Bondora private portfolio exit status

One of the changes that happened in my P2P portfolio this summer was exiting my private portfolio in Bondora. I know that I planned to postpone this due to tax reasons, but the portfolio was not really shrinking quickly enough from just normal paybacks, so I decided to pull the plug and sell off my current loans, and some of the defaulted loans which seemed unlikely to ever start making payments.

Before I get into the numbers of how it went, I’ll make one thing clear – my exit is far from ideal since Bondora is a long term investment, and exiting at the 3 year mark from a portfolio that was still in heavy growth phase is clearly not ideal. I haven’t completely stopped investing into Bondora, I did build up a small portfolio for my business account, so I still have some faith in them, but it was more reasonable to exit my private portfolio since the tax obligation would have been ridiculously big otherwise.

Selling off loans – how did it go?

I was lucky in the sense that I had a lot of very interesting oldschool loans from way back when, when the rating system was flaky at best, therefore I got to sell a significant amount of loans at a reasonable premium. However, overall, I’d say that currently selling loans is not a particularly easy task if you wish to do so at a premium. For most loans the premium ended up being in the 3% range, which is clearly less than was once expected from secondary market liquidity. I did sell off some 60+ defaulted loans as well, which I felt were completely hopeless (and had been marked as write-offs), but that obviously hit the portfolio value hard, and it’s difficult to predict whether any recovery would have happened.

Totals & XIRR

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As it stands, at this point I’ve transferred out 5,6K euros out of the originally added 5k euros, which means I’ve at least gotten my money back. Here is where it gets complicated though – the majority of the theoretical future returns are stuck underneath defaulted loans, that are showing very slow recovery. At best the loans pay a few cents monthly, and even the ones that are paying aren’t really impressing me due to the DCA costs currently linked to recovery.

I recalculated my pre-tax XIRR this morning and it’s clearly nothing too impressive. While recovery will end up pulling up the total returns number, then I am less than optimistic when it comes to reaching two-figure returns. The assumptions I’m using for the XIRR calculation are – -30% discount for delayed loans, 10% yearly recovery for defaulted loans. Unless magic starts happening then Bondora will end up being a learning lesson with little economic upside.

While I will keep Bondora in my business portfolio, I am not adding in more money at the moment, since other P2P portals are offering much better risk adjusted returns with significantly less hassle. If this return were with no time spent on managing my portfolio I’d be OK with it, but expecting to land at somewhere in the 8%-range is too low for the active involvement required now (even discounting the fact that I really did exit at a rather bad time, giving well-performing loans little time to compensate for losses from defaults.) Here’s to hoping the recovery is impressive in the long term!

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Omaraha portfolio, 6 months

Omaraha is a small Estonian P2P lending site, that I added to my company P2P portfolio. Out of all the other portals in my portfolio at the moment, this is the least international and smallest in terms of volume – they focus heavily on Estonian loans and do not have aggressive expansion plans, making it difficult to create a truly large portfolio there. However, they have been a nice addition to my portfolio and I think I’ve gotten into the groove of how things work there in the last 6 months.

Investment logic

By far, Omaraha has the most complicated auto-bidding system of any P2P site that I have used. The borrowers get assigned a credit group between 600-1000 and you can assign individual interest rates to all credit groups if you wish to do so. However, when assigning the interest rates you must take into account that Omaraha has a different profit model than other sites – they take 20% of the interest earned from the loans for themselves, so if you assign a 25% total interest rate, then only 20% is your part of it.

To make it even more complicated, they have two additional quirks added to their bidding system. Firstly there is something called a bonus, which essentially is you voluntarily giving away a bit more of your interest earned into the buyback fund with the purpose of getting ahead in the auto-bidder waiting queue. This means that you can either accept a lower interest rate or set up a higher interest rate, but agree to give a percentage of that away.

