Crowdestate communications disaster

Since a lot has happened with Crowdestate in the past few months and due to Estonians having a serious advantage when it comes to accessing information on issues, then I thought I’d take the time to do a short write up for non-Estonian investors involved in CE projects to get a clue of current issues.

To start – several projects funded by CE have failed. It’s yet to be seen how many have been fraud cases or maliciously badly run, but failing projects in itself is not something to cause too much alarm over (because projects can fail). The issue to raise alarm about is the accompanying PR disaster that has seriously shaken investors’ faith in how well CE manages things.

The beginning

It’s hard to say when exactly things started going a bit wrong but the first big *bang* was the Q-Haus project. Fortunately/unfortunately this case was covered by Estonia’s biggest business newspaper Äripaev. They have a made-up investor (Toomas) who has started to invest into P2P as well. In LHV forums ( a local bank) people were discussing this project – that there is something wrong and the company’s (the Sponsor’s) name had been changed in he business register.

This prompted several investors to (luckily for them) sell. After the name change (CE was unaware of this it seems), a claim for bankruptcy was filed and this info was up on the Äripäev news section *before* any announcements were made on the CE website. This means that investors who either read the LHV forums or the Äripäev news site managed to sell their loan parts before the majority of investors knew anything (and before trading on the CE secondary market was closed).

All other investors who finally got the info through the CE website could no longer do anything. The delay in information being given out was unacceptably long and raised issues on how this info was shared in the LHV forums and CE team knew nothing. By the time the bankruptcy announcement came the business had been cleaned of all assets.

The second issue

Now, this prompted a lot of investors to look deeper into what was going on in their portfolios and this caused a bit of a panic sales push on the secondary market. Another such project which people were talking about on the LHV forums was Baltic Forest. This project has been funded with 10(!!) different rounds and recent updates were not promising. The company was missing payments claiming slight issues while LHV forums once again had discussions of large management issues and likelihood of project failure.

Within not too long official notice was given that the company was indeed in serious trouble and filing for debt management and freezing all payments for at least 6 months. This raised multiple questions on how well CE due diligence works. Turns out that while final rounds were being funded via CE the company’s auditors were already raising alarm bells. At this point info was given that debt management process was started due to failure of securing more working capital from investors, which in all likelihood means anything other than failure is a rather optimistic outlook, especially looking at the total number of millions currently owed.

While all this was happening then Hm Seafood was also struggling for payments and payments were stopped. Info was promised to investors after a meeting and nothing so far.

In the background.

While the business funding issues were piling up, development projects were also piling up problems. Most notably, Tammelehe, for which due diligence issues were once again raised. In the terms for new rounds it was written that the money would be given out provided that previous goals had been achieved. This was brought under question when an investor visited the construction site and took pictures to show an essentially deserted construction site.

Now, the cherry on top of this disaster cake came via Facebook. As in, there is a small group of CE investors who have a FB discussion group and there (and only there!!) Loit (the CEO) wrote, that Tammelehe has been on their radar since spring (!!!) as a potential fraud case. This info was not shared on the website or their blog or newsletter. Investor backlash was rather serious to such a communications blunder an of course this was covered extensively by Äripäev.

Another project that raised red flags was Lepa tee  / Metsa tee. Two projects by the same developer (Kristjan Sild). Before funding the first project with the help of CE, he had gone through personal bankruptcy. As stated in the prospect for the first investment, CE team suggested giving him a chance. Key mistake here was that while the first project was already showing issues they allowed a second separate project to be funded, increasing investors’ exposure to his person. Currently a call has gone out to push for bankruptcy.

In the background Latvian projects are also struggling, more info will probably be out about them soon as well.

