Peer-to-peer lending sites: MSE guide discussion

Alexland

masonic wrote: »

£50k is a lot to put in P2P, and that's coming from a relative P2P optimist. I suppose it's ok if you have other investments totalling £450k or more.

We have S&S investments of that magnitude and our £2k in P2P is more concerning. S&S investments are volatile but the P2P risk is sudden wipeout. If we had £50k in these unstable and flawed P2P companies I wouldn't sleep at night.

Alex

bxboards

Nardge wrote: »

I have not as yet entered MLA, as I haven't had time to read up on it as yet to know what I'm doing.

Obviously not offering advice, but I'm big fan of MLA - I use diversification as a form of self-insurance.

I tend to go in to any 8%+ loan - usually there are enough on the secondary market that (for example) you could put an equal amount into every loan, and probably get into 100 to 200 loans fairly easily.

I tend to have an amount I put in, call my 100% amount. So for example if I put in 1k per loan, 1k would be 100%, 500.00 would be 50%..etc etc

So 8% loans get 50%, 9% loans get 75% of that, and 10%+ loans get 100% of my per loan float.

I've had very few defaults on Assetz Capital, I have a few in recovery (suspended) but probably less than 1% and obviously the interest generated covers the odd default.

As I said, not advice, but if you aim to diversify and that diversification includes multiple platforms too, then I think you can still do well.

I have a fair bit more invested in P2P than you do, my platform maximum is higher than your total investment, but I am fairly 'low risk' so never got stuck with Lendy / Colloteral lemons luckily.

dont_use_vistaprint

short_butt_sweet wrote: »

one question: why?

you've figured out that p2p can blow up in your face (if you're holding the baby at the wrong time). but you want to keep doing it, and try to switch out of markets that might blow up sooner into ones that might blow up later, presumably in the hope of moving on again before it's too late?

what is the point? do you expect to beat the professionals at calling which market will blow up when (something they probably can't do, in fact ... though i'm not sure that helps you)?

why not use more conventional collective investment vehicles to get exposure to foreign markets? there are some vehicles that focus on debt, if you specifically want that (but also: why that, specifically?).

i'm puzzled. i think many people went into p2p underestimating the risks. though there may also have been genuine early opportunities, when p2p interest rates were higher, perhaps high enough to compensate for the risks, and leave some excess return on top. but now, rates have fallen, so i doubt there are any easy wins on offer. so once you're more aware of the risks, what is the attraction?

1) The returns are still too low with S&S. Unless you have a lot of skill and luck
2) Short term investments aren't suited to S&S
3) S&S can also blow up in your face, hasn't its done that quite a lot recently - Many have lost money on VLS over the last year or 2. Brexit / S&S seems much more volatile than P2P / Brexit. A lot of Micro and SME selling domestically in the UK may actually do OK and even innovate a little more if things start to change in terms of labour pool and cost of imports.
4) I like investing in things I understand and want to support - Startup, SME etc.

dont_use_vistaprint

Alexland wrote: »

We have S&S investments of that magnitude and our £2k in P2P is more concerning. S&S investments are volatile but the P2P risk is sudden wipeout. If we had £50k in these unstable and flawed P2P companies I wouldn't sleep at night.

Alex

You make a very valid point and what you actually need to think about with risk - risk of platform, for me this is a no-brainier, unless I have confidence in the company leadership , sustainability, backing and recoveries, forget it, risk of individual loans, this is where the skill (and fun) is.

Fatbritabroad

I'm in ablrate (about 4500), assetz capital (about 6k), lending works (about 6k)a 1000 in Kufflink and about 3k in ratesetter
Platform risk for me is my main concern which is why I spread it across various sites. I'm not adding anything more to p2p and and just reinvesting profits now. I've about 60k in s and shares and am only adding to this now

AdrianC

Alexland wrote: »

We have S&S investments of that magnitude and our £2k in P2P is more concerning. S&S investments are volatile but the P2P risk is sudden wipeout.

So you're more worried about a 100% loss of your P2P investment than a 4% loss in your equities...?

If we had £50k in these unstable and flawed P2P companies I wouldn't sleep at night.

Don't forget that any P2P company with FCA approval must have an FCA-approved business continuity plan in place as to what happens in the event of failure of the business. (And before people say "Collateral", the whole point of the Collateral closure was that they were lying about their FCA approval status.)


