Peer2Peer Finance News October 2019 by Alternative Credit Investor

GROWING PAINS

>> 9

Scale comes at a cost CASTLES AND DRAGONS

>> 22

Read our special report on property supported by

The House Crowd’s Frazer Fearnhead talks to P2PFN

>> 14

ISSUE 37 | OCTOBER 2019

Regulator strengthens focus on good practice after Lendy collapse THE CITY watchdog has beefed up its scrutiny of the peer-to-peer lending sector in the wake of the Lendy collapse. The Financial Conduct Authority (FCA) has faced criticism over its supervision of Lendy, having authorised the P2P property development lender just 10 months before it went into administration with a mountain of defaulted loans. Industry insiders have noted a change in the FCA’s attitude in recent months as its reputation has been hit by the Lendy scandal as well as the fallout over the collapse of P2P lender Collateral and minibond provider London Capital & Finance. The FCA visited a number of P2P property lending platforms over the summer to discuss risk management, including Octopus Choice, CrowdProperty and Relendex. Michael Lynn, chief

executive of Relendex, said the platform had a visit in July from an FCA team that focused on lending policy and processes. “This was fairly rigorous but I am pleased to say that no issues arose,” he said. “Some recommendations were made, which we have adopted.

“We are fairly sure that the visit was prompted by some of the P2P platform failures.” Mike Bristow, chief executive of CrowdProperty, supported Lynn’s view that the visits were prompted by platform collapses and said that he thought the FCA was testing for areas of weak practices. “We spent a full day

explaining our business with good questions from the FCA team and they were impressed as we’ve always approached this market with expertise, rigour, the very best security, strategic perspective on building a long-term business and operating with the very best practices in the >> 4 industry, hence

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EDITOR’S LETTER

Published by Royal Crescent Publishing

WeWork, 2 Eastbourne Terrace, Paddington, London, W2 6LG info@royalcrescentpublishing.co.uk EDITORIAL Suzie Neuwirth Editor-in-Chief suzie@p2pfinancenews.co.uk +44 (0) 7966 180299 Kathryn Gaw Contributing Editor kathryn@p2pfinancenews.co.uk Marc Shoffman Senior Reporter marc@p2pfinancenews.co.uk Andrew Saunders Features Writer Hannah Smith Features Writer PRODUCTION Tim Parker Art Director COMMERCIAL Alamgir Ahmed Director of Sales and Marketing alamgir@p2pfinancenews.co.uk Tehmeena Khan Sales and Marketing Manager tehmeena@p2pfinancenews.co.uk SUBSCRIPTIONS AND DISTRIBUTION info@p2pfinancenews.co.uk Find our website at www.p2pfinancenews.co.uk

he Financial Conduct Authority’s updated rules on the peerto-peer lending sector, which include the requirement of appropriateness tests and categorisation of investors, will soon be coming into effect. As our story on page 5 shows, platforms are bracing themselves for the additional costs and resources needed to comply with the new rules. Even more worryingly, industry onlookers are predicting that smaller platforms may fall by the wayside as a result of the increased costs. With the 9 December deadline looming, we have decided to launch a second Peer2Peer Finance News regulation breakfast briefing, following the success of our June event. This will take place in November and address any practical concerns that platforms have about the new rules in those vital weeks before the deadline. If you work in the industry and would be interested in attending, keep an eye out for updates or email me directly at suzie@p2pfinancenews.co.uk. For information on sponsorship opportunities, please email alamgir@p2pfinancenews.co.uk. SUZIE NEUWIRTH EDITOR-IN-CHIEF

Printed by 4-Print Limited ©No part of this publication may be reproduced without written permission from the publishers. Peer2Peer Finance News has been prepared solely for informational purposes, and is not a solicitation of an offer to buy or sell any peer-to-peer finance product, or any other security, product, service or investment. This publication does not purport to contain all relevant information which you may need to take into account before making a decision on any finance or investment matter. The opinions expressed in this publication do not constitute investment advice and independent advice should be sought where appropriate. Neither the information in this publication, nor any opinion contained in this publication constitutes a solicitation or offer to provide any investment advice or service.

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NEWS

cont. from page 1 our 100 per cent capital and interest payback track record over more than five years of lending,” he said. Other platforms have also noticed a difference when dealing with the FCA’s authorisation team. CapitalRise has been in the process of moving from an appointed representative to direct authorisation since August last year. “We feel that the regulator is treating new authorisation applications with an increased level of scrutiny and this is something we see as very positive for the sector,” said Uma Rajah, chief executive of CapitalRise. “We have been actively engaged in the authorisation process with information requests and data submissions flowing freely between ourselves and our case officer since then. “I would say that the level of engagement and interaction has increased since February this year and that the breadth of the topics and depth of detail has increased in recent months.”

She said the dialogue with the regulator has been positive and they have built a “very healthy, collaborative relationship.” Another industry source said that the FCA is using its “better working knowledge” of the different P2P lending models that it gained both in its review of the sector and since the Lendy scandal. “Scrutiny from the authorisation and supervisory teams is a good thing and we would support the FCA putting the resource in upfront to make sure that process is robust, but not overly long in terms of time delays between questions,” the source said.

“I don't think we are in a position where the scrutiny is disproportionate just yet.” The feeling of increased communication and scrutiny has been echoed by consultants working with P2P lending platforms across the sector. "We do feel the process has become a bit more lengthy,” said Frank Brown, managing consultant at Bovill. “The FCA is looking for more comfort that the firms they are looking to authorise will be able to meet regulatory requirements on an ongoing basis. “There is greater emphasis on competence of senior management and their

background and more focus on the business plan, capital and wind down arrangements. “There is also more probing around operational resilience and the chosen IT platforms.” However, Mark Turner, regulatory consultant for business adviser Duff & Phelps, warned it may deter some new entrants. “If you are a P2P lender moving from appointed representative to full authorisation or new to the market or existing, we are seeing increased scrutiny,” he said. “The FCA doesn’t want to stifle innovation but it has a duty to ensure customers understand what they are investing in. “With the new regulations set out in the June policy statement, there is a higher bar that needs to be achieved in terms of ongoing compliance. “There may be some unintended consequences as it could deter new entrants but a tougher stance is broadly positive.” The FCA has been contacted for comment.

We hope you’re enjoying the latest edition of Peer2Peer Finance News! If you would like to continue reading the magazine after we go behind a paywall, please go to www.p2pfinancenews.co.uk to find out about subscription options.