The much more problematic part of auto-bidding is the fact that Omaraha functions as a black box when it comes to giving out any information about what the interest rate averages are when it comes to different loan groups. This means that you’re taking a stab in the dark when trying to guess what to set the interest rates at.

Firstly, this means that you need to find someone who has invested there for a while to get some reasonable info about interest rates or you just set up your bidders and then come down one percentage point at a time to see at which point the money starts going out. As there is different amounts of borrower demand throughout the month, then the interest rates may float throughout the month as well by a couple of percentage points.

This means that maximising profits is rather difficult unless you wish to spend a large amount of time trying to fine tune your interest rates. I’ve made peace with not being able to squeeze more out of the system, though I know it is possible from several investors who have told me that they spend more time tinkering with the numbers.

Usability logic

There are two key things you must keep in mind if you want to invest in Omaraha. Due to them being so small and not wanting to develop the portal too much, there is no secondary market. This means that you are unable to make a quick exit through selling your investments. From what has been said from the forums, an exit can be done with you taking out a low interest loan to get your money out, but this still carries interest, meaning you will be taking a loss if you want to exit early. Therefore you should consider this one of the longest term investments in an average P2P portfolio.

Something that makes the investment length a bit shorter is the fact that Omaraha uses a buyback system. Their system works as a partial principal buyback, meaning if a loan defaults then they buy it back at 80% remaining principal value. It’s definitely not as generous as Twino or Mintos with their 100% principal buybacks, but Omaraha also offers a higher interest rate which compensates for that.

The issue for those who invest into P2P via their company, is the lack of proper reports. The screenshot you see below is literally the only reasonable report you can get from the site when it comes to your investments. As for myself, I take a screenshot of the investment status every month, and this is what my accountant uses as the base document for bookkeeping. Not ideal by far, but not seeing any changes there in the future.

Overall, I’d say I like their system, they offer competitive interest rates and the ability to invest into Estonian loans only. There is also a large amount of tinkering you can do, however I feel at this point it’s reasonable to just try to keep the investments going steadily instead of fine tuning it and wasting too much time. The lack of exit options is problematic, but this is also why I am limiting the portion of my investments that I put into Omaraha.

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Twino and Mintos portfolios, 6m

The great Latvian face-off! How has it been going? Time to take a look.statustwino

Twino

So, when it comes to Twino the original plan was to have short term loans only to balance out the fact that most other of my investments are long term (such as Bondora and Omaraha). At start it was working well, but Twino has been playing around with interest rates quite a bit, so I’ve adjusted my plan a bit and ended up investing into longer term loans (since they offer 13% interest at the moment) and keeping only a part of the portfolio in very short term loans.

The interest difference of course isn’t that much, but realistically the likelihood that I would have to take out all of the money quickly enough for it to matter is small enough to be probably quite irrelevant. If I just need to cash out quickly then there is a somewhat functioning secondary market, and I’m keeping enough money in cash to not really be worried about the slightly reduced liquidity. Overall, I think they’ve managed to find a place in the Baltic P2P market and will prove to do well in long term too.

Mintos

statusmintosNow, when it comes to Mintos, then I buried my plan of investing only into short term loans way before I did with Twino. I do have two autobidders running, one of them catching shorter term loans, but with mogo offering 13,5% with buyback as well, there isn’t really too much of a reason to diversify that much across different loan providers (especially considering the fact that I have investments in other portals as well). So if I look at the balance of my portfolio right now, then about 75% of the loans are mogo car loans with long deadlines.

When it comes to the volume, neither Twino or Mintos have had issues. Whenever I add more money, it gets invested in minutes, and I can see why a lot of people who start on either of these sites don’t really feel the need to diversify across too many more portals. Overall if I look at the 5 core portals in my P2P portfolio, then by portfolio value the division would be Bondora > Crowdestate > Omaraha > Mintos > Twino. A couple of months ago the first three were trailing ahead quite a lot, but I’m letting the last two catch up since I think they’ve both proven their value in both the volumes provided, with transparent data & expansion plans and just overall great communication. To sum up, I’d say that they have both been worthy additions to my P2P portfolio.

