Peer-to-peer lending sites: MSE guide discussion

masonic

sendu wrote: »

Well, I'm hoping to gain an understanding by asking questions here

So on the one hand you have the risk of WiseAlpha going under and your notes being worthless, but if they stay up, your loans are more likely to recover more/all money during a default.

You are investing in unregulated bonds issued by WiseAlpha Technologies Limited. WiseAlpha is an investment company that uses the money it raises to invest in the bond markets. It needs to make enough money from its investment activities to cover your returns. If it doesn't then it goes under and administrators would step in to liquidate the company's assets. Which might return some, all or none of your capital.

It's a very similar situation to London Capital & Finance, but (hopefully) without the 25% commissions and questionable borrowers.

If FC goes under in theory your loan parts can be administered by someone else, but if a loan defaults then you may get less or no money out.

Yes, the key difference is that if FC goes into default, it has no direct and immediate impact on your investments.

How do you assess which is actually the riskiest option? Just go with not putting all your eggs in 1 WiseAlpha basket?

I think that's impossible to determine. Both have 100% loss potential, in the case of FC it depends greatly upon your investment choices, in the case of WiseAlpha it depends greatly upon their investment choices and inner workings of the company.

masonic

sendu wrote: »

Are there ones offering >8% after fees? If not, why not? What is it about WiseAlpha's structure that enables them to pass on these higher rates? What is stopping WiseAlpha from offering the same sort of regulatory reassurances and "safety" you'd get in a normal corporate bond fund?

No chance. Mainstream corporate bonds yield anything from <1% up to about 7% at the high end of the risk spectrum. Anything above that is junk. You might get a 5-6% yield from the highest yield bond funds, with capital fluctuations and a 1-2% management charge.

firestone

WiseAlpha are mainly an income play with either a self select or a pooled investment.The risk a part from the bonds being secured or unsecured corporate i.e the likes of the AA or Tesco etc is that the funds are invested in notes from WA not the bonds and you have a new fintech platform not you holding the bonds
It does not work like a bond fund as they are not really seeking growth the idea is to hold to term and collect the income every 3 -6 months till the end assuming the company pays back i.e the Debenham One might be a risk!

sendu

masonic wrote: »

No chance. Mainstream corporate bonds yield anything from <1% up to about 7% at the high end of the risk spectrum. Anything above that is junk. You might get a 5-6% yield from the highest yield bond funds, with capital fluctuations and a 1-2% management charge.

So what is WiseAlpha's magic that lets them do higher rates, with "big name" brand companies? Why can't the mainstream corporate bond funds buy the same corporate bonds as WiseAlpha and pass on similar returns?

Is WiseAlpha picking companies that even the most junk-loving manager of a corp bond fund wouldn't touch?

Or are WiseAlpha's overheads lower, so they can pass on higher rates?

Or could WiseAlpha be running on dangerously thin or even negative margin to offer those rates?

masonic

sendu wrote: »

So what is WiseAlpha's magic that lets them do higher rates, with "big name" brand companies? Why can't the mainstream corporate bond funds buy the same corporate bonds as WiseAlpha and pass on similar returns?

Is WiseAlpha picking companies that even the most junk-loving manager of a corp bond fund wouldn't touch?

Or are WiseAlpha's overheads lower, so they can pass on higher rates?

Or could WiseAlpha be running on dangerously thin or even negative margin to offer those rates?

All very good questions.

short_butt_sweet

there are individual corporate bonds paying - or rather: promising to pay, because you don't get this kind of yield without a significant risk of default - over 8% . you get that by picking very high-risk bonds. that is presumably what wisealpha are doing; rather than it being anything to do with their structure. even if they were taking literally nothing in margin/charges, they couldn't get 8% without going very high-risk.

with a quick search, i did find a few bond funds paying - or rather: with a historical yield of - over 8% . without looking too carefully, they seem to be investing in both corporate and government bonds, and including emerging market bonds. clearly they are going for very high-risk bonds, and you not only may not get a yield over 8% on any investment you make, but you could also lose a significant part of your initial investment.

which is in that respect very much like P2P. or wisealpha.