NEWS

Industry grapples with compliance as FCA rule changes loom THE FINANCIAL Conduct Authority’s (FCA’s) updated rules for the peer-to-peer lending sector come into effect on 9 December, but smaller platforms with fewer resources may struggle to meet the deadline, industry sources have warned. “These new regulations are pretty onerous, particularly for smaller firms,” said Stuart Law, chief executive of Assetz Capital. “It’s been a massive project for us – it’s so big we’re spending hundreds of thousands of pounds on additional assistance externally to give us the manpower to get through this by December. We have 100 people on staff but we still need thirdparty assistance. We do sometimes wonder how on earth the smaller firms are going to manage.” Some industry stakeholders have predicted that smaller firms may simply shutter their business if they are unable to adjust to the financial and administrative cost of the new FCA rules. “If you’re running a platform that has originated below £20m and you have a large cost base it’s unlikely that the business is profitable. Significant

changes to systems and processes can be pretty cumbersome under these conditions,” said Iain Niblock, chief executive and co-founder of Orca Money. “The platforms are likely to try their hardest to adhere to the new regulations but the regulatory burden might weed out some smaller P2P platforms.” The FCA’s updated rules mandate all platforms to implement an appropriateness test for new investors, while retail investors must pledge to put no more than 10 per cent of their net portfolio into P2P loans. The City watchdog also requires greater disclosure around wind-down plans and governance.

Christopher Tanoh, an associate at law firm Fox Williams, believes this may lead some platforms to shut themselves off to retail money in order to avoid the cumbersome compliance burden. “The new regulations come from having to deal with retail investors,” he said. “But what we might see – and I'm starting to hear it already – is that the platforms themselves will actually turn off the retail investment and simply obtain money from other financial institutions and funds instead. “They have obviously got the infrastructure in place to originate the loan, and service the loan, but it's the compliance burden which is crippling.” However, the new

rules could bring new opportunities as well as challenges. David Bradley-Ward, chief executive at Ablrate, said that the new regulations represent “a fork in the road for P2P”. He added that “there is a massive opportunity for platforms like us to go wildly the other way with more data, more tools, more analytics, better loan portfolio management, and better risk analysis, which is what we are working on now.” In general, most platforms were already operating quite close to the regulations anyway, said Niblock, but the introduction of the new rules will certainly lead to some significant changes across the P2P sector.

NEWS

Millennials tap into P2P investing THE EARLY-ADOPTERS of peer-to-peer investing were typically older males living in the South East of England, looking to top up their pension pots with high-yielding P2P loans. But as the industry has evolved, so has its customers. Younger people are increasingly becoming involved in the sector, attracted by a slick digital experience and competitive returns. “There is clear trend that the number of investors under the age of 35 is growing strongly and consistently over time,” said a spokesperson from ‘big three’ P2P platform RateSetter. “Similarly, the proportion of invested funds that come from people under 35 is also growing strongly.”

Business lender Growth Street has also reported popularity among younger investors. Chief executive and founder Greg Carter said that around 30 per cent of the platform’s investors are under 39 years old. “They have slightly smaller investment balances, which typically grow with age,” Carter said. “If we can maintain loyalty they will grow their balances over time.” An easy-to-use investor proposition and good communication is key, Carter said, with Growth Street customers able to contact the team via its popular live chat function as well as the usual methods. “I think young people

are curious about different methods of investing,” Carter added. Meanwhile, The House Crowd founder Frazer Fearnhead is launching a millennials-focused brand called Money Mog, which will enable less well-off, younger customers to invest as little as £50 a month. “Millennials have a natural antipathy towards traditional institutions, but apps like Moneybox have shown that there

is a market for that younger audience,” he told Peer2Peer Finance News (for the full interview with Fearnhead go to page 22). “P2P investing may appeal to younger people who want to explore the potential in a relatively new approach,” said Sarah Coles, personal finance analyst at Hargreaves Lansdown. “However, they need to appreciate that the immaturity of this market means it hasn’t been tested by the full market cycle. “It may make sense as a small part of a large and diverse portfolio for an experienced investor, but you need to understand all the risks involved and be completely comfortable with them.”

Michelle Mone’s crypto platform rebrands again

BARONESS Michelle Mone’s cryptocurrencybacked peer-to-peer platform is set for another rebrand just a year after the business was first unveiled. The lingerie tycoon launched an initial coin offering (ICO) in March 2018 with her venture capitalist partner Doug Barrowman to help build a platform that would let retail investors acquire stakes in or lend to early-

stage businesses using Equi tokens. The platform was initially called Equi before putting its ICO on hold during the summer of 2018 to shift from a UK to an international focus and rebrand as Equi Global. Apple co-founder Steve Wozniak joined the business in October 2018 but nothing public has been announced since.

As of September, the Equi website displays a message stating that Equi Global is now Equi Capital Partners. It promises that further details will be revealed soon. Companies House documents show that Equi Capital Partners was set up on 3 September 2019. Barrowman is listed as the sole director

and as a person of significant control. A spokesperson for Mone said she and Wozniak were still co-founders. “Equi is a venture capital firm with a tokenised backend,” the statement said. “We will be launching on a security exchange. “We can’t give too much away at the moment but it’s very exciting.”

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NEWS

MarketInvoice results reveal the cost of pursuing scale LAST month, MarketInvoice revealed widening overall losses in its annual results, despite substantially increasing its gross profits and revenue. On closer inspection, these losses were accrued from a £1.17m interest bill which was mostly attributable to £12m-worth of convertible loan notes issued to Barclays Converted Investments. MarketInvoice last year inked a strategic partnership with Barclays, which has seen the banking giant take a stake in the business finance provider, as well as pledging to finance up to £1bn of invoices over the coming years. But MarketInvoice’s financial report tells a fuller

story of the relationship between the two firms. In August 2018, Barclays was issued with £12m of convertible loan notes at an interest rate of 15 per cent. It is this interest bill that led to widening losses

at MarketInvoice in 2018, during a year which saw the company increase its gross profits by a massive 30 per cent. Analysts have pointed out that by choosing to issue convertible loan

notes rather than seeking an equity investment, MarketInvoice has managed to sidestep the rules surrounding regulatory capital requirements. A converted loan note issuance is not classified as standard debt, as it allows the lender to convert their loan into an equity stake in the business. “The convertible notes by Barclays at 15 per cent are expensive but these are a hybrid equity instruments and have been used as an alternative to raising equity,” said Colin Jackson, financials analyst at Goodbody. “But all in all, the arrangement with Barclays looks like it is conducive to earning better returns in the future.”

