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

aprilbondorabusinessearned

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.

Social lending portfolio (March, 2016)

Honestly, so many things were happening in P2P in Estonia in March that it was difficult to keep track of everything. Overall, big numbers, some chaos and interesting future perspectives would probably describe the month. Overall, I just got back from London and it was an experience in how far behind we are when it comes to investing being mainstream – you can hardly look anywhere in central London (or on the metro) and not see some sort of advertising for investing. Things are hopefully changing here as well, though.

Bondora personal portfolio

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I’ve started the process of wrapping up my private portfolio, which can be seen from the dip in interest earned (below 100€ for the first time in 6 months). What this means is that I am selling off defaults and old mispriced loans, that I want to get rid of. Current plan is to sell off the not-so-great parts of my portfolio within this year, and then do a sale for the better loans next January (so the tax obligation would arrive mid-2018).

Overall I think it’s a reasonable plan because 1) secondary market is so slow at the moment that I don’t want to dedicate too much of my time to selling things 2) selling good EST loans at a premium won’t be an issue, so I might as well let them pay as they are, and then sell the ones that are too far from deadline once I actively pull out. I’ve transferred out 1K of money, which is going into stocks since it’s money invested as a private person.

Bondora business portfolio

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For my business portfolio, I am a bit torn. Bondora is not the highest returning part of my P2P portfolio (Omaraha is), however Omaraha is unable to offer enough volume and lacks a secondary market. So it seems that Bondora will have to remain the biggest part of my portfolio at this point. There was a slight dip in interest returns since last month a lot of the loans started with frontloaded interest payments, it should stabilize out and start climbing now.

Omaraha portfolio

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As time goes on, I have to admit, I am liking Omaraha more and more. It is clearly currently top when it comes to returns, since I haven’t had any defaults yet. However, they recently announced that all new defaults will have a buyback at 80% of principal value, which means that the potential loss isn’t immense – especially since most of my loans (90%) are 900+ (the highest) credit group. Looking rather stable, and aiming to get to 100/month in interest earned by some time in autumn. Will see, depending on how I manage the different proportions – adding money to Omaraha is heavily dependent on their volume of loans. I mostly just add money when what I have on the account has run out.

Mintos, Twino, Viventor

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I’ve essentially given up with my idea that Mintos could offer reasonable short-length loans and slightly replayed the proportions between Twino and Mintos. Of course, Twino has been slightly confusing this month, the biggest problem being that the autobidder is slightly broken at the moment. Viventor finally managed to get theirs working though, so there must be balance in the universe 😉

Currently Twino/Mintos stand equal in my portfolio (just added the money into Mintos later, which is why the interest returns lag). For Viventor, they seem to be doing OK, so I will probably add in a couple of hundred extra there just for their 1-month length loans. Mintos’s offers of 13% consumer loans and 13,5% car loans means that even though I’m not a fan of the loan lengths there, it does slightly pull ahead in the race of the Latvian platforms at the moment.

Crowdestate

I have this dream, that one day CrowdEstate’s IT system will work as intended. At this point it seems like they are still suffering from issues when a new project releases, which made this project fun – since I was in London I had to find a Starbucks for wifi and then suffer through the horror of using their website on my mobile phone. I really want them to do well, but issues like this take away a lot of goodwill that investors would otherwise have.

Estateguru, Moneyzen & Investly

Estateguru is impressing with volumes, however as stated before, not adding any money currently since my portfolio there is private (no word of a secondary market for a long time now).

Moneyzen did not manage to get the new regulatory license on time, which means that no new loans are being given out. Which makes me reasonably happy that I ‘only’ have 500€ there, but it’s not being reinvested, so not good overall.

Investly seems to have gotten their pipeline for factoring (invoice selling)  going, there seems to be a reasonable amount of invoices listed, which is making me consider actually finalizing my registration and testing them out.

Social lending portfolio (February, 2016)

February passed so quickly that I didn’t really even have time to do much. However, despite the shortness, it was a nice growth month, with several interesting things happening on many P2P portals.

Bondora personal portfolio

Interestingly enough Bondora was by far the biggest surprise this month – after such a long time of investors complaining about all the things, they seem to have taken the investors’ wishlist and just started crossing off all the things that have piled up in the past few years. New cash flow & dashboard components allow for some interesting modelling options for your portfolio’s future. I haven’t had too much time to play around with it, but I must admit I like what I’m seeing!

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Interest returns are now slowly starting to drop (to 108€) due to the fact that I’m slowly starting my exit. I’ve transferred out my first 450€ (which is being sent to work on the stock market). I’ve also started to slowly sell parts of my portfolio that will be selling at a loss – I don’t have to take into account any taxation issues on those, and at this moment selling large amounts of loans on the secondary market is definitely not comfortable. However, I’ve started to scan through my loans and started selling off defaulted loans that haven’t really started to recover and loans that are suffer from pricing issues (old HR loans with 20%-ish interest rates). It takes some playing around with discount rates, but I’m happy with how it’s going so far. The loans I’ll sell with a premium I’ll start selling Jan 2017 – meaning the tax obligation hits summer 2018.