To sum up

  • CE had information about things happening and did -not- share this with investors in a timely manner
  • CE had information about things happening and shared this information in a dumb way – through a Facebook group
  • CE missed out on key events happening (company names being changed, board members being changed, assets being moved)
  • CE failed to check whether previous projects / rounds were going well enough to justify allowing further rounds being funded

As a result:

  • investors have justified questions about how due diligence is done at CE
  • investors who did not follow information through other channels (such as LHV forums, Facebook, Äripäev) will end up taking losses that active (or informed) investors managed to avoid
  • serious loss in trust has occurred
  • a very large amount of negative coverage has been given to P2P investments in Estonian media

Mintos 10K earned

Been a while since an update, and everyone likes round numbers right? My Mintos account just hit 10 000 euros interest + late fees + cashback + secondary market earnings, so a nice milepost to hit.

10kmintos

So, overall, how’s it been? Some highs and lows – no more high value cashback campaigns, then there was an interest rate slump for a while, then a huge spike – could get good quality loan originator loans that were listed at 15% and 16%. Now slowly being pushed back to 12%, so still, you have to keep an eye out on what is happening on the market.

Overall, 3,5 years in, cannot complain about returns. Currently Mintos functions somewhat as a liquidity buffer for my portfolio. Any free money currently not invested sits there, for a while it ballooned to about 50K, currently at 35K and as I have an equity investment coming up, it will drop to about 25K for a while.

More and more originators are joining, but I don’t see all that much reason to diversify that much more. I have 4 somewhat local originators represented which are big and have a solid track record, so I have faith in them not failing. With some loan originators having left from the platform and some issues with Polish originators it seems, there is really no need to go hunting for maybe slightly higher returns with much higher risk. A few more originators I’m willing to invest into, but they haven’t added loans at rates I’d be interested in at the moment. For a while I had about 8 originators represented.

Only downside currently – for a while there was an interest war, where you could pretty much just set an autobidder and sleep, then now the auto invest is somewhat broken due to, what seems to be, overload from the Invest & Access product, so have to spend time manually checking the market for loans every now and then.

Honestly a bit surprised though that the 12%+ interest rates are still going, I would have expected them to drop some more, since Mintos’s history is getting longer and the volumes keep getting bigger, but communication issues are still a thing (the AML issues some users had, somewhat too little detail on the Aforti case,) and since the addition speed of originators seems to be exceeding the amount of money investors can invest, then seems like there will still be good returns to be had.

Mintos update

It’s been a while since I’ve done an update, been a super busy year, but since people occasionally ask – a small update on mu Mintos portfolio.

As for a while I had some cash that I pulled out from other investments, for most of last year I kept my Mintos loan volume rather high, at the end of the year I had a total of 40 000 eurot invested, which produced a solid 400 euros/month of loan interest.

While the summer of 2018 was rather sad in the sense that after mogo buybacks there was a marked loan interest rate drop (many good loan originators dropped down to 10-11%), then I mostly picked short term loans to reinvest the money that was returning from loans, to keep my options open for when I hoped the interest rates would start to climb again.

As it turned out, once autumn hit, loan originators needed more capital again, so both mogo and creditstar started to list 12% loans, I also picked up some 12% banknote loans and a few other originators’ loans.

At the start of the year I needed to move some money to another investment opportunity, so I reduced my outstanding loan volume in Mintos to 25K. It took about 3 days to sell enough loans on the secondary market to cash out 15K, I was pretty impressed with the speed (but I also had good loans to sell, 12% Estonian car loans and other 12% loans from reputable originators.

Currently planning to keep the 25K growing in Mintos, strategy is to still pick up loans from bigger originators, there seems to be enough loan volume for that to not be an issue and expecting a steady 250 euros of interest per month to continue. So, all is boring on the Mintos front :)

Mintos interest rates drop

Funnily enough, the drama of interest rates dropping has happened many many times. For example with Twino this was an issue multiple times – they dropped interest rates and investors walked, then they increased the rates again but didn’t increase it to previous levels, so after a bit of turbulence, the rates ended up being slightly lower, the business was happy that the price of money supply was lower and the investors felt like their complaints were listened to (were they?)

With Mintos, we’re currently going through the interest drop turbulence again (second if not third time? maybe even fourth?). Once again though there is a big amount of investors who are surprised at *how* on earth the interest rates can be dropped, and threatening to walk.