…while the sector reveals mixed financial performance PEER-TO-PEER platforms and investment trusts have reported mixed results in their latest financial updates, reflecting both the uncertain macroeconomic climate and industry-specific challenges. In September, alternative finance group GLI Finance reported a “disappointing” halfyear loss of £6.1m. The Aim-listed company said the overall result was

impacted by a £5.2m writedown in its Fintech Ventures portfolio, which invests in fintech lending platforms. Meanwhile, P2P property lender Landbay announced that it had narrowed its losses in 2018, thanks to increased revenues and gross profit. The platform made an overall loss of £1.45m, down from £1.85m the previous year, and chief executive John Goodall added that

most of its costs came from headcount and “massive investment” in technology. Funding Circle saw its revenues increase during the first half of 2018, but its pre-tax losses widened, and adjusted core earnings fell year-on-year to £1.2m from £3.3m. The P2P giant also cut its growth forecasts for 2019 from 40 per cent to 20 per cent, due to economic uncertainty

and lower demand for its business loans. Lending Works reported widening losses for the year ending 31 December 2018, but chief executive Nick Harding said that he was not worried as the losses were due to a larger wage bill. Harding added that he expects the P2P consumer lender to become profitable in the next few months and is targeting £10m in revenues this year.

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JOINT VENTURE

A new era of regulation

Fox Williams’ Jon Segal, partner and head of fintech and alternative finance, Sona Ganatra, partner in the financial services regulatory investigations team, and Christopher Tanoh, associate in the financial services regulatory investigations team, reveal the next big regulatory challenges that P2P lenders can expect to face

T HAS BEEN A BANNER year for regulation. The Financial Conduct Authority (FCA) will soon introduce a series of strict new rules for peer-topeer lenders, aimed at enhancing protections for retail investors. This has led to enhanced scrutiny across the P2P sector, as platforms work on their compliance and risk management procedures. But according to the legal experts at Fox Williams, this is just the beginning of a regulatory overhaul for the P2P sector. “The FCA is clearly concerned about the viability of the loanbook and the true value of the underlying assets there,” says Sona Ganatra, a partner in the financial services regulatory investigations team at Fox Williams. “However, from our perspective, the FCA is also focused upon the potential risk of fraud in the P2P sector – not so much at the lender end but more around how borrowers could potentially mislead investors in terms of what they are using the funds for. “One of the things that we're grappling with is to what extent the platform that sits in the middle is responsible for that or should be held accountable for it.” This question of accountability is likely to become a major talking point in the P2P industry, and it is an issue that the FCA is already

starting to examine. Ganatra has noticed a growing emphasis from the FCA on the systems and controls that P2P platforms have, particularly when it comes to assessing new borrowers and new investors. “We’ve seen greater scrutiny from the FCA’s supervision team in terms of asking more questions about what sort of updates you're giving the lenders,” she says. “And I think for the platforms it's throwing up a number of difficulties. “We've seen a push towards a greater level of responsibility being put on the platforms themselves requiring them to monitor and investigate potential borrower misconduct and considering what sort of lender updates they're providing once potential misconduct is identified. “A number of legal issues are at play here – platforms need to be aware of their contractual obligations to lenders and borrowers, their regulatory obligations and at the same time, be mindful of potential litigation risk and insurance claims.” One possible answer is to clarify

the hierarchy of accountability in the terms and conditions attached to each P2P loan. “This sometimes requires complex and bespoke legal assistance to understand where liabilities lie in the event a P2P loan defaults,” says Jon Segal, partner and head of fintech and alternative finance at Fox Williams. “The platform should work through where it could make recoveries from, especially if third party advisers are found to have been negligent.” “The new FCA regulations require robust risk management policies and procedures, continuous review of those procedures and – where appropriate – an independent risk function as well,” warns Christopher Tanoh, associate in the financial services regulatory team at Fox Williams. “The FCA has a fear that because P2P lending platforms are extremely complex, where a platform for whatever reason is unable to manage or administer the P2P contracts themselves, it will be quite difficult for a third party to do that unless the P2P itself has prepared those third parties for that eventuality.” All of this suggests that December’s new regulations will mark the beginning of a new era in P2P regulation. Platforms will need to do everything they can to make sure they don’t get left behind.

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JOINT VENTURE

Homes under the hammer

Gary Murphy, an auctioneer at Allsop, explains why property auctions are no last resort

“P

ROPERTY AUCTIONS are not just for distressed properties,” says Gary Murphy, an auctioneer at Allsop. “That’s a bit of a myth actually.” At a typical Allsop property auction, you are likely to meet a wide variety of buyers and sellers. Allsop acts on behalf of banks, building societies, lenders, housing associations, local authorities, London boroughs and councils, trustees and charities. Among the potential buyers, there are landlords looking to expand their portfolios; investors who plan to flip and profit off a cheap residential home; and first time buyers seeking a bargain fixer-upper. One thing they all have in common is that they are keen to get a binding contract within a relatively short timescale at the best possible price. “Property auctions are open to everyone – they are very transparent, and everybody knows that they've had a chance to bid,” adds Murphy. “Public companies are accountable to their shareholders and all of this fiduciary duty is fulfilled by going to the public marketplace that the auction provides and being able to say, yes – I've done everything I possibly can to get the best possible price.” Allsop has been the UK’s top property auction house for most of its 110-year history. Over the past few decades, it has expanded its services to include advice to clients on private treaty transactions, portfolio sales, valuation, and rent

reviews. When Murphy joined the firm 33 years ago, his job was to build up the brand-new residential auction department, which has gone from strength to strength ever since. “Auctioneering is a very immediate way of transacting property,” he says. “But the thing that makes it so efficient is that it's not dependent on a subject-tocontract stage in the transaction. So once you have completed a period of three weeks of marketing, each lot is sold unconditionally and immediately. The fall of the hammer is the point at which the contract is binding.” In Murphy’s experience, the speed and simplicity of the auction house attracts a certain type of buyer who is either in a cash position or is not subject to any form of property chain when committing to buy. “It therefore attracts a lot of cash buyers or dealers, traders who have an existing facility for borrowing, amateur investors and first-time buyers,” Murphy explains. “And of

course we always advise that every potential buyer has their finance in order before they put their hand up in the auction house.” Allsop advises each potential seller ahead of every sale, and the firm is not afraid to tell sellers to choose another method of sale, if the auction house does not represent the best option for them. “We are on the side of the seller,” says Murphy. “Our job is to get the best possible price for the seller. That's what the auction's about and any auctioneer who ignores any particular section of the market or only focuses on one particular buyer isn't doing his job.” By prioritising quality over quantity, Allsop is ensuring that its property auctions are no last resort, but an efficient and transparent way to complete property transactions, no matter who the seller may be. If you’d like to find out more about selling at auction, please contact Zoe Baxter on +44 (0)20 7344 2629 or zoe.baxter@allsop.co.uk.

