How many P2P portals to include in your portfolio?

Since there is a significant amount of P2P portals now available compared to a few years ago, the question quickly arises – how many portals should you include in your portfolio? Is it better to focus on just a few portals, or should you attempt to diversify and reduce risk by including a large amount of portals? How does this change when the total sum of your investments gets bigger? Are there downsides to diversifying?

My current P2P portfolio

As time has moved, my P2P portfolio has changed a lot. I started, like many others with 100% Bondora, but have now completely exited it. I also tried Moneyzen, Viventor and Estateguru, which I’ve also not kept in my portfolio. It definitely took me a while to figure out a selection I like, and it’s constantly changing in time. Currently the balance is as follows:

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P2P investments currently make up 47% of my whole investment portfolio. This means, that from my total portfolio the rates are: OR 24%; CE 13%; Twino and Mintos ~5% each. As you can see the exposure to Omaraha is rather big, the exposure to other portals is significantly less.

Liquidity

As with all investments, something to consider is liquidity. With P2P investments liquidity mostly comes from two aspects – firstly the length of the projects/loans (for example Twino’s 1-3 month loans vs Omaraha’s 5 year loans) and secondly the availability of a secondary market (and the speed of trading there).

For me, I’ve decided that for now, liquidity is not a huge priority for me, which means that I’ve allowed my portfolio to move towards longer term locked-in projects. Omaraha does not have a secondary market, and while defaulted loans have a sell-back function, it’s still a rather long term investment. CrowdEstate is also a long-term prospect, since while the projects are generally 1-2 years in length, the portal has a right to extend the projects and there is no secondary market to allow for an exit.

However, a part of my portfolio I’ve still kept rather liquid and this part is carried by Mintos and Twino. With both of these portals, I can easily pull out money from in a matter of days, so if for some reason I need to move money to another investment, or have need for cash, then this portion of my portfolio allows me to do this.

Risk

Now, assessing risk is a tricky thing in the P2P business. While you can look at overall history of the portals, a lot of them are new enough to not have much of a track record. Both Twino and Mintos in theory should be relatively low risk, however since Mintos has at least one loan originator that’s in trouble (and might go bankrupt), it’s clear that things can still go wrong.

The most ‘stable’ part of my P2P portfolio is probably Omaraha, due to the length of experience they have, and the overall stability of the market. However, Omaraha is also prone to all kinds of radical changes (such as the interest cap instated last week), which means that the portal risk itself might influence your long term strategy.

Crowdestate is clearly the most risky part of my P2P portfolio at this point, due to both the type of investments (mostly real estate development projects) and the risk of the real estate market overheating. This means that I will not really allow the volume of investments to increase too much there, I’ve mostly hit the point where I reinvest returned money, and add in less than I used to.

Time expense

With every new P2P portal that you add, there is both an investment of time and money. You need to invest time to figure out how this particular portal works, and how to achieve the best results. Depending on the portal this might require quite a bit of tinkering. For example, Omaraha has been offering great returns, but the time investment in managing interest rates there was also quite a bit of work. In comparison to Mintos or Twino, where you could pretty much just cruise by, using the autobidder function.

Since I invest though my company account, then any new portal also means more bookkeeping, and additional tracking. This means that there isn’t really much point in adding in a portal just to put a couple of hundred of euros into it, it becomes reasonable to add in another portal once the investment is in the thousands already. This means that while I’m currently at 4 portals, it’s not unreasonable to add in a fifth, there just has to be a reason for it – either it offers some different level of liquidity; there is a significantly different risk profile (different sector, country etc.), or an attractive risk-reward ratio.

How have you divided up your investments?

New Latvian and Lithuanian P2P sites

In the recent year, there have been quite a few new P2P sites launching in the Baltics, the majority of them from Latvia and Lithuania, and many of them following the buyback model and Mintos and Twino made popular. However, as it seems investors have quite a bit of money at hand, and getting into loans may not always be super easy, then having the chance to diversify is definitely nice. So, if you’re looking for some new platforms to look into, here are a few that have popped up in recent times.

