Perfect Channel
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Selling a large portfolio of financial products ‘in bulk’ is always going to be discounted over a segmented portfolio. And since student loans are not homogenous, but a portfolio of different loans, with differing values, an optimum return was not going to be achieved with this type of ‘bulk sale’. Splitting a portfolio of this kind is essential to deliver a maximum return, but clearly the higher the number of parties involved, the higher the risk.
The Government may have had less appetite for the potential down side of an increase in buyers - higher deal risk and deal costs. But opening up the market, reducing portfolio size, segmenting financial products, allowing bidders to self-select, are all strategies that will incite competition and ultimately deliver better value on the sale of an illiquid asset.
The sophistication of the most current auction technology available means that the auction can be designed and tailored to meet the seller’s very specific requirements, featuring complex algorithms, analysing the real value to the seller of each bid and ranking bidders accordingly, to deliver the absolute optimum number of winning bids.
Fair Market Value Illiquid assets are among the hardest financial products to price and forming a view of their ‘fair value’ is a complex process. This is why Perfect Channel has developed what we call a Fair Market Value auction model, particularly designed to facilitate this type of sale, demonstrating an ability to return a much higher yield.
Instead of creating multiple lots, the auctioneer sets up one, single lot for the whole auction, with a total value based on the sum of the worth of all the products being sold. Bidders can then choose their own portfolio of products within the auction and
About the Author
Phil Bird is an entrepreneur and innovator in the field of internet auction technology. Phil has a strong blend of business skills and technical knowledge. A passionate advocate of the potential of auction technology, Phil has an outstanding track record in digital technology. He truly believes that auctions can help solve a broad range of business issues and make a positive difference across multiple industries and markets.
this is assigned a Fixed Portfolio Value, based on the proportion of the overall lot they have selected.
The auctioneer then assigns each customer a Fair Market Value. This is set as a % of their Fixed Portfolio Value. As bidding starts, and each buyer bids on their own portfolio, the system ranks bidders according to their Fair Market Value. The larger the portfolio, the greater the Fair Market Value and the more the bidder will be favoured by the auction.
Once the set time for each round of bidding is complete, the system allows bidders to view their rank and the bid of their next highest ranking bidder. The lead bidder can see that they are in the lead and the next lowest ranking bidder. In subsequent rounds bidders must either equal or outbid the next highest bidder and the lead bidder can stick or choose to bid higher, to secure their position. The auction process closes when no further bids are taken.
This approach is not only more attractive to buyers, allowing them the freedom to ‘self-select’ from the portfolio, but consistently achieves a better overall value for the auction. It is an ideal approach in any market where the bulk product is divisible and the products have a varying perceived value.
Complex mathematical analysis and algorithms aside, the fact is, when we offer a mechanism which enables
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true pricing and unbiased execution for bidders with different budgets, risk appetites and requirements, a better value will be returned. It is in the interests of the Government and indeed every major financial institution, to identify the right sale mechanism, to increase utility, ensure transparency, demonstrate compliance and above all, present an even playing field for all interested parties.
It will be increasingly important as the Government divests itself of further assets, that when it comes to the public purse, it is not only able to achieve maximum value at sale, but can clearly demonstrate that it has generated the best possible outcome.
Contact Tel: 0800 0337 815 Email:
hello@perfectchannel.co.uk Web:
www.perfectchannel.com
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