PROPERTY

Concrete returns

How does peer-to-peer investing stack up against other routes into the property market? Hannah Smith reports

ROPERTY IS ONE OF the busiest segments of the peer-to-peer lending sector, with platforms for most types of property loans, from buy-to-let to bridging to development finance and soon, residential mortgages. In an increasingly crowded sector, how can investors choose the right platform? And is P2P lending really the best way to access property? While some of the largest P2P platforms offer a mix of property

and other types of lending, there are plenty of specialist, propertyonly platforms. Some lend against properties that are making rental returns, offering finance for commercial or residential buy-tolet mortgages, for example. Others finance property development or bridging loans, which are higher risk as the properties may not yet be generating an income, and investors have a higher chance of not getting all their capital back.

How the returns compare The returns on offer vary because of the different specialties but, here are some actual returns from a handful of platforms last year: â&#x20AC;˘ CrowdProperty investors earned an actual return rate of 8.02 per cent in 2018 on its development loans. â&#x20AC;˘ Landbayâ&#x20AC;&#x2122;s fixed rate offering delivered a 3.49 per cent return after fees and bad debt, while its tracker returned 2.48 per cent plus

PROPERTY

Libor for lending to buy-to-let landlords in 2018. • The House Crowd says its average interest rate was eight to nine per cent from its bridging loan portfolio in 2018. • Proplend saw an average return last year of 8.03 per cent across all of its commercial property loans. In comparison, the best performing investment trust in the UK residential sector was GCP Student Living Plc, which returned 7.3 per cent last year. The best performing real estate investment trust (REIT) by far in the UK commercial sector was the LXI REIT, returning 21.5 per cent last year compared to a negative average return of –1.75 per cent for the peer group. The best open-ended fund in the Investment Association UK Direct Property sector last year was the Scottish Widows HIFML UK Property fund, returning 7.8 per cent against a sector average of 3.38 per cent. Meanwhile, BondMason data shows that the average private landlord received just under eight per cent returns last year, while returns from investing in corporate landlords (including the UK’s largest listed residential propertyStrip_P2PFN_2.pdf rental companies) were 1 16/09/2019 17:03:36 just over 12 per cent.

P2P vs REITs P2P’s advantages over REITs include greater transparency and more freedom to choose underlying investments, explains Frazer Fearnhead, chief executive of P2P property platform The House Crowd. He also points to an important downside of REITs: fee structures which can eat into returns. “REITs can have several layers of fees that are deducted before the investor receives their return and they have been criticised for lining the pockets of the institutions and intermediaries rather than benefiting investors,” he says. “REITs’ main advantage is a high level of diversity, which mitigates risk, but with auto-invest products, P2P lending can also offer this.” Another advantage of P2P property loans is that they typically operate on a first legal charge basis, meaning investors are at the front of the line to be repaid in the event a borrower defaults and property is repossessed. P2P makes investors less susceptible to any fall in market values because it doesn’t invest for capital growth. But this is also one of its main drawbacks: it doesn’t offer investors exposure to rising property prices, surely one of the main reasons to invest in the sector? Fearnhead argues the fact it is not dependent on

“ P2P platforms

offer hands-free ways of participating in property

”

capital growth to deliver returns is actually a positive thing. “The higher returns can be reinvested and compounded, which is a more certain way to build long-term value as opposed to speculative capital growth in the value of a property,” he states. The ability to diversify widely without the hassle of owning properties makes P2P very attractive, adds Mike Bristow, chief executive and co-founder of P2P property lender CrowdProperty. “For the same pot of cash to put a deposit down on a buyto-let property, you can be in hundreds of loans,” he says. “That’s got to be less risk. Plus, owning a property is a lot of work. P2P platforms offer hands-free ways of participating in property.” Lendy casts a shadow Despite the sector’s selling points, there is still the risk that any individual P2P platform could

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PROPERTY

fail. The recent collapse of Lendy cast a shadow over the sector and perhaps served as a sharp reminder to investors of the risks involved. The platform had offered bridging and development loans, tempting investors with the promise of 12 per cent annual returns. It fell into administration in May following months of speculation about mounting arrears and disputes with defaulted borrowers. To minimise the risks of a platform collapse, investors should choose a P2P provider with a solid track record run by experienced people, and look closely at the rates on offer. “Disclosure and transparency are very important in terms of the type of lending they’re doing and the rates borrowers are paying, which is still the best indication of risk,” asserts John Goodall, chief executive of P2P buy-to-let lender Landbay. “A higher rate doesn’t necessarily make it a better proposition, as we have seen recently with a property platform failing. The higher the rate people are receiving, the higher the risk, that’s the back-of-the-envelope rule.” In addition, investors should approach any P2P lending not as a liquid investment, but as a mediumto long-term investment, he adds.

Disclosure and transparency are very important

The move into home loans Countering some of the negative press around the failure of Lendy, innovation is happening in the space as some platforms look to tap into new areas of growth. For instance, following Financial Conduct Authority (FCA) rule changes, P2P platforms will be regulated under home finance rules. JustUs is one platform that is moving quickly to take advantage of this new opportunity by entering the residential mortgage market. It expects to see huge appetite

among investors for P2P residential owner-occupied mortgages, despite some industry commentators suggesting these are unsuitable products for the P2P sector due to their very long duration. Could other platforms follow in JustUs’s footsteps, and would this be a good thing for the sector? CrowdProperty’s Bristow thinks that more competition is better for borrowers. However, his view is that P2P platforms can better add value by specialising in complex property