Swaper (LV), buyback loans, balance sheet lender

SWAPER is the P2P side for Wandoo Finance Finance group, which gives out short term loans in Georgia and Poland, making them a balance sheet lender. The group itself seems to be made up of people who have worked in various other financial sector companies, but have found that P2P buyback is a viable model. Their home page is admittedly very light on information, still.

Viainvest (LV), buyback loans, balance sheet lender

VIAINVEST is a part of VIA SMS group – financial services provider operating across Europe since 2008 and the company currently operates in 5 countries and has grown into one of the leading European short-term lenders. They are a balance sheet lender (listing the loans they themselves have originated). Current total loans the group has originated – 288million euros.

Lenndy (LT), buyback loans, loan marketplace

The Lithuanian P2P portal lists pre-originated loans, making them a close match for Mintos‘ business model. They currently list three partners, but the amount of loans originated remains rather small – I think an issue might be with the regulations of the Lithuanian P2P market, which is very strict?

Bulkestate (LV), real estate crowdfunding

It’s interesting to see real estate portals, but they are of course far more difficult to kick off than loan-based sites. Bulkestate seems to be struggling with attracting people/projects, but it could potentially be a Latvian equivalent to CrowdEstate or Estateguru (but they better move quick before the Estonians manage more projects in Riga!)


 

Overall, it’s nice to see new platforms pop up, but they definitely have it much harder than the ones that came first – they have to prove that they have the knowledge, the volumes and the reliability that investors crave. However, due to higher risk levels, some of these also offer higher return rates, so it’s up to each investor to make up their own mind. I haven’t had a chance to test any of these sites out other than a cursory glance, but I hope that at least some of them do well and help increase P2P volumes in the Baltics.

Average returns in Twino and Mintos

If there is one topic that investors get passionate about, then it’s returns. Looking at the current economic climate, then P2P returns are clearly quite good, but the somewhat downwards trend you can see happening is clearly causing dismay among investors.

Way back when, when I started investing in Bondora, it was completely possible to get 20% returns yearly due to the fact that the market was both new (therefor high risk), and pricing was vague at best (due to lack of precise credit models). However, in the recent few years the industry has clearly evolved to be more mature and less inefficient, bringing to investors loans with buy-back guarantees, which at times might have left beginners the impression that there isn’t much inherent risk left anymore when it comes to investing into P2P (which is clearly not the case).

The two favourites of the recent year or so have clearly been the two Latvian portals – Mintos and Twino, which offered large loan volumes with buy-back guarantees. For a while the interest rates were high enough that many people were a bit confused as to why the rates were that high, and were sure that the rates would be dropping in the near future.

It seems that we are somewhat starting to reach the point where returns will not be as high as they were anymore, and this is of course both good and bad – for investors who enjoy higher risks, the reduced returns are of course bothersome, for more conservative investors the lowered level of risk will of course be more appealing.

Twino

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Twino has already gone through one attempt to reduce the interest rates, which caused significant uproar among investors. They attempted to drop the interest rates to 10%, which caused investors to reduce their investments, which made them increase the rates once more, but they are still not back to the point where they started at (they used to be 12,9% & 14,9%; however now are 10-12% & 13% respectively.)

This means that while it’s still possible to generate >10% returns, then looking at the loan volumes they process the question arises – for how long? Since Twino is closing in on 10 million loans funded per month, then clearly there is enough investor money to go around, meaning when the higher interest loans run out, then the lower interest loans will get funded as well. Once enough get funded regularly, it would be reasonable to expect a drop in the rates.

Interestingly enough, a lot of investors in Twino seems to be super cautious about the longer term loans (24 months), which in my opinion seems a bit unfounded – largely because 1) they are resellable 2) a large amount of them get bought back early, meaning it’s not such a big commitment.

Mintos

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Now, with Mintos, the dynamic for the rates is a bit more complicated since different loan originators balance the interest rates between what they themselves believe to be fair and what the other originators are offering. This so far has caused a sort of a hierarchy to form between the different originators, meaning some loans disappear from the market very quickly (or get marked full by autobidders) while some remain “waiting” on the primary market.

While there have been fluctuations here and there between the interest rates offered, then it’s clear to see that the amount of loans with a buyback guarantee has been slowly but surely decreasing, meaning that investors are forced to do some more in depth analysis to figure out whether or not they should include lower rate buy-back loans or higher rate ordinary loans, which is rather complicated to do due to the lack of public information about the loan books of the originators.

