Page 37 - ASSET MANAGER 11 (EN)

Rating categories with historical yields
RISKLEVEL A B+ NOMINAL INTEREST 3.9-5.4% 4.0-5.9%
B C+ C D E F
4.6-7.3% 5.6-9.7% 7.0-11.4% - - -
ESTIMATED RETURN
4.65% 4.95%
declined declined
5.95% 7.65% 9.20% - - -
declined
In addition to being an attractive source of income, invest- ing in loans is also an interesting diversification tool because of its low correlation with other asset classes. Historically, Cashare's loan portfolio shows a moderate correlation with the Swiss Bond Index and a low correlation to the SMI. Ac- cordingly, the addition of loans in the fixed income portion of a portfolio leads to greater efficiency.
Risk management
After a thorough credit check, the platform assigns a rating to each loan. With this rating, the investor can assess the risk taken.
Since the investment is made directly into the loan, the investor is the beneficiary of the interest received. But he also carries the risks himself. There is a possibility that the borrower may default on payments or may not make re- payments at all. In this case, the platform acts on behalf of investors and seeks to collect the outstanding amount through debt recovery, debt enforcement and/or sale of the pledge. In the event of a premature repayment of the loan by the borrower, the investor may miss future interest payments. This can be compensated for with a reinvest- ment.
In general, a broad diversification of investments in loans must be ensured. Thus, with a small amount of investment with a partial investment in loans, one can also form a broadly diversified loan portfolio.
Institutional investors in particular can very precisely create their desired risk/return profile with a targeted selection of the loan projects offered, and achieve very high levels of diversification.
Even taking costs and losses into account, a net return of more than 5 % is generally achievable.
Implementation of investments
Typically, the mass of investors – the so-called crowd – in- vest directly on the crowd lending platform. This allows an investor to put together a tailor-made loan portfolio. This is possible from just a few francs on a single investment, since it can also be invested in parts of loans. Just like private investors, institutional investors can put together a portfolio on the platform or invest easily and quickly in a defined loan portfolio with the available financial instru- ments – such as funds, bonds or structured products. For example, using an ISIN number, the entire credit exposure can simply be posted to the custody account and report- ing is more efficient. These instruments can be used to achieve precise risk/return profiles.
Conclusion
The current interest rate environment with its historically ex- tremely low interest rates can continue. Thus, fixed income investment opportunities will continue to yield little or even negative returns. A lucrative opportunity to invest comes from crowd-lending platforms. These investments also pro- vide a diversification effect for each portfolio. By investing in loans, both private and institutional investors have, for the first time, an asset class that until then was largely reserved for banks and a few institutional investors.
MICHAEL BORTER
CEO cashare AG
Email: michael.borter@cashare.ch Phone: +41 41 558 53 95
Source: Cashare