“

”

development projects. Home loans, by contrast, are “vanilla finance” which need to be institutionally backed, so it isn’t necessarily a good fit for P2P lenders. “It's relatively commoditised lending, you can do a lot of it on algorithm, and that means it suits large players with no cost of capital, it suits banks,” he comments. Landbay’s Goodall says that investors must make sure they understand the underlying asset before they invest. “It’s a different asset class,” he asserts. “Rates are quite low, they’re long duration loans, we don’t feel they offer the same risk/return as buy to let, we view them as potentially slightly riskier. They’re generally higher loanto-value at the point of origination

PROPERTY

“ REITs can have several layers of fees that are deducted before the investor receives their return”

and arrears on buy-to-let are around half that of residential mortgages. So choice is always a good thing but people really need to understand what they are investing in.” As more property specialist platforms enter the marketplace, what does the future hold for the Strip_P2PFN_2.pdf 1 16/09/2019 17:03:36 sector? Will there inevitably be

some consolidation among the smaller players? “Cream always rises to the top,” say Bristow. “I don't think there's necessarily going to be a big buying spree by people in the sector. I think there will be natural failures and I don't mean failures like Lendy. I think there will be platforms out there that don't deliver for various reasons. “They're not operating with the best practice. They don't know the asset class that they're lending against, and the capital will move away from those guys and go to the best.” While there may be new market entrants, there are also those which are pulling back from the P2P property space. For example, direct lending investment manager BondMason announced in May it was winding down its P2P offering, preferring to focus on corporate listed landlords. Chief executive Stephen Findlay noted smaller ‘accidental landlords’ have been hit hard by recent tax and regulatory changes, causing many to either sell up or scale up and become a limited company.

In P2P, meanwhile, an influx of institutional capital has reduced the returns on offer. Both of these trends make the larger, listed landlords look more attractive in comparison. “I think the P2P model can and does work, but not for all operators,” says Findlay. “What we found was that the returns available in that space are continuing to decrease as more institutional capital is moving into the sector and, with our fees on top of the platform fee, we didn’t feel that the risk-adjusted return was commensurate with the risk our clients were taking. “It was a difficult decision to make as a company but we thought it was better to make a mistake by coming out of the market too early than too late.” The dynamics of the property market are shifting as regulatory changes begin to feed through into profits, and players enter and leave the space. But, despite the headwinds, investors’ appetite for property appears undiminished, whichever route into the market they choose.

CMY

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JOINT VENTURE

Behind the returns

Paul Sonabend, executive chairman of Relendex, explains why sophisticated investors always look beyond headline rates of return

OR MANY INVESTORS, the only thing that matters is the interest rate on an investment. But according to Paul Sonabend, executive chairman of Relendex, the smartest investors look beyond the headline rates. Relendex attracts a mix of conservative investors who want to protect their capital and choose to invest in the senior part of first-charge property loans; and more adventurous investors, who are targeting returns of 10 per cent or more by investing in the junior parts. “But while these junior loan parts come at a higher risk, this risk is mitigated by lenders creating portfolios diversified over our platform,” says Sonabend. “Financial Conduct Authority regulations coming into force this December will mean we will only have sophisticated investors. These are exactly the types of lenders who suit our platform as they understand the nature of our loans. For example, they will realise that most often when a loan goes into default it can be a great opportunity to make more money.” Under the Relendex model, loans can default for several technical reasons which do not necessarily mean that they are impaired. The most common reason being a project taking longer than expected and not repaying on time. “Upon default, the rate of return goes up by 50 per cent,” Sonabend

explains. “So the conservative lender who was earning six per cent is now earning nine per cent, and the more adventurous lender who was earning 10 per cent is now earning 15 per cent. “The reason the returns are higher is not because you are really putting your capital at greater risk,” he adds. “It’s very rare that lenders suffer capital losses. “The single most important thing to understand about the industry is that your capital should rarely be at risk if underwriting is done properly. Relendex monitors

and manages our loans. We take all necessary steps to recover our lenders’ capital together with interest due. In the first instance we apply pressure on the borrower resorting to repossessions if we have to.” The key risk in peer-to-peer property lending, according to Sonabend, is liquidity. “You can never guarantee liquidity,” he says. “The smaller platform investor with a number of small parts should always be able to take out all, or part, of their investment by selling them on our active resale marketplace. Our larger investors understand that some of their loans may become illiquid until they reach maturity; that some will be extended; and some will be paying default interest for a period of time.” However, even in the worstcase scenario of a receiver being appointed, that does not mean that lenders have suffered losses. To date, Relendex has not had to declare a loss on any loan, as even if the sale of the property does not cover the full loan, Relendex takes personal and other guarantees from all borrowers. “Our sophisticated investors understand what they’re getting,” says Sonabend. “And they are very comfortable with the balance of risk and reward that’s on offer. We will continue to offer them the best possible returns, whilst doing our utmost to protect their capital.”

PROFILE

Bringing property to the people

Frazer Fearnhead, chief executive of The House Crowd, talks to Andrew Saunders about property, pensions and that Dragons’ Den pitch

N A WORLD WHERE THE fintech sector seems to be dominated by excitable chatter about high-octane venture capital (VC), unicorn valuations and big ticket (if often subsequently disappointing) stock market flotations, Frazer Fearnhead – founder and chief executive of P2P property development lender The House Crowd – is a model of levelheaded rationality. “We’ve never approached VCs, we’ve got quite a bootstrap mentality and we’ve never wanted large sums of money,” he tells Peer2Peer Finance News. “We pay our own way and we’ve been profitable for a few years now.” It’s a straight-talking attitude informed, he adds, both by his background as a property entrepreneur and the fact that The House Crowd is based in Manchester where he grew up, far from the froth of the metropolitan fintech bubble. “What’s the point of running a company if it doesn’t make any money? But if you’re involved in the fintech VC world it seems to be about just raising more and more money and showing that you can scale,” Fearnhead comments. “It puts an awful lot of pressure on those companies, and I am not sure the industry is ready for that.

