Peer to Peer - how much money is at risk?

masonic

short_butt_sweet wrote: »

and, at least provided that you buy a world equity index tracker on a well-established conventional platform, you don't have to worry about anything like the worst cases #1, #2, and #3.

It's even better than that. Providing you bought an index tracker fund using an FCA authorised platform, you'd have FSCS protection against the worst cases #1 and #3, while #2 would not be possible.

Elika0215

Thank you for your replies. I'm finding this fascinating!

Thrugelmir wrote: »

Possible to obtain a yield of over 7% by investing (indirectly) in in a portfolio of RMBS. Far less risky.

I like the sound of less risky and potentially higher returns. This is a new one on me - is it something you can invest in and it's all managed (i.e. I allow experts to make all the financial decisions and I just keep a track of what's going on) or does it need active, frequent involvement? Also, is this suitable for say a two year investment or does the "5 year minimum" advice apply?

short_butt_sweet wrote: »

exactly: if you can live with a maximum of a 50% loss, then you could buy a world equity index tracker instead..

That link was really useful and makes total sense. I've had a look at the likes of Cavendish and Hargreaves Lansdown for pensions - is this a reasonable place to start investing in this kind of fund?

masonic wrote: »

It's even better than that. Providing you bought an index tracker fund using an FCA authorised platform, you'd have FSCS protection against the worst cases #1 and #3, while #2 would not be possible.

I didn't know there were FSCS protected platforms. Any recommended links for more information?

I really hope this helps some others by the way.

masonic

Elika0215 wrote: »

I didn't know there were FSCS protected platforms. Any recommended links for more information?

P2P is excluded from FSCS protection, but other mainstream investments have protection, so if there is fraud by a fund house or investment company, or they become insolvent, you'd have protection. You can get more information from any investment firm about the cover that applies to them or here on the FSCS site.

Perhaps

LCF could be an interesting case study of P2P gone wrong.

If you ignore the marketing pretending it was a savings account, it looks pretty much like P2P to me (and it was an IFISA so the regulator thought so too). You lend money to LCF who lends it out to companies. If companies pay their loans back you get the expected return rate.

Now what we didn't know at the time was they were only 12 companies, they were all run by the same people as LCF, and the companies made loans to each other. Also that the marketing was skimming off 20% of deposits, and they weren't actually abiding by the ISA rules.

I'd be concerned that any other P2P could have similar smoke and mirrors and there would be no way to tell.

firestone

Not sure its a case of P2P gone wrong as LCF were classed as mini bonds.But you could be right about smoke and mirrors

Malthusian

firestone wrote: »

Not sure its a case of P2P gone wrong as LCF were classed as mini bonds.

As Perhaps says, the underlying business model is essentially the same. Literally the only difference (in terms of the surface proposition) is that LCF offered a fixed return and 100% return of capital unless they went bust, whereas most P2P platforms offer a With Profits arrangement with a variable bonus rate (or interest rate as they call it) and variable return of capital, depending on how the loans actually perform.

firestone

Malthusian wrote: »

As Perhaps says, the underlying business model is essentially the same. Literally the only difference (in terms of the surface proposition) is that LCF offered a fixed return and 100% return of capital unless they went bust, whereas most P2P platforms offer a With Profits arrangement with a variable bonus rate (or interest rate as they call it) and variable return of capital, depending on how the loans actually perform.

i can see the point - must admit i know little of LCF or mini bonds apart from reading on here and the odd search online.I assume the difference is that with P2P the money is not with the platform but the borrower and it does have regulations on things like pre-funding loans how the money is used etc but not sure the mini bonds do work along them lines?

masonic

firestone wrote: »

i can see the point - must admit i know little of LCF or mini bonds apart from reading on here and the odd search online.I assume the difference is that with P2P the money is not with the platform but the borrower and it does have regulations on things like pre-funding loans how the money is used etc but not sure the mini bonds do work along them lines?

LCF was not P2P, as LCF acted as a middleman, but that isn't without precedent in P2P (the early days of SavingStream, and pawn loans made under buyback agreement on a couple of different platforms). The key similarity is that the asset backing was equivalent after considering LCF bondholders have the benefit of a charge over LCF's assets and LCF in turn has a charge over the assets secured by way of its own lending. In either case it comes down to what the assets are really worth when they need to be sold.

firestone

masonic wrote: »

LCF was not P2P, as LCF acted as a middleman, but that isn't without precedent in P2P (the early days of SavingStream, and pawn loans made under buyback agreement on a couple of different platforms). The key similarity is that the asset backing was equivalent after considering LCF bondholders have the benefit of a charge over LCF's assets and LCF in turn has a charge over the assets secured by way of its own lending. In either case it comes down to what the assets are really worth when they need to be sold.

think from the OP about risk is the view that when comparing to say mini bonds that due to there being no FSCS protection that there is no regulation of P2P in any form.But there is and its rumored to be getting stronger but how much the FCA keep an eye on it maybe another question

masonic

firestone wrote: »

think from the OP about risk is the view that when comparing to say mini bonds that due to there being no FSCS protection that there is no regulation of P2P in any form.But there is and its rumored to be getting stronger but how much the FCA keep an eye on it maybe another question

The "light touch" regulatory regime that has been applied to P2P is worse than the sector being unregulated, because it leads people to believe that there are protections when in practice there are none.

It is worth noting that the financial promotions of mini bonds must be approved by an FCA Authorised firm and the main issuers of mini bonds are FCA Authorised.

I don't share your optimism regarding P2P being better regulated. I see retail investors being limited to investing no more than 10% of their net assets in P2P (as is already the case for unregulated bonds), but not much else.