What percentage of your portfolio is P2P?

Discussion in 'Investments' started by Daniel, Jan 5, 2017.

  1. Daniel

    Daniel Registered User

    Posts:
    40
    The title says it all really. I'd be interested to here how may people have taken the plunge with P2P lending and what percentage of your portfolio (if any) it represents? Are you planning on increasing, maintaining or decreasing this percentage this year?

    I have 25% of my portfolio in P2P spread across LinkedFinance (~7.5%), Bondora (~2.5%), Twino (~7.5%) and Mintos (~7.5%). I think I'm probably overexposed to platforms based in Latvia (both Twino and Mintos are based there).

    LinkedFinance is generating approx. 7% gross annual return and the others are generating between 10% - 15% gross (according to the dashboards which I know you need to take with a pinch of salt and real returns will probably lower).

    I'll have to realign my portfolio soon and move money from a regular savings account. I'm trying to decide whether to maintain the 25% or increase it (I don't think I'll decrease it). I do appreciate that P2P is relatively high risk due to the immature nature of it and any additional P2P investments I make will go to other platforms outside Eastern Europe to aid diversification.
     
  2. rob oyle

    rob oyle Frequent Poster

    Posts:
    425
    Last edited: Jan 5, 2017
    I put 1% of my savings into Linked Finance in order to avail of a tiered benefit (company discount from a company that I was already a customer of) which I've utilised, while also receiving repayments each month. This has been reinvested in smaller amounts with other companies as the funds have come back to me.
    This is a sum of money that wouldn't materially impact me if it disappeared tomorrow but I wouldn't be comfortable putting a significant sum into P2P.
     
    Last edited: Jan 5, 2017
  3. Daniel

    Daniel Registered User

    Posts:
    40
    Thanks for the reply Rob. That's interesting to hear, how would you rate your appetite to risk?
     
  4. rob oyle

    rob oyle Frequent Poster

    Posts:
    425
    Fairly high Daniel... I have 80%+ of my savings in equities, the balance gets washed through the highest regular saver accounts available.
     
  5. Rory T Gillen

    Rory T Gillen Registered User

    Posts:
    36
    Unless I knew who was doing the credit checks when lending on the money to companies, I'd would not put a penny on such platforms. For example, how do you know what margin you should receive if you don't know the risk within the company that is getting yours and others' monies through such a platform. Should the margin be 1%, 3% or 5%? If you or the platform can answer that question fair enough! If not, avoid like the plague.

    5% is easy to get in non-investment grade corporate bond funds listed on stock markets. Yes, they carry above average risk - i.e. when compared to government bonds or investment grade corporate bonds, but a 5% margin pays you for this risk. And non-investment grade corporate bonds are heavily vetted by professional credit analysts before they can raise monies by issuing a bond.
     
  6. Marc

    Marc Frequent Poster

    Posts:
    789
  7. Palerider

    Palerider Frequent Poster

    Posts:
    785
    Zero, I can tolerate moderate risk but this would not be for me unless I knew the operator and business well, 'twas too hard come by to take on this level of risk.
     
  8. losttheplot

    losttheplot Frequent Poster

    Posts:
    226
    On Linked Finance, up until recently you bid for the loan and you got to choose an interest rate (up to 15%), there was some financial statements you could review for the business and base your bid on that. It has changed recently and Linked Finance decide on the interest rate based on their credit rating (how they rate the business isn't very transparent). Most bids are handled by an auto bid function and some loans have been filled in seconds - meaning you have no chance to review any info on the business. Essentially, if you use autobid, you are lending blindly. If you don't you'll never get to lend.

    I had small amounts in Linked but am winding it down. I also have small amounts in Twino and Mintos (only loans with Buy Back guarantees). Not large enough amounts to trouble me if they disappeared.
     