Not many of those companies end up succeeding.” He’s on a mission to help democratise property investment, getting more urgently-needed houses built and opening up lucrative lending opportunities to ordinary people, not just financial institutions. But rather than engage with deep-pocketed but demanding VCs or unpredictable angels, Fearnhead has grown The House

Crowd more carefully, through organic customer acquisition combined with a few judicious bouts of crowdfunding. He raised £1.3m in 2015/16 from existing customers who were already lending on the platform and wanted a piece of equity in the business too. In September this year, The House Crowd launched a new crowdfunding round. The business is looking for £1m on a £29m

PROFILE

valuation, and this time it is open to everyone. “It’s the first time we have done a public fundraise,” says Fearnhead, “and we’ve already had pledges that far exceed the £1m. I am amazed by the amount that has been pledged – we don’t want that amount, we’ll cut it off well before.” Crowdfunding works well for The House Crowd, which has managed to attract no fewer than 27,000 registered users thanks to its solid returns and customer-friendly approach. “We’ve always been very customer oriented and retail focussed – the number of people on Trustpilot who compliment our service is very gratifying,” Fearnhead says. “We’re an online platform but someone is always on the end of the phone.” But in the current climate of economic uncertainty, is it not

tempting just to take all the money you can get while it’s on the table? “There is pressure to take several million pounds, but can we use all that effectively? It would also involve quite a serious dilution – I still own quite a substantial chunk of the equity and I believe in the growth

Den back in 2015, when he joined the small but exclusive club of entrepreneurs whose ideas have gone onto success despite being thrown out by the Dragons. Described by Sarah Willingham as “the most disrespectful pitch” and by Peter Jones as “completely stupid”, Fearnhead’s insistence that

“ It just makes more sense to invest in property on a debt rather than equity basis” potential of the company. I’d prefer to sell my shares later at a much higher valuation.” Fearnhead’s attitude to external fundraising may also have been shaped by his unhappy experience on TV investment show Dragons’

he could get funding elsewhere on a £20m valuation seems to have put the Dragons’ backs up. “We believed we could raise money on a £20m valuation – we had no expectations that the Dragons would invest but I didn’t expect them to be so

PROFILE

vitriolic,” Fearnhead recollects. “It was a very uncomfortable experience.” There are three key priorities which Fearnhead will use the proceeds from the latest crowdfunding round to help accelerate: launching a new investment brand aimed at millennials (called Money Mog); improving its tech platform via ASMX’s blockchain-powered secondary market; and to help attract more investors for its Innovative Finance ISA (IFISA), which Fearnhead sees as a major growth area for the future. “ISAs I believe are still untapped, when you look at all the capital that is out there it’s still very early days,” he states. “There is £1bn in IFISAs, but £600bn in stocks and shares and cash ISAs, getting returns that are either low or very volatile.” He believes that the IFISA has a big role to play in helping to persuade retail customers to put their hard-earned savings into a relatively novel product like P2P – something the industry has struggled with to date. “It’s very expensive to raise retail money – we’re paying around £200 to acquire an investor whose initial investment is around £6,000 and whose lifetime value to date is around £31,000,” Fearnhead reveals. When it comes to their rainyday money, people are inherently risk-averse, he says – something which has only been exacerbated by recent high-profile failures such as Lendy. “People are sceptical of new things anyway, and these stories clearly don’t do the industry any good,” he comments. “That’s why ISAs are a real potential growth area. People with money in cash

ISAs already have that money set aside and are getting an average return of only two per cent or so.” Fearnhead is also confident that The House Crowd’s new Money Mog brand will help attract a younger customer and broaden the business’s reach beyond its current 40 to 70-year-old demographic. Today’s 20 somethings may have been painted as a ‘live now’ generation which isn’t interested in making provision for tomorrow, but that may reflect their distrust of old school financial services firms more than their reluctance to invest, he says. “Millennials have a natural antipathy towards traditional institutions, but apps like Moneybox have shown that there is a market for that younger audience.” Money Mog – fronted by a cute cat logo of course – will enable less well-off younger customers to invest as little as £50 a month at an interest rate of 3.5 per cent, which they can boost to 5.5 per cent by referring their friends. Fearnhead is a former music industry lawyer who began advising on property investment in the noughties, before launching

“ There is a prevalent short-termism which can be frustrating

”

The House Crowd in 2011. The business started life as a buy-to-let equity crowdfunding platform, but Fearnhead soon realised that the model was not scalable and pivoted to P2P debt funding instead in 2015. “It just makes more sense to invest in property on a debt rather than equity basis,” he asserts. “Why bother with all the hassle of owning

a property if you can use it as an underlying asset instead? “It’s the way banks have been investing forever. With P2P you get paid out before the owner of the property and you get a higher rate on your money that you would from buy-to-let yields.” The House Crowd is steadily selling off its buy-to-let property portfolio and now focuses on bridging loans and property development funding instead. “We don’t do any new equity investing now and we’re about 70 per cent development finance to 30 per cent bridging on the balance,” Fearnhead says. “We want to get to about 85 per cent development finance – they tend to be larger ticket items and you are dealing with a better-quality borrower, not amateur investors. It

PROFILE

“ It’s the first time we have done a public fundraise

”

doesn’t mean things can’t go wrong but the security is better.” The business also has its own property development arm, which executes many of the deals. The sweet spot for The House Crowd is developments of between 15-50 properties with selling prices of £200,000 - £600,000 apiece, mainly in the North West but also in the M25 South East commuter belt. What about the capital itself? “We certainly won’t be doing any prime central London because so much of that is bought by foreign investors – you just don’t know what will happen.” Liqudity – or rather the lack of it – is an aspect of P2P lending that is often cited as holding back growth, discouraging investors who fear they will not be able to exit loans before term.

Fearnhead believes P2P lending is already a fairly liquid way of investing in property, but he recognises investors’ concerns and is pleased to have found a solution in the form of ASMX’s off-the-shelf secondary market technology, which he first came across in these very pages. “We have continuously pushed the development of a secondary market down our product roadmap because of the expense and complication – we’d have to charge fees and it would be cumbersome to operate,” he says. “So when I read an article in Peer2Peer Finance News [about the ASMX platform] I thought it sounded perfect. We don’t have to spend £100,000 developing our own system, we can implement a technologically

advanced product quickly and cheaply, and it gives us access to institutional and retail investors around the world who already invest in other platforms.” However, Fearnhead adds that most retail investors would do better to focus on making good long-term investments rather than worrying about how quickly they can make an exit. “There is a prevalent shorttermism which can be frustrating,” he says. “Anything that is over 12 months on our platform does not do as well as things that are six to nine months, but successful investors like Warren Buffet invest for the long term. Why not leave your money in there for longer and let the interest compound?” Hence the firm’s other big new development, a white-label pension product that will make it much easier for residential property investments to be included in a selfinvested personal pension. “We have struggled with this for years, but now we have finally found an adviser who has done all the due diligence and is prepared to accept it,” he says. “There are certain restrictions – the money has to be lent to a limited company, for example, so we will probably focus on development loans [rather than bridging finance].” His goal for The House Crowd and its 28-strong team is thus appropriately long term – to keep growing sensibly and profitably, and to try and make it easier and cheaper for anyone to access the returns available on property lending. His career has taught him, he says, that success is a marathon rather than a sprint. “There is no magic wand or golden key, success doesn’t come overnight. Instead every day you have to keep doing the right things, however small, to reach your goal.”