Future of returns

Twino and Mintos do not exist in a vacuum – the amount of investor money available is dependent on the amount of projects listed on alternative sites and the returns offered there. However, if you look at the average returns offered by other portals, then >12% returns will be more and more unlikely as time goes on.

Just looking at the Estonian portals available, then Estateguru historical returns are <11%, for Bondora they have said they wish to hit 10% returns, for Investly the returns are <9%. Higher returns are offered by P2P portals which include more risk or a more complex model (Crowdestate for example inherently has much more risk, Omaraha’s premium for returns makes sense if you consider the fact that they have no proper exit mechanism available and the learning curve is rather steep).

It’s of course difficult to make predictions about the future, and how the markets behave, but I do believe that we are likely to be hitting the downwards slope of returns, which will in the long run bring us closer together to US/UK/Central European returns for P2P portals.

On the one hand this means a bigger faith by investors (investing their money at a lower rate), and a reduced risk rate (due to growth of the whole sector), on the other hand this will signify lower returns, and higher efficiency on the markets, meaning the >20% returns several investors have achieved are likely to be in the past. As someone who does believe that the effort/risk vs returns have been off balance so far, the returns lowering a bit is not an unexpected development.

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

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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.

P2P and investor communications

One of the main reasons why P2P has been able to evolve so quickly is the Internet – you are able to provide access to investments to people with ease, removing all the pesky time consuming elements of real life interaction. Theoretically this should also mean ease of communications – access to information should be unlimited and all investors should be happy. In theory this is the case, in practice investor relations seems to be a rather vexing problem for many P2P sites.

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What do investors want?

You would think that this question is not really that difficult to figure out when it comes to investor relations. The key things most investors want to know – what is happening to their money, are there any changes/risks they should be aware of, and they want live updates for the current situation. However, in the past month there have been many communications disasters, that others should surely learn from. I’ll go through some of them to explain what I mean.

Twino will-they-won’t-they interest debacle

A while back the Latvian P2P site decided to drop their set interest rates from 14,9% & 12,9% to 10%. The announcement was made rather out of the blue and went into works the next day. Not good – people need to know things in advance. Today, however, after two weeks of hassle (suspiciously sudden buy-backs, their IT system currently miscalculating interest / xirr), today they announced that some loans will be back to 12% interest.

Out of all the things that investors do not want, number one is uncertainty. If you make decisions – let investors know (enough time in advance!), and explain thoroughly why you are doing something. Overall, they received the ire of many investors over the recent troubles, and it will leave a mark on their reputation.

Crowdestate server meltdown debacle

As crowdfunding real estate has reached new levels of popularity in Estonia, therefore from previous server issues it might have been reasonable to assume an epic server meltdown was in the cards for them. As it stands, with the newest project they listed the servers died even before the bidding started, which resulted in a full 3-day delay while the IT team managed to fix the issue.

Overall, a server meltdown is excusable, since they probably didn’t assume that such a level of popularity would reached so soon. However, the bigger issue here ended up being the fact that the communications that accompanied the problem lacked severely, and even though many e-mails were sent out (eventually), then once the project was reopened, then it was reopened before the announced time (has happened many times), therefore a large amount of interested investors were left out, which caused further displeasure.

Invest into investor relations

While in the classical sense investors aren’t the site’s clients but the people who take out loans are, then in the long run investors have much more of a say in how any site does. Bad feedback from investors (who, for example, write blog posts), creates a lot of the external feedback that people find when they are looking for information. It’s worth it to invest into investor relations and if sites are unsure about what kind of info investors want, then asking the investors works rather well.

Recently the three sites that probably deserve most praise are 1) Mintos – they send regular press releases, talk on FB (and stopped sending e-mails 5 am after I requested it! ) 2) Investly -they have employed a full time investor relations person, who answers all sorts of obscure questions that bloggers such as myself have (for example info about legal aspects of factoring), 3) Bondora (surprisingly!) – CEO’s personal presence in the FB group, plus increased amount of newsletters and blog posts.