In the case of RS:
https://www.ratesetter.com/blog/article/5-top-5-key-features-of-p2p-regulation


Is RS profitable? No. Is that necessarily a bad thing? No. Is it ill-managed? Depends on your perspective, of course, but remember that the chair of the board is also chair of Prudential PLC.

And, if we look at their financials...
https://beta.companieshouse.gov.uk/company/07075792/filing-history
£27.3m of the cumulative losses over the last two years are directly accounted for by "impairment of goodwill". Actual operating losses are £23m across the two years. £700m is under management.

masonic

dont_use_vistaprint wrote: »

1) The returns are still too low with S&S. Unless you have a lot of skill and luck

A global index tracker held over the last 24 years (includes several market cycles) would have returned 8% per year on average. Over the last 10 years, including the recent correction, it would have returned 12%. I doubt that anyone has exceeded net returns of 12% after bad debt in P2P, and net returns in excess of 8% over a whole market cycle are unlikely except for the luckiest of individuals.

2) Short term investments aren't suited to S&S

With P2P, the formal loan terms are anywhere from 3 months to 5 years, but in reality loans can take years longer than the formal term to repay after forbearance and formal recovery are taken into consideration. Those loans with double digit interest rates (see 1 above) are the ones that are most likely not to repay to schedule and may not be possible to sell on a secondary market whatever discount you offer.

In contrast, equities can always be sold for the market price, albeit this might not be an attractive price.

Neither is suited to short-term investment, although the low rate P2P where you tie up your money for a fixed term in a pooled account is a bit more suitable - but you won't get returns that are as high as those historically achieved by S&S.

3) S&S can also blow up in your face, hasn't its done that quite a lot recently - Many have lost money on VLS over the last year or 2. Brexit / S&S seems much more volatile than P2P / Brexit. A lot of Micro and SME selling domestically in the UK may actually do OK and even innovate a little more if things start to change in terms of labour pool and cost of imports.

Equities have the capacity to fall much further than they have recently, but those who hold them over the long term are vanishingly unlikely to lose money, even in real terms.

Contrast that with P2P, where a borrower gets into trouble, the loan is defaulted, and goes through recovery which is equivalent to being a forced seller in an equities bear market. No chance of holding on until the economic climate improves. You can reduce this risk by picking safer P2P investments, but then you won't achieve the high returns you mention in (1).

4) I like investing in things I understand and want to support - Startup, SME etc

If you understand the business and want to support it, is it preferable to lend it money via a P2P platform, or invest in its shares via an equity crowdfund? To me, both are fairly risky, but one has the chance of the better-than-equities returns you seek.

masonic

AdrianC wrote: »

And, if we look at their financials...
https://beta.companieshouse.gov.uk/company/07075792/filing-history
£27.3m of the cumulative losses over the last two years are directly accounted for by "impairment of goodwill". Actual operating losses are £23m across the two years. £700m is under management.

This is an interesting point, because they could have just used the provision fund and/or allowed lenders to suffer a haircut. Then, as you say, they would have only lost £23m over 2 years. But I wonder what impact that would have had on their £700m of assets under management. Sooner or later they'll have to expose lenders to a loss of interest and perhaps capital. It will be interesting to see what effect that will have on the typical RS investor and the perception of risk:reward.

AdrianC

Umm, I don't think "goodwill" is what you think it is.

masonic

AdrianC wrote: »

Umm, I don't think "goodwill" is what you think it is.

You don't think it includes the acquisition of the "carcass" of Vehicle Trading Group out of administration that contributed £13.5m to its loss? Or buying out / covering losses from other companies to which it should never have made loans?

For context, a quote from RS earlier this year stated "RateSetter is standing behind the repayments of the loan made to Adpod Limited until the loan is fully repaid. We recorded a goodwill impairment charge in our 2016/17 company accounts to reflect this." It seems like a "goodwill impairment charge" relates to losses made through acquisitions RS has been forced to make out of a sense of responsibility to lenders. What's your interpretation?

Edit: and if you look into the accounts for 2016/17, you'll see the goodwill impairment from the acqusition of Adpod Limited listed to the tune of £13.8m. This plus £13.5m adds up to the £27.3m you mention above.