  9. Daniel

    Daniel Registered User

    Posts:
    40
    That's a fair point, I / we do not know who is doing the credit checks for borrowers. The only indication of risk that is know is the platform's own credit rating system and given we do not know the logic and process behind this, it is of little true indication of risk. 5% can be achieved through corporate bonds as you have pointed out and equities relatively easy so in my opinion P2P needs to be providing a significant premium on this to warrant the risk and as some of you have stated, this premium still doesn't justify the increased risk.

    Yes P2P is what I would consider high-risk to very high-risk.

    The initial batch of investments I made on LinkedFinance was when you could still bid for the interest rate and I got an average rate of 14% across all my loans (which equates to around 6.6% annually over 3 years). I was very disappointed when they moved to a fixed rate system. I got a few 15%'ers in my last batch of investments but most were at 11.2%. Similar to yourself I will now be winding down my LinkedFinance investments as I feel the return doesn't justify the risk. I have a feeling that many people who invest on LinkedFinace don't understand the interest rates and think that an 11.2% interest rate is the same as them receiving 11.2% annually on their investment. I guess it still beats deposit rates and this platform may suit people who don't want to get involved in equities, plus they can have the added 'supporting Irish businesses' factor.

    I also stick to loans with Buy Back guarantees but again this should be taken with a pinch of salt, but I guess it does provide some level of fallback.

    Thanks for the comments, I think I will have to re-evaluate my P2P investments and aim for a 15%+ gross return to justify the risk and I will consider reducing the overall percentage of my portfolio that it represents.
     
  10. Rory T Gillen

    Rory T Gillen Registered User

    Posts:
    36
    Last edited: Jan 11, 2017
    These platforms, be they lending or private equity peer-to-peer platforms, will come of age at some time in the future, no doubt, but they'd don't appear to be there yet. I suspect what is required is for a platform to get a professional investor/credit analyst to vet the project and to commit real cash. The pro should be able to 'price' the deal. In peer-to-peer lending that would be to decide on the appropriate 'margin'. In peer-to-peer private equity it would be to decide on an appropriate valuation for the company raising the equity capital. Once the pro has committed the platform could open it up to others. The pro would probably need to be offered a preferential deal for having vetted the project, and everyone else gets in at a different price. Something along these lines as a business model makes sense. I'm not aware of such a business model yet. I'd forget about raising your margin target (to, say, 15%), all you'll be doing is picking up the crap without any greater insight into the risks!
     
    Last edited: Jan 11, 2017
  11. Jim2007

    Jim2007 Frequent Poster

    Posts:
    1,795
    You are not an investor, you are a sub-prime lender, you have all the traits but one - no one to bail you out when it goes wrong:
    - You are dealing with people who could not obtain financing through normal channels
    - You are dealing with start up businesses where about 80% will fail in any case
    - You are dealing through people who's objective is to promote their platform
    - You have no control over the credit policy
    - you have no ability to enforce collection
    You'd probably make the same or more were you to get involved with junk bonds with less risk.

    Of course it's your money and if you can stand to see a large part of your wealth wiped out, good for you. But most people can't so I'd expect most answers to be zero to one percent.
     
  12. MrEarl

    MrEarl Frequent Poster

    Posts:
    1,120
    Hi Folks,

    Is anyone here clear on the arrangements between Linked Finance and Eiffel ?

    This article suggests that Eiffel will fund up to 20% of each loan advertised on Linked Finance.

    Assuming the article is accurate, I would imagine that the funding level ratchets up and down, based on pre-agreed criteria set by Eiffel. While I would never expect to know the criteria, I do find myself wondering if it's based on the same "credit rating" that Linked Finance are now publishing beside every loan they seek to fund ? Obviously, it would also be interesting to know if they are getting the same rates as we are all being offered, on each loan :)

    I've previously tried to get a straight answer out of Linked Finance regarding how their credit rating is calculated etc. but have never been able to obtain a clear and precise answer. Obviously, in the absence of same you can't have full faith in their rating system unfortunitely.
     
  13. Fire away

    Fire away New Member

    Posts:
    9
    See marshall wace are gone big into p2p lending. Couple of billion investments in these platforms