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JOINT VENTURE

Seeking validation

Nick Horton, client services director and Chris Jenkins, client services and technology manager, reveal how Wrights Recoveries broke the mould when it created VT Validate

ECHNOLOGY HAS played a huge role in the growth of the alternative lending sector, and now Wrights Recoveries is bringing tech innovation to the admin-heavy world of car finance. In 2017, the recoveries specialists created a brand new voluntary termination (VT) tool which has been praised by both lenders and their clients for transforming the way vehicle loans are managed and understood. “VT Validate is a customer engagement tool that flips the current VT method on its head by placing the ownership of a VT onto a customer,” explains Chris Jenkins, client services and technology manager at Wrights Recoveries. “The current system involves sending out a written VT letter for the customer to sign and return. That is then processed and the account manager is sent out to recover the vehicle, conduct a cursory inspection and deliver it to a remarketing centre. Then the vehicle will be assessed for damages and often the finance provider will chase the customers for what we call ‘de-hire’ charges. This whole process can take anywhere between 30 to 45 days. “But with VT Validate, this whole process takes just seven days, from the moment the customer processes a VT to the crystallisation of damages and excess mileage.” Unsurprisingly, the client feedback

has been excellent. Previously, the long administrative burden of the standard VT process was laborious and time-consuming for employees, and many companies have told Wrights Recoveries that by using VT Validate they have been able to save time and money, and to reassign staff to do more collections work. It has also removed an emotive element from the whole process. “Some lenders don’t collect damage and if they try to, there is the potential for a customer to say, ‘well that damage wasn’t on the vehicle when it left my house,’ or wherever they took it from to the point of delivery,” says Nick Horton, client services director at Wrights Recoveries. “Whereas with VT Validate it is valued and checked at the point of collection. Any potential disputes are then taken away because the terms are right there in black and white, so it actually protects both parties – the lender and the customer as well.” Since VT Validate went live in 2018, 77 per cent of Wrights’

customers have said that the appraisal application is easy to use, and 100 per cent of those customers said that they were able to accurately record the condition of the vehicle using the application. Another 88 per cent confirmed that VT Validate helped them to understand their rights and applications, and 78 per cent of customers said that that more asset finance lenders should invest in technologies like VT Validate to engage with their customers throughout the life of their finance agreement. At present, VT Validate is used only for any lease/hire and end of lease agreements, but there is scope to expand it across the lending space. “We’re looking at the possibility of creating a commercial version,” says Jenkins. “But at the moment it is just private hire goods, and mainly passenger vehicles. The product’s value is evolving and developing all the time so the more feedback we get from the client base, then the more changes we’ll make moving forward.”

IFAS

Adviser appeal

Peer-to-peer investing can provide great returns that are uncorrelated to the volatile stock market. So why are independent financial advisers still wary? Marc Shoffman investigates

NCREASING LOANBOOKS and rising Innovative Finance ISA investment suggests peerto-peer lending platforms are having no issues attracting users, but the independent financial adviser (IFA) market still seems to be a tough nut to crack. On paper, P2P lending should be attractive to financial advisers.

Clients get inflation-beating returns that are uncorrelated to the stock market. But IFAs still need some convincing. Anthony Morrow, chief executive of advisory firm OpenMoney, says he is wary of the level of defaults. “Small- and medium-sized enterprises (SMEs) going to P2P

lenders will have almost certainly been turned down by their bank who, even if their credit underwriting has got tighter, still needs to lend,” he says. “Therefore, they are automatically into the less-than-prime category. “There is only a certain number of borrowers, and certainly good ones, available to lend to.

IFAS

“Add in the need for higher rates of interest that lenders need to offer to remain competitive, and the risk levels required start to increase further adding likelihood of defaults. “Even the well-established, reputable P2P lenders such as Zopa and Funding Circle are a fraction of the size of traditional banks and therefore do not have the portfolio capacity to endure losses, let alone heavy losses.” Meanwhile, other industry onlookers suggest that the disconnect is due to the time required to properly understand the platforms and the investment opportunities on offer. “The resources and knowledge required to conduct due diligence on platforms can be hugely time consuming and is therefore offputting to many IFAs,” says Anthony Carty, group financial planning and business development director at Clifton Asset Management. “Fingers have also been burnt

“

Financial advisers carry the burden of liability

”

in the past around so called ‘alternative investments’ such as unregulated collective investment schemes. This has led IFAs to tread more carefully in this area – particularly as P2P has yet to travel through a full economic cycle.” Victoria Hicks, financial planner for consultancy City & Capital, warns that without in-depth knowledge of an investment type, the risk is deemed as too high for advisers. “Financial advisers carry the burden of liability, which in some cases can last indefinitely,” she says. “When advisers are making a recommendation to a client, they need to ensure that what they suggest is risk-appropriate, and the

client has the appropriate capacity for loss. “They also need to think about the risk to their business when recommending something they are accountable for. “Most IFAs have at their disposal a researched panel of risk-appropriate investment options and are often guided by this. “Much work goes into the due diligence of recommended options and including a new ‘asset class’ means much work at firm or network level, followed by the training of those advising clients. “Therefore, there is a great deal of work to undertake once a client has been assessed as being appropriate for P2P, in order to build confidence and understanding.” However, there are changes afoot. New Financial Conduct Authority (FCA) regulations coming into effect in December will require P2P platforms to be clearer about their underwriting processes, as well as their historic and anticipated

IFAS

defaults, which will provide another layer of transparency. Platforms must also introduce appropriateness tests and marketing restrictions, in order to protect retail investors. Will this reassure advisers? P2P lenders certainly hope so. “We have not advertised to IFAs, however some use our platform,” a RateSetter spokesperson says. “We expect that advisers will become a big part of investing in the future. The forthcoming stronger regulation is positive for advisers as P2P investing will be regulated on a par with other mainstream saving and investment options – the new rules confirm that P2P lending has become a mainstream investment and it is now a logical component of everyone’s diversified investment portfolio.” Greg Carter, chief executive of business P2P lender Growth Street, predicts IFAs will become a cornerstone for the platform. “In such a volatile time for the stock market, we think IFAs will be relieved to be able to provide an alternative solution to their clients – many of whom might have felt like they’d run out of options,” he asserts. “At the same time, having a chunk of cash just sitting in the bank earning next to nothing can be frustrating. “We see the IFA market as a key growth channel for Growth Street, in particular over the next two years. “Understandably, IFAs have been slower to take up P2P than direct investors. However, as the sector matures and they become more familiar with the different products and propositions, I see it becoming a core part of their service offering. “Of course, the new regulations being introduced should play an