Of course some investors will walk (if they have better options to invest), a very large amount will however be willing to invest at lower rates (as you can see from current statistics that is the case with Mintos).

The answer to the question of how the rates can be dropped is easy – supply and demand – there is a lot of money and not that many loans, meaning even lower rate loans get picked up.

This means that even if the money supply dries up a bit and originators increase the interest rates a bit, then they’ll likely never be as high as they used to be before.

Those who have been investing with Mintos for a while remember that at the start it was easy to have *only* 14% loans in your portfolio, the move to 12% loans has been gradual, and 11% loans have been tested for a while now (in mogo’s case).

Currently the primary market is at about 10-11% (and secondary market is cleared of 12%+ loans) and while the loans are moving slowly, then they are moving – the mogo buybacks have left investors with a lot of cash and the refer-a-friend campaign combined with the activate-automatic-strategy cashback campaign seem to be helping the cash flow.

So as is, investors have three options:

  1. Transfer money out and invest somewhere else (where?)
  2. Yield and invest the money into lower rate loans (to prevent cash drag)
  3. Wait and hope the interest rates bounce back (which they definitely might)

I’m currently a mix of 2-3. I am reinvesting some of the money, mostly picking up discount loans on the secondary market, and some 11,5-12% loans if I seem them on the primary market. I have been lucky though and not had that many mogo loans bought back so far, so I might have enough money locked in until the interest rates bounce back (I might have just jinxed myself and be hit with the next round of buybacks).

All in all – not much new, interest rates get tested all the time in P2P investing, been a while since it has happened on Mintos though but this is something that’s been talked about a long time – there is a serious push for interest rates to be lower (money supply from investors, longer histories for originators), and every now and then something like this is to be expected.

Crowdestate exit

No, nothing is wrong with Crowdestate, the reason why I’m exiting (for now) is that I need to cash out some part of my portfolio for expenses related to my new home. Currently I need to cash out the second 10% for the down payment + something in the range of 20-25K for the kitchen + other furniture. This means that I had to take a long hard look at what is in my portfolio.

The first 10% for the down payment came from the sales of my 12m2 rental apartment – the price was good, I didn’t enjoy dealing with it and I got a very good exit point with good returns. Then I’ve had a year to earn money (the more money I earned, the less I had to take out from my portfolio), but being home with a small baby there’s only so much you can work.

This brought me to having to look over my P2P portfolio. The stocks I own I do not want to touch – even though there are some positions that I could sell with significant profit, then stocks are not a very high part of my portfolio and I’d prefer to reduce my P2P exposure.

Long story short, my top 3 positions are Mintos, Omaraha and Crowdestate. Out of those three Mintos is most flexible so exiting that was not reasonable (if I need more cash suddenly it’s easiest to get it from there). Omaraha I’m exiting naturally since the interest rates are just that low, so you cannot give out loans that would satisfy my expectation. This leaves Crowdestate, which is most open to market risk (in my opinion), and locking in the returns there seemed reasonable.

So for the last three days I’ve been playing around with selling my portfolio on the secondary market. I must say, it’s actually been… surprisingly easy? I was prepared to have some projects that maybe wouldn’t sell all that well or having to wait much longer for sales to happen, but it was surprisingly quick.

I also didn’t get greedy with the pricing – I did have a price offer that gave the person buying the piece a close-to-expected return of the project, and I locked in slightly-above what was expected on almost all the projects. This is reasonable in the sense that as most projects I own have run for a while, there’s enough info to see whether the risk of failure has increased or decreased as time’s gone on.

Currently I only have a handful of projects left, most of them ending very soon, so it was reasonable to wait them out. My new home should be ready in October, and then my finances can balance out again and I’ll be able to see what and how I’ll add back from CE. Overall, I was pleasantly surprised at the ease of exit (the majority of the pieces were bought by bots though, only a few by hand, so keep that in mind when pricing things).