A Deep Dive into Platform Performance€¦ · A Deep Dive into Platform Performance. ... platform, or of an entire platform loan type 5 Challenge 1 - Sampling issues. AltFi Data Analytics:

A Deep Dive into Platform Performance

Tech enabled lending represents a revolut ion: Financial Intermediat ion can be done better ‘onl ine’

Improved Borrower Experience

Removal of ‘bricks & mortar’ cost

Access to new data sources to improve

pricing of risk

Brand new asset class Originate to distribute model requires originators to

demonstrate alignment

But…..

AltFi Data Analytics: Web based analytics subscription service

Investors have now discovered these high return / low correlation assets

Scaling this opportunity requires:✓ Ability to perform ‘like for like’ analysis of standardised metrics✓ Verification of asset performance by an independent third party✓ Analysis needs to extend beyond return to risk adjusted return

UK SME Originator EU SME OriginatorUS Consumer Originator

Bad News = Calculation of performance of

4

Good News = Availabil i ty of Data

thousand of loans, with distinct characteristics, is:• complex• diff icult to standardise

• Performance varies between loans• Cohorts and pools wil l not behave consistently• Makes l ike for l ike comparison diff icult

- Between platforms- Versus other asset classes

We need to capture the track record of an entire platform, or of an entire platform loan type

5

Challenge 1 - Sampling issues


Challenge 2:Seasoning

Default profile creates distortionsCohort analysis can be misleading until loans have fully matured

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

0 6 12 18 24 30 36 42 48 54 60

Generic Cumulative Net Loss Curvedefaults net of recoveries as percent of original principal by months since origination

Source: AltFi Data

0%

1%

2%

3%

4%

5%

6%

7%

8%

2 4 6 8 10 12 14 16 18 20 22 24 26 28 32 34

Months Since Origination

Seasoning Distribution of Young Portfolio% of total outstanding loan amount

Source: AltFi Data7

Challenge 3 - Variable origination growth rates

0%

1%

2%

3%

4%

5%

6%

2 4 6 8 10 12 14 16 18 20 22 24 26 28 32 34


Seasoning Distribution of Aged Portfolio% of total outstanding loan amount

Source: AltFi Data

Fast growing book:• high proport ion of young loans• lower default rate• higher net return

Slowing growth book:• high proport ion of old loans• higher default rate• lower net return

• Reflects a portfol io perfectly diversif ied across all loans• Is equal t ime weighted to capture cohorts of al l ages• Naturally adjusts to variations in origination growth rate

To create metrics that:• Are genuinely comparable• Are free from ‘ageing’ distortions• Capture the impact of al l lending activity• Are comparable with other asset classes• Can be viewed as a t ime series

8

One solution is to use a methodology that…

‘Equal t ime weighted, constant portfol io’ metr ics• Exposure to every loan• Equal exposure to each cohort

• Imagine that every Q you invested a perfect ly diversif ied $1,000

• Output is the annualised rate of that portfol io

0%

1%

2%

3%

4%

5%

6%

7%

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34


Equal Vintage Seasoning Distribution% of total outstanding loan amounts

Source: AltFi Data


12 month trail ing return from equal t ime weighted, constant, portfol io

• Net of fees and defaults • Adjusted for recoveries

• Defaults written down to historic recovery rate / asset proxy

UK SME Originator EU SME OriginatorUS Consumer Originator


Same analysis can be applied

to all constituents of

net return i.e. interest

income and net loss…


…providing us with a standardised, L4L comparable, measure of r isk…


So by disaggregating our net return methodology, we can create comparable metrics of r isk to be viewed alongside comparable metrics of return

…result ing in a l ike for l ike appraisal of risk adjusted return.

Net Return Loss Coverage

UK SME Originator 6.47% 2.8x

US Consumer Originator 5.12% 1.7x

EU SME Originator 5.42% n/a


Yield Net Return Net Loss

UK SME Originator

Loss CoverageMultiple by which interest income covers net loss


US Consumer Originator


D I S C L O S U R E

I S S U E R S

EU SME Originator



• Calculating platform performance is complex• Standardisation can bring clarity• Return should be viewed in tandem with risk• Analysis suggests that digital ly enabled loan

assets offer a signif icant return premium versus conventional assets of similar duration

17

Conclusion

Documents

A Deep Dive into Platform Performance€¦ · A Deep Dive into Platform Performance. ... platform, or of an entire platform loan type 5 Challenge 1 - Sampling issues. AltFi Data Analytics: