ABLrate is very small. Its total originations so far are around £25 million and this has been growing at £2 million per month. We don’t think many investors will allocate a large share of their P2P portfolios to ABLrate loans. Many of the assets funded by ABLrate are ‘pro-cyclical’. Their values can fall heavily during economic downturns. The interest rates offered on ABLrate are higher than elsewhere because the risk is also higher.
However, we think there are two reasons it may make sense to allocate some capital to ABLrate. First, there is a diversification benefit. Most of the secured loans offered on other platforms are real estate loans. ABLrate offers loans that are secured by other asset classes. Second, it is a way of increasing returns as the interest rates tend to be high – 10 to 14%. The management team are experienced lenders in this field and the quality of the information provided on each loan is good. We would not allocate more than 25% of an overall P2P portfolio to ABLrate, but it is worth considering for the diversification and return benefits.