, they're more open in how they speak, and the're not cold-blooded, Wall Street executives. They're not go-for-your-throat types, hustlers or sales hounds.
One of them displays extreme attention to detail that a colleague of mine described as “pedantic accuracy”. They display emotion, even if not always intentionally, like most of us do.
Assetz Capital's key people
The most senior Assetz Capital executives I have spoken to are very shrewd, experienced, professional businesspeople with a prime focus on growing their business quickly. They're guarded and careful in what they say, because they're very cautious as to how the information they give out might be used and because they want to control external influences.
They have understood that they have had to keep lending standards up to have a good chance of successfully sustaining their growth goals. Even so, their strategic goal was making the business one that has a much larger scale as rapidly as possible, ultimately to increase shareholder wealth.
Their core traits show they're very different teams, but not opposites
So, in terms of character, the strongest traits of both sets of executives are far from polar opposites. That's not what I'm saying if you're trying to read that between the lines. But they are very different.
Indeed, in my notes after my first meeting with Assetz Exchange's CEO, I wrote: “Peter's a very different person. An odd union.”
That's not conclusive that Assetz Exchange wouldn't feel compelled to charge additional fees, which Assetz Capital clearly found regrettable, too. But it means we can expect Assetz Exchange's people will discuss, behave and act differently, whenever any executive decisions need to be made.
I think their personalities will mean they'd be more hesitant to charge extra fees.
During a wind-down
It's unfortunate for Assetz Exchange that it's during Assetz Capital's wind-down phase that the latter company has made its most enemies in its lender base.
That's because Assetz Capital is also going to help Assetz Exchange wind down, if the need ever arises.
Having a third party that is experienced in a wide variety of property lending is a really good thing for Assetz Exchange lenders, in case Assetz Exchange needs help. This doesn't mean that Assetz Exchange is going to hit lenders with huge surprise charges like Assetz Capital did.
Types of lending
Assetz Exchange and Assetz Capital both do property lending, but the similarity ends there:
The types of loans you're lending in with Assetz Exchange
Assetz Exchange* focuses on offering lenders prime, long-term buy-to-let lending, where the tenants are charities or housing associations that help people who have social needs, disability needs and other support-living requirements.
This sort of housing is in extremely short supply, so there's a large social element to lending through Assetz Exchange.
Its loans are extremely stable, have rarely turned bad, and you can strongly expect that to remain the case in the future.
In addition, you can make a profit when selling your loan parts if the property price has risen. That's because, while you're technically lending and your investments are most similar to money lending, what you're doing is de facto a hybrid between property lending and property owning.
I'd say it's maybe like 55% lending and 45% more like owning. (Read a lot more on that in the Assetz Exchange Review.)
The types of loans you were lending in with Assetz Capital
Assetz Capital did bridging loans, development loans, loans to businesses for growth or working capital (when those businesses had property security to offer) and a number of other property lending products.
These loans were typically charging higher borrower rates and had a substantial proportion that would turn bad. Assetz Capital has a good record in recovering that bad debt, but these are clearly very different types of loans to Assetz Exchange's.
These loans and the lending products that contain them are also higher cost for Assetz Capital to arrange and manage than Assetz Exchange's, which probably contributed to its decision to charge additional fees in wind-down.
Size can be relevant, too
Assetz Capital had grown very large and that makes it harder for it to extricate itself from big legacy lending products. Assetz Exchange is still much smaller. The cost of winding down a smaller loanbook is usually pretty small and so additional costs are less likely to be needed.
Lenders and borrowers
Most Assetz Exchange lenders, at least initially, learned about them because they were already lending through Assetz Capital.
As for the other side of the arrangement, the charities and housing associations that pay the rent and therefore your lending interest have been acquired entirely by Assetz Exchange's own team.
A note we have after several interviews with Assetz Exchange states: “Further discussion revealed no overlap between Assetz Exchange and Assetz Capital”. Plus, no other source of information has shown any further connection either.
Timing was unfortunate
On top of all that, with rising inflation and savings rates, many of Assetz Capital's lending products were becoming less attractive. So much so that it's currently harder to sell the historical book of loans to an institution, which would effectively buy out individual lenders through its P2P lending platform.
If Assetz Capital becomes able to do this, it would mean fewer additional fees for lenders.
If Assetz Exchange ever winds down, it certainly doesn't have to happen during similar conditions. It also has higher lending rates, which I expect it to sustain most of the time, keeping it more interesting for lenders and investors. Also, I believe it would be easier to find a buyer for Assetz Exchange's portfolio of loans, most of the time.
Summary of my view
Assetz Exchange, like all businesses in any industry, will sometimes have to make tough business decisions, and it will sometimes have to work hard to ensure its business remains successful and goes in the right direction.
But, my opinion of Assetz Exchange's key people is that they wouldn't hit lenders with additional charges in a wind-down unless they had no choice whatsoever.
I believe it's a lot less likely to charge lenders extra wind-down fees if it decides to exit P2P lending merely as a change of strategy. And I also think it's less likely to have a big need to charge those additional fees.
Quite a few other P2P lending companies have changed business models (just as quite a few companies that were initially non-P2P went the other way). The majority have managed to find ways to get lenders out with a lot less bother.
Try as I might, I can't find reasons to be especially cynical about Assetz Exchange, despite its name.
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