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This document discusses the growing trend of peer-to-peer (P2P) lending and why traditional asset managers should be interested. It notes that central banks' policies have negatively impacted income-seeking investors, while benefiting return-seeking investors. As an alternative, it presents P2P lending as a new asset class that offers higher yields than government bonds and has grown significantly in recent years in the UK, US and Europe, though volumes remain low in Italy. It argues that P2P lending platforms are evolving to resemble traditional stock exchanges, with institutions providing the majority of lending volumes. Overall, the document advocates that P2P lending represents a growing global phenomenon that asset managers should consider moving into.
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Talk Bocconi
- 1. Università Bocconi 28 November 2016 Roberto Condulmari Edoardo Matarrese
- 2. 2www.P2PLendingItalia.com WHY SHOULD TRADITIONAL ASSET MANAGERS BE INTERESTED IN P2P LENDING ?
- 3. THE T.I.N.A. GAME 3www.P2PLendingItalia.com Source: Exane BNP Paribas estimates based on Bloomberg data as of 24 Nov 2016, P2PLendingItalia.com «T.I.N.A. – There Is No Alternative – seems to be the investment strategy du jour» Santiago López Díaz – Exane BNP Paribas DURATION OF NEGATIVE YIELDING BONDS (NUMBERS OF YEARS) - RED (NEGATIVE) / GREEN (POSITIVE) Bond Duration (# of years) Country 1 2 3 4 5 6 7 8 9 10 15 30 Switzerland Japan Germany Netherlands Austria Denmark Belgium France Sweden Finland Spain Italy UK USA
- 4. CBs HAVE DIVIDED INVESTORS... 4www.P2PLendingItalia.com Source: Epsilon Theory – W. Ben Hunt, Ph.D., Compass AM “There are ZERO income seekers holding negative rate bonds” W. Ben Hunt, PH.D. – Salient Partners ü Short-term owners RETURN SEEKERS ü Sticky owners INCOME SEEKERS Central Banks’ balance sheet expansion and impositionof negative rates are great if you are a returnseeker; that’s terrible, however,if you are an investor looking for income fromyour portfolio...
- 5. ALTERNATIVE CREDIT – A NEW ASSET CLASS (i) 5www.P2PLendingItalia.com Source: Exane BNP Paribas estimates Sept 2016, Deutsche Bundesbank, P2PLendingItalia.com “If credit were like any other good, one would expect that if prices increase in line with risk there should still be actors willing to provide it. However [...] even banks with a clear legal mandate to accept all customers [...] arenot willing to provide credit to this slice of the market.” Deutsche Bundesbank – Discussion Paper: “How does P2P Lending fit into the consumer credit market?” Born in the A.C. – After Crisis (i.e. post 2008) – era from the gradual,unstoppable, fragmentation/dissolutionof traditional banking models... “HOW MUCH CAPITAL IS ENOUGH?” - TOTAL ASSETS / TOTAL EQUITY OF SPANISH BANKS:
- 6. ALTERNATIVE CREDIT – A NEW ASSET CLASS (ii) 6www.P2PLendingItalia.com Current relative advantages: i. Not distorted ii. High premium vs Government bondyields iii. Can be securitised iv. Generally (still) not crowded v. Can be supported by collateral guarantee … And disadvantages: i. Illiquid / less liquid ii. Requires a lot of bottom up analysis effort ALTERNATIVE CREDIT
- 7. WHERE SHOULD WE FOCUS? 7www.P2PLendingItalia.com i. Invoice purchasing ii. Personal loans iii. Collateralized direct loans iv. SME loans v. Etc… DIRECT LOANS ü STRUCTURAL ü GLOBAL ü SEGMENTED
- 8. GLOBAL PICTURE - VOLUMES 8www.P2PLendingItalia.com Source: University of Cambridge, KPMG: The 2nd European Alternative Finance Industry Report - Sep. 2016; P2PLendingItalica.com 1,13 2,83 5,433,24 9,65 33,58 4,13 20,29 94,61 0 20 40 60 80 100 2013 2014 2015 ONLINE ALTERNATIVE FINANCE VOLUMES 2013-2015 (€ BN) Europe (inc. UK) Americas (inc. US) Asia-Pacific (inc. China)
- 9. EUROPE – VOLUMES 9www.P2PLendingItalia.com Source: University of Cambridge, KPMG: The 2nd European Alternative Finance Industry Report - Sep. 2016; P2PLendingItalica.com 4348 319 249 50 32 0 1000 2000 3000 4000 5000 UK France Germany Spain Italy ONLINE ALTERNATIVE FINANCE VOLUME BY COUNTRY 2015 (€ MLN)
- 10. THE UK ECOSYSTEM 10www.P2PLendingItalia.com ONLINE LENDING ECOSYSTEM • Consumer Lending • Business Lending • Secured Lending • Invoice Financing Source: Orchard Platform
- 11. INSTITUTIONAL MONEY vs RETAIL MONEY 11www.P2PLendingItalia.com Source: Funding Circle, AltFiData, P2PLendingItalica.com WHAT HAPPENS WHEN A SINGLE INVESTOR WANTS TODEPLOY €100M THROUGH A PLATFORM ? … Originally it was “Peer-to-Peer lending” (Bob lending to Peter), but importantlywith institutional investors looking foryields, major P2P platforms morphed into “Marketplaces”. MPLs will become most likelya replica of the traditional stock exchange model for this new asset class. …Like in the stock exchange, the vast majority of volumes are deployed by institutions. The US is already clearly evolving in this direction, with 80%+ of lending volumes now coming from institutions: 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% US Market UK (FundingCircle) Retail Institutional 80%+ 50%+
- 12. PER CAPITA VOLUMES… ITALY vs EUROPE 12www.P2PLendingItalia.com Source: University of Cambridge, KPMG: The 2nd European Alternative Finance Industry Report - Sep. 2016; P2PLendingItalica.com 65,9 4,8 3,1 1,1 0,5 0 10 20 30 40 50 60 70 80 UK France Germany Spain Italy MARKET VOLUME PER CAPITA BY COUNTRY 2015 (€)
- 14. OUR VIEW... 14www.P2PLendingItalia.com ü ONLINE DIRECT LENDING IS A GLOBAL PHENOMENON ü TRENDS ARE POWERFUL ... IN SPITE OF POSSIBLE STOPs AND GOs ü UK AND US ARE MUCH AHEAD: IT SEEMS AS IF THEY ARE IN A TIME MACHINE PROJECTING THEM 5–10 YEARS IN THE FUTURE vs EUROPE ü WE EXPECT CONTINUED EVIDENCE OFASSET MANAGERS MOVING INTO THE ASSET CLASS
- 16. rcondulmari@p2plendingitalia.com ematarrese@p2plendingitalia.com Roberto Condulmari Edoardo Matarrese