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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…..

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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

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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

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Challenge 1 - Sampling issues

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Challenge 2:Seasoning

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

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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

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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

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

Months Since Origination

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

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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

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

Months Since Origination

Equal Vintage Seasoning Distribution% of total outstanding loan amounts

Source: AltFi Data

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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

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Same analysis can be applied

to all constituents of

net return i.e. interest

income and net loss…

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

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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

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Yield Net Return Net Loss

UK SME Originator

Loss CoverageMultiple by which interest income covers net loss

Yield Net Return Net Loss

US Consumer Originator

Loss CoverageMultiple by which interest income covers net loss

D I S C L O S U R E

I S S U E R S

EU SME Originator

Yield Net Return Net Loss

Loss CoverageMultiple by which interest income covers net loss

• 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

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Conclusion