Green evolution: Exclusive interview with Relendex’s Paul Sonabend
Relendex’s Paul Sonabend talks to Marc Shoffman about the property platform’s longevity in a changing market and its ambitious green targets
Much has changed in the peer-to-peer lending market over the past decade and one of the platforms that has successfully navigated the changes is Relendex. The platform marks 10 years in the business this year.
Its executive chair Paul Sonabend outlines its ongoing commitment to retail investors and the eco-focused role he sees the property lender playing in the future.
Marc Shoffman (MS): How has Relendex navigated the past 10 years while others have left the sector?
Paul Sonabend (PS): We are 10 years old, and it’s been eight years since we became Financial Conduct Authority (FCA) and HMRC authorised.
It is ultimately the quality of the management and of our business model that is paramount.
There are two reasons competitors have exited.
Read more: Relendex reports second consecutive year of profits
Some have become bigger and turned into banks and some, irrespective of how good platforms were, didn’t have good business models.
The regulators are more interested in how your paperwork goes and compliance for things they see as important than the viability of companies’ business models which they are not competent to assess.
Entering into the P2P market historically were companies who outgrew or didn’t have a good business model.
Some of these would have failed under any structure.
We lend on housing development, which is a very specialist area and has an enormous amount of complexity.
The proper evaluation of a building project takes a vast amount of experience and due diligence. It is not suitable for new entrants from outside the industry as they simply don’t understand the complexities involved.
MS: How has regulation affected your retail offering?
PS: December 2019 gated most retail investors and the poorer P2P firms were told they could no longer take retail funds, which left a dilemma. Relendex, along with other players, had to re-examine ourselves.
We understood we would still be heavily invested in the concept of P2P, fractionalising loans. We believe in it because it spreads risk and provides an open platform so people can see what they are investing in. The platform remains committed to P2P while others have left.
Read more: P2P sector smashes milestones in 2022
At the same time, we understood post-December 2019 that the people we onboard would be high-net-worth individuals and sophisticated investors together with the base of investors we had pre-2019.
Our balance by value is about 60 per cent institutional and 40 per cent retail. The vast majority of our investors are retail but by value most are institutional.
If you don’t understand what Relendex does and don’t understand risk involved in lending to property developers then you shouldn’t be on our platform.
I am in favour of anything that happens to improve the quality of people in our industry. I do, however, wish the FCA would spend more time getting rid of the crooks and rogues who aren’t regulated.
MS: How are you reaching new investors?
PS: You can’t grow your retail base by competing for funds in the digital marketplace, that is physically impossible. For example, I can’t during an ISA period go out and compete for investors as my cost per eligible lead is many times greater than for an FSCS-regulated product, as we have to turn away so many non-sophisticated applicants.
Now we are in a situation that virtually 100 per cent of our new investors come from personal recommendations from investors who have been satisfied with our service and performance. Word of mouth is everything. To achieve that you need a solid reputation. Once achieved, new investors arrive. This is what we are increasingly seeing.
Read more: ArchOver and Relendex hit new lending milestones
Currently there is no pressure to acquire new investors as our existing investors are hungry for more loans to finance. In the current economic climate, the demand for quality investments far outstrips supply, the money is there and people are desperate to find a return but it has to be something they like and that feels solid.
I get far more unhappy emails from people who aren’t able to invest rather than any emails related to the performance of their investments.
MS: What is the focus of your projects?
PS: We are working with bespoke housebuilders who want to build in a sustainable manner. If they can’t do it themselves, we have partnerships who can do it.
We are using modern methods of finance for modern methods of construction. In 2021, 30 per cent of the money we lent went into developments that were sustainable from cradle to grave.
To qualify as a “green” loan, every part of the building process has to be seen to be sustainable. We are working with the most innovative housebuilders who are building the most wonderful housing stock that costs little or nothing to light and heat.
Our goal is for 60 per cent of new loans to be for sustainable development by the end of 2023 and we want the market to know that we are not scared of financing innovative, sustainable buildings using new techniques. We see ourselves as part of a much larger eco-environment in an industry that has not always been green.
There are a lot of institutions who want to deploy ESG funds but are scared of greenwashing.
It should appeal to large numbers of retail investors who are sophisticated enough to qualify to be our lenders.
Our appeal is for institutions who understand they have a bigger purpose in life than just getting a return.
Whilst our emphasis is on sustainable housebuilders, we will continue to finance other projects. All new development is going to be vastly better than the leaky homes most people live in. However, we are practical and know it is hard in some areas to build eco homes.
MS: What impact will rising interest rates have on Relendex?
PS: I have never understood this argument. Before 2008, long-term interest rates were three per cent or more. We have got used to low interest rates that have penalised savers and are out of kilter with the long-term trend.
We produce a loss-adjusted annual outcomes report to the same manner as fund managers and are consistently producing annual returns of seven to 7.5 per cent. This year it looks like it will be no different.
If you are a saver and were earning just 0.2 per cent and now can earn two per cent but Relendex is returning seven per cent, the gap remains large.
MS: Will the cost-of-living crisis reduce investor demand?
PS: When interest rates are virtually zero, you don’t have to do anything to protect your wealth. At that point you can even invest in things that don’t pay interest. When inflation comes back everybody says, ‘How do I protect my wealth?’
The demand for products that produce a return at times of inflation is greater, not less. Inflation pushes people to want to save. Relendex is an obvious candidate – where else can you put your money at the moment, especially with stock markets so shaky, and bond and alternative markets such as crypto falling substantially?