Peer to Peer Lending- some advise please?

Jonbvn

Thrugelmir wrote: »

Raised $150 million from investors last month, investors included Blackrock and Bailie Gifford. With the Company valued at a $1 billion.

Based on what? What exactly will they sell off if it goes pop? They don't own a brass farthing in loans. They have facilitated about £600MM in loans to date. IIRC they get 10% of interest earned. Conservatively, let's say interest is 20%. So FC get 10% of that - say £12MM a year - not much for a billion dollar business. Must be the cost of those rubbish TV ads;)

Stolen from another forum....

I'm now aiming to go live with "Funding Suckerz" next week, just as soon as I can decide what colour to use. My plan is to raise £100k against the house, lend it out repeatedly to my dog over the next few months (I confidently project zero defaults and zero late payments) and then float for around £10 million in the autumn. If anyone wants to buy into a 10% stake now, I'm happy to offer an attractive discount (20%, or 25% even at a pinch) against the projected Sept 2015 valuation. Form an orderly queue.

P2P is NOT nor ever will be a banking business....

I am seriously doubtful of such a valuation. It stinks of 2k nonsense.

I feel a sense of defensiveness over P2P platform stability by a few posters. Why would that be? Guys please tell.

TheTracker

What do you see happening if a platform fails? Please express it as the ultimate risk to the lender in financial terms.

agent69

Jonbvn wrote: »

So why are said companies recommending to diversify across several platforms?

Please remember that P2P is still a very immature market and has not been through a full economic cycle yet. I did not say there is a large risk of anyone going bust. What I said was that one of the largest risks of P2P is platform failure.

And you come across as very defensive. Why would that be? - Ah I see...From your posting history I see you are a FC fan boy for whatever reason;) Do they pay you?

I see you're using the politicians defence. If the facts don't support your position then just rubbish anyone who disagrees with you.

Diversification over numerous platforms isn't about platform failure, it's about the differing assets that each platform offers. If you put all your money in FS it will all be invested in property. What then happens if the property bubble bursts? Likewise with Ablrate and their boats.

Diversifying over lots of platforms gives you exposure to different asset classes, different risk and different potential returns, and avoids the "all your eggs in one basket" problem.

What have I said that makes you think that I am being defensive and what is it about my previous posts that makes you think I am a fan of FC. If you had really looked at my posts you would see that I have been critical of FC in the past on such things as the misleading way they advertise the potential rates on offer. This doesn't mean there is no place for them in a diversified portfolio.

To quote from another forum "All the other closures have simply been from an inability to gain traction in the market place, with virtually no losses for lenders"

agent69

Jonbvn wrote: »

Based on what? What exactly will they sell off if it goes pop? They don't own a brass farthing in loans.

You obviously don't understand how company assets are valued. Your suggestion that the value of a company cannot exceed the value of it's tangible assets is some way wide of the mark.

Facebook and E-bay have very little to sell if the business goes pop, but that doesn't mean that their intangibles aren't worth mega bucks.

That said, I do agree that the valuations being attached to some of the p2p platforms must have come from fantasy island.

Thrugelmir

agent69 wrote: »

That said, I do agree that the valuations being attached to some of the p2p platforms must have come from fantasy island.

Amongst them all there's Facebook or Twitter. Having in a finger in lots of pies is the key. A lot of the investment will be made in convertible preference shares. So the VC's will at least receive a coupon if if the business ultimately fails.

arbster

Jonbvn wrote: »

Based on what? What exactly will they sell off if it goes pop? They don't own a brass farthing in loans. They have facilitated about £600MM in loans to date. IIRC they get 10% of interest earned. Conservatively, let's say interest is 20%. So FC get 10% of that - say £12MM a year - not much for a billion dollar business. Must be the cost of those rubbish TV ads;)

Actually, their fee model is much more complex than this. They charge 1% per year on all funds loaned, and don't appear to be as vulnerable to bad debt as those of us who invest their own funds. They also charge 2-5% to the borrower, and make charges on loans that are in arrears. So on £600MM loaned, they've probably earned upwards of £30MM over 4 years from arrangement fees, plus penalty charges and anything useful they've done with un-invested balances.

Agreed, that's not a significant sum, and doesn't in itself warrant a £1bn valuation.

I wish I was getting 20% on my loan parts...

N1AK

arbster wrote: »

Agreed - I had Autobid on for a short while and found that it bid at much lower rates than could be achieved by manually bidding, and I couldn't seem to find a set of values that did what I wanted. The buying up of rubbish loan parts on the secondary market is another good reason to avoid it.

I can't justify the time to manually manage investment by FundingCircle. I'm investing ~£2k per month into p2p and manually bidding 80+ times a month just doesn't appeal. I've actually had no issue with using autobid to lend at a decent rate (8%+ currently); literally my only concern is what proportion of the loans I'm buying (by re-investing not new money) are other peoples rejects.

arbster wrote: »

Also, the fact that the risk is passed back to the lenders surely means that the chance of platform failure is further reduced? Something of a double-edged sword, for sure.

RateSetter has a fund which it uses to cover bad-debt. It is not however a guarantee. In theory if bad-debt is considerably worse than they estimate they don't cover any further loss. Thus it is lenders not RateSetter who bear the risk.

arbster

N1AK wrote: »

literally my only concern is what proportion of the loans I'm buying (by re-investing not new money) are other peoples rejects.

Hopefully it should be the exception rather than the rule where investors are aware of an impending bad debt situation before FC are able to downgrade a loan and/or prevent sale of loan parts.

Understand your reasons for not micro-managing loans when you're investing at such scale.

Jonbvn

agent69 wrote: »

I see you're using the politicians defence. If the facts don't support your position then just rubbish anyone who disagrees with you.

So you are a FC fanboy then;)

agent69 wrote: »

Diversification over numerous platforms isn't about platform failure, it's about the differing assets that each platform offers. If you put all your money in FS it will all be invested in property. What then happens if the property bubble bursts? Likewise with Ablrate and their boats.

Diversifying over lots of platforms gives you exposure to different asset classes, different risk and different potential returns, and avoids the "all your eggs in one basket" problem.

It also mitigates against platform failure. I just cannot write off such a possibility as easily as you seem to, given the immaturity of the market.

agent69

Jonbvn wrote: »

So you are a FC fanboy then.

Not a fan and a long way past being a boy.

However, I'm as mercenary as the next man, and will be happy to openly support any platform if the money's right (no reasonable offer refused)