you may want a return of 8% . (wouldn't we all? ) but the best way to get that may not be to aim for a yield of 8% . because you can't aim for the latter without putting your capital at risk.

firestone

To be fair not sure they are only pushing 8% as the likes of Pinewood & Ocado are paying nearer 3.5% and many others are under 5% Not that it takes any risk away

masonic

firestone wrote: »

To be fair not sure they are only pushing 8% as the likes of Pinewood & Ocado are paying nearer 3.5% and many others are under 5%

That would raise the question how are they able to pay their 8% return (Pre-tax and services fees) for a 7 year investment when the yield of the bonds they purchase is in many cases around half that? Either they are trading the bonds rather than holding to maturity, which is an additional risk factor, or the average is propped up by some even higher risk bonds paying double digit yields. I did see one with a YTM of 17%, one at 12% and a couple at 10%, but the rest were 4-8%. There needs to be some buffer to cover defaults - or perhaps these losses are passed on to investors (in which case, there is no tax relief against income available as there is in P2P).

Having looked a little closer, I'm concerned about statements like: "Is your bank rate lower than inflation of 2.7%? Time for something new."
That's another risk factor - potential for FCA enforcement action over misleading advertising.

Quite a few of these bonds are ORB listed. Some S&S platforms would give you access to these. The direct investment route would appear safer.

BrokeyMcBrokeface

There don't seem to be many P2P borrowers on this thread, so allow me to introduce myself! I was sold a P2P loan without even knowing what one was, it was sold to me by lawyers, as an essential part of legal process in family law.... At the time I was unemployed, and divorcing. Ratesetter were selling their product to borrowers - first of all through a lending partnership with Novitas Loans who specialised at the time in lending to the clients of family lawyers to finance their fees in divorce. Ratesetter's Novitas partnership was dissolved in 2017, as Ratesetter pulled out of their bulk lending. In another twist, the FCA wrote to all P2P cos to let them know that there was a risk in bulk lending that the lenders were facilitating or involved with "accepting deposits" which was "potentially criminal". So far so good! If you check out Ratesetter, you will see they were obliged at the same time, to bail out an ad board company (operating busy screens in hairdressing salons) and a second hand car loan company in which they had heavily invested their lenders funds. The loans Ratesetter marketed to family lawyers to sell to clients are at 9% APR secured agains their half of the family home. Think about this for a moment. Divorce is one of the most financially risky and financially detrimental situations anyone can encounter, lending money through divorce lawyers to people in the throes of divorce - would you?, the loans were to pay for the legal fees of the solicitors who arranged them... And the starting number for those loans is £100k..... The Solicitor, via the loan, has control of the money, and can bill at will, sign off, on behalf of the client, and take the cash. Given this, are you confident that a solicitor with access to £100k is going to be really careful NOT to bill for the full £100k as soon as possible? And then maybe ask for more? The loans ARE secured - on the home of the person divorcing - so right now with a plummeting property market - there is a clear risk.... What due diligence is done into checking the creditworthiness of the borrowers for these loans? In my experience just a basic on line credit check was carried out on me. The loan was managed by Novitas Commercial Credit Manager, you can see the level of seniority and qualifications on Linked In. So that's the profile of one Ratesetter loan to a Ratesetter borrower... Over 3 individuals with Ratesetter Loans sold in this way, the total debt is in excess of £1.7 million... Could you guys help out and let me know - what due diligence did or does Ratesetter carry out into you as investors??? And have any of you been approached by them to invest not via their on-line electronic exchange, but via their commercial credit department? If so, what were you told about the loans you were funding?

masonic

BrokeyMcBrokeface wrote: »

Could you guys help out and let me know - what due diligence did or does Ratesetter carry out into you as investors???

I'm a bit confused by this question. If you really mean the question as stated, then Ratesetter has an obligation under Know Your Customer legislation to verify investors' identities. Beyond that, no due diligence is either carried out or needed, unless they suspect the money we're investing may be the proceeds of crime.

If you are actually asking what information they pass on about borrowers, Ratesetter is a black box P2P lender. Those who lend through it do not get any information about individual borrowers circumstances, credit worthiness, or how they have been assessed.