“ The forthcoming

stronger regulation is positive for advisers

”

important part in bringing P2P into the scope of financial advisers.” However, sources at several other P2P lending platforms say it is not worth the time and effort to try to convince advisers, when there are plenty of funds coming directly from individual investors and institutions. Separately, Michal Brzozowski, head of operations for P2P

technology provider Goji, says the new rules mainly target direct investors rather than advisers. “Whilst the new rules will undoubtedly add consumer protections, they're specifically geared to address the retail investor market rather than being something advisers will view as directly beneficial,” he says. “Advisers will be deciding on their clients’ suitability and appropriateness themselves.” He says advisers tend to be more focused on liquidity in the asset class, a lack of Financial Services Compensation Scheme (FSCS)

IFAS

“ IFAs are always going to be a hard nut to

crack as clients can ultimately access the [P2P] platforms directly

protection, issues surrounding professional indemnity cover and yields being too similar to listed vehicles such as investment trusts. One platform that is more optimistic about IFA relationships is Octopus Choice. The P2P property lending platform has managed to leverage the relationships it had with advisers from the venture capital trust side of the Octopus group. As a result, two thirds of its current book comes from advised customers, with numbers expected to rise. “At Octopus, we have seen that it’s vital to spend time

with advisers face-to-face to speak through applicable client scenarios, how the product works, how to assess client suitability and what the experience will be like for the adviser,” says Charlie Taylor, head of Octopus Choice. “It’s also essential to invest in third-party due diligence assessments by recognised service providers, which can be used and trusted by advisers in their own compliance processes when evaluating the P2P platform. “Beyond that, it is of course key to deliver a product that brings value to specific client situations and that’s easy to use for the advice firm – advisers, paraplanners and administrators. “Platforms have made a big effort to provide online portals that offer investment valuations and updates on loan performance. “With the transparency that P2P offers and the reality that some loans do underperform, platforms have to get the balance right between simple practicality and necessary supporting detail.” Taylor believes the new rules will help advisers scrutinise providers on their risk management, demonstrating what they do to ensure compliance with the rules. P2P property lender Proplend has a dedicated wealth manager portal to help advisers give advice on a loan-by-loan basis where they can also track performance. But Proplend founder and chief executive Brian Bartaby admits it is still difficult to attract the

”

advisory market. “IFAs are always going to be a hard nut to crack as clients can ultimately access the platforms directly,” he says. “It is difficult for IFAs to sign up to multiple platforms and offer diversification, it just takes too much time.” However, City & Capital’s Hicks is confident that the regulations will give advisers more confidence in the sector. “Further FCA focus and resulting regulations start to improve understanding, which is the first step to improving the link between IFAs and P2P,” Hicks states. “As these changes bring about improvements in transparency across the industry, this will help advisers to better understand the features, risks and benefits. “Due to the size of the market, this is an investment opportunity that advisers should be talking to the relevant clients about – even if only to discount it. As trusted advisers – and holding the badge of independence – this is really important. “Clients will also start to ask about P2P more, therefore internal investment in training advisers about the nuances of P2P should be something firms take seriously.” P2P platforms may have to play the waiting game for now, but there are clearly benefits for all parties – in the form of higher returns for advisers and their clients as well as further distribution for lenders – in being willing to work together.

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JOINT VENTURE

Ready for anything

Jay Patel, lending director at Wellesley, explains why the property platform is ready for anything that the market throws at it

HE PROPERTY MARKET is changing. There have been rumours of a new recession on the horizon, and Rightmove recently reported that UK property prices fell in September for the first time since 2010. Meanwhile, economic volatility has had a cooling effect on the property investment market, while overseas investors have been taking advantage of the weakened pound to buy up residential flats and houses. But Wellesley is unaffected by these short-term market movements. “We take a long-term view of our portfolio,” says Jay Patel, lending director at Wellesley. “Our exposure to the market's volatility over the next quarter is limited as we have successfully over the last 12-18 months underwritten projects that have performed well in presales – and that goes for the UK investor market as well as owner-occupiers – so we're relatively protected from valuation drops over the next 12-18 months or so. “Wellesley takes a cautious view of the market to make sure that we aren't overstretching ourselves and our book. But, at the same time, we are certainly keen to invest and provide our support to the UK property market and I think we are handling that balance quite well.” According to Wellesley’s own inhouse research, a geographical shift is also taking place, with northern cities becoming more attractive for the development of houses and flats.

“We currently see a relatively stronger market for property investors and owner-occupiers in and around Birmingham and heading towards the North with a strong owner-occupier market in the Home Counties and further west,” says Patel. “From an investment basis, properties in the North tend to represent better value than properties in the South,” Patel explains. “If you look at average yield; in the North it is five to 10 per cent plus, whereas in the South East, the average yield for investment is 3.5 per cent.” Wellesley’s team has had many years’ experience managing property market risks on behalf of its investors, so it is no surprise that

the platform is able to react nimbly to the changing risk profile of the UK property sector. Wellesley began expanding into the North of England several years ago, anticipating the rising yields in the region long before its competitors. By taking long-term investment horizons and launching its own investment platform for listed bonds, Wellesley has also been able to reassure investors who are worried about macro-economic issues and Brexit-related risk. The platform further protects its investors from unnecessary risk by setting a maximum of 70 per cent loan-to-value (LTV) on any property. “A standard residential mortgage is leveraged at around 95 per cent of its value,” says Patel. “We don't get anywhere near that quite frankly. We have a maximum of 70 per cent LTV which means that the property would have to fall in value by 30 per cent before we start taking a loss ourselves. This is the fundamental nature of how we structure our property transactions and it is supported by the experience of the developer, the quality of project and location, to name a few other areas we pay close attention to.” By prioritising risk management, Wellesley has shown its investors that it is capable of withstanding market movements, from property devaluation, to geographical shifts. As economic uncertainty continues, Wellesley’s investors will be grateful for any stability they can get.