Panel: Risks and opportunities in P2P lending

Monday there was a pretty cool panel about the risks and opportunities in P2P lending. The panel members were the CEO’s of Bondora, Mintos, Moneyzen and Twino and myself. The panel was held in English and I think we got a pretty good discussion going about what is happening in P2P.

You can now see the panel on Youtube as well, so take a look! (Discussion starts about 5 minutes in.)

Social lending portfolio (April, 2016)

April is by far one of the busiest months of the year for me work-wise, which explains why I have somewhat fallen off the planet (or, well, blog, in this case). Investment radio(EST) also turned 1 year old and I’ve been trying to write a bit more in Estonian at Kristiinvesteerib(EST) so it’s actually been a very busy month! I’ve also weighed the pros and cons of participating in the LHV IPO, so times have been interesting!

I haven’t had much time to deal with my P2P portfolios but things are slowly moving, so I’m hoping that now that I’ve somewhat finished reorganising parts of my portfolio and made some tentative decisions about how to balance investments between  different portals things will smooth out a bit. There will also be P2P investment panel(ENG) later this month with representatives from Bondora, Twino, Mintos, Moneyzen & myself, so I hope that creates a lot of value for people interested in P2P investments.

Bondora personal portfolio

maybondorapersonal

Despite the fact that I’ve started to transfer money out of my personal portfolio April almost ended up being a record month in terms of interest due to the insane amounts of recovery. The total principal + interest recovered ended up being 55€, which is even more amazing considering the fact that I’ve already started to sell off defaulted loans, reducing the part of my portfolio that is 60+. However, selling things off is going somewhat slowly, I’ve transferred out about 1,2K euros, which is about 25% of the money I’ve invested. I hope to reach about 3K by mid-summer. This money is going straight into index funds at the moment.

Bondora business portfolio

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The business portfolio is slowly growing. And by slowly I mean at a glacial pace since the core of the portfolio – 75% to be exact – is in Estonian AA, A & B loans. Since the core of the portfolio is now set (200+ loan pieces), I will slowly start to spread out my investments over other, more risky groups as well to increase the returns a bit. I will probably aim for something like 25% of my portfolio in higher risk loans.

Omaraha portfolio

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This month the first few loans at Omaraha defaulted for me, which meant accepting a 6€ loss (already discounted from the interest). I expect a bit of a bump in defaults at the start since I invested a bit of a bigger lump sum in December but overall it seems like the discipline for 900+ lenders is rather good.

The biggest issue, I would say, is the falling interest rates – in December 900+ loans went out at 33% easy, now it seems like 28% is the limit. There is definitely more investor money and since Omaraha has limited volumes then it’s still not entirely viable for very large portfolios.

Mintos, Twino, Viventor

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Just to give you something to puzzle over – I don’t really have all that much more funds invested in Twino than I have at Mintos 😉 . I tested turning off the autobidder for Viventor and listed all my loans for sale to see if there is any secondary market movement there and it seems like the answer is – no. Which raises a bit of an issue, I’m not sure I want to add more money there if I can’t exit quickly when necessary. However, they seem to be growing at a rather fast pace, so I hope they do well. Other Latvians weren’t much of a surprise – leaving out the fact that both Twino’s and Mintos’s interest rates for some loans seem to have gone up a bit, which is always nice.

Crowdestate, Estateguru, Moneyzen

Crowdestate seems to be getting to the “full circle” part of the investment wheel – the latest project I added money into, I didn’t need to transfer in additional funds but could use the returned money from a previous project.

Still not adding money to Estateguru. but nice to see that they’ve hit record volumes. Now, if only that secondary market appeared so that I could exit as a private person. Moneyzen sadly still doesn’t have a license to give out additional loans, so there’s that.