Bondora business portfolio

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The business portfolio is growing as planned. I’ll hit 200 loan pieces soon and then I’ll likely increase the bid size a bit. Overall absolutely no issues with money going out (I’m not using too strict criteria – just country & credit group limited). I must say I am pleased with the pricing changes since it’s clear to see when comparing my two portfolios that loans that are priced with the rating follow expectations reasonably well – AA, A, B loans are showing very good payment discipline, I hope the likelihood of defaults is also correctly determined, as my portfolio grows I’m becoming more of a fan of slow and steady.

Omaraha portfolio

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Omaraha is doing slow and steady, most important news is that there was an announcement that they’ve received the permit needed to keep functioning from the Estonian Financial Authority. Still, Omaraha has some downsides – at this point I haven’t had any loans go out for 8 days (usually the rate is about 1 loan/day). I’m wondering if it’ll start moving or I’ll have to play around with the interest rates. I like their no-hassle system but lack of a secondary market is making me balance investments between different portals, and not letting Omaraha move too far ahead.

Mintos, Twino, Viventor

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Interestingly enough the Latvian buyback triplets caused most hassle for me this month. Mintos could still use some usability upgrades, and it’s become clear that short-term investing there isn’t viable due to a lack of short term loans. However, my hopes for Twino becoming a major player in my portfolio were dashed with their brutal interest cut and some recent communication blunders. I did start investing in Viventor as well, but that’s mostly play-money at this point as they build up their reliability.

Definitely interesting choices to be made here in the near future – if the Latvians had managed to keep going as well as they were for the next few months, I think they would have wormed their ways into investors’ hearts even more, but as it stands, making decisions to divide my P2P portfolio is becoming difficult with all sites having some downsides.

Crowdestate portfolio

I contributed a small amount in the most recent CE project. A new one is opening for this months, I’m interested to see what it is. As it stands, the first round of investments that I’ve contributed in are starting to finish up, so I hope that the reinvestment snowball will start rolling at some point.

Estateguru & Moneyzen portfolios

Did not add any new money to either. Would probably exit if possible (at the very least to switch to business portfolios), but both stil lack a secondary market. At least my investments in MZ are small enough to get reinvested rather regularly. With Estateguru I’m just stacking up money to probably transfer it out at some point.

Buyback for P2P loans, how does it work?

When choosing a P2P platform to invest into, buyback has become a significant vote in favour of some sites. Others, however, are a bit suspicious and wonder how guaranteed return makes economic sense. This is a topic that I get a fair bit of questions about, and I was in the camp of those wondering where the catch was at start as well. However, this is the reason you do background checks – to figure out how the economic model of certain sites works and whether or not it makes sense.

Different options of buyback

Currently I invest on three different P2P sites that offer a buyback option. The Latvian sites Twino and Mintos offer a buyback campaign that purchases back delinquent loans. For Mintos the deadline is 60 days, for Twino the deadline is 30 days delinquent. (This seems to be a bit earlier at times, since I’ve been seen buybacks from both sites already.) The Estonian site Omaraha also offers a kind of a buyback – for them it’s a principal buyback in the value of ~60% of the remaining principal. Both Twino and Mintos however also pay out the interest you have earned. So, in theory for both of those sites it’s as near to guaranteed return as it can get in P2P, how does it make financial sense?

How do the numbers work?

The biggest question that you should be asking when it comes to buyback is this – how does the business still make a profit? This is the key issue – they have to be making profit off the loans otherwise the buyback would not be sustainable in case of an economic downturn. This means that despite the fact that some of the profits earned off loans are paid out to investors, the business still earns some.buyback For both the Latvian sites the % you earn is in the ranges of 12-15% return on a yearly basis. This means that clearly the actual loan rate for the people taking out the loans has to be significantly higher to justify such a payout model. For Twino the loans are payday loans, meaning the interest rates are likely to reach up to 100%, for Mintos some of the loans are for example car loans, that are likely to go up to 30% per year. In addition to the overhead interest any and all penalties, extra interest and fees are also placed on top of the interest that you earn as an investor. This means that buyback is viable only for loans that have a high enough margin for the loan originators to cover (un)expected losses and wait for recovery to happen on defaulted loans. For Omaraha the interest rates on certain groups aren’t too high, which explains the buyback being partial – allowing a return of only a part of the principal. Bondora for example is against buyback on principal, but theoretically it could be implemented with good data workings provided they were interested in doing even more of the recovery (which they are not at this point in seems). Another important note here is the length of the loan – for Twino getting investors involved would be near impossible without buyback due to the short term of the loans, since waiting for recovery would be disproportionately long compared to the loan terms on the site.

Risks associated with buyback

In the world of consumer credit it’s common for companies to finance themselves using investors’ money. This is how most SMS-loan type businesses work – they release bonds at about 10-12% rates that finance their loan origination. Compared to the buyback process (and financing loans through the marketplace with investors’ money) releasing bonds is actually rather expensive – take into account all the fees for lawyers, documentation etc. Plus, financing the loans through a marketplace allows the businesses only use as much of the supply as they need, meaning they don’t pay out interest on money that’s still not used, actually probably making offering the buyback cheaper than other methods of financing their loan portfolio.

However, this does not eliminate risks completely. Firstly, in case of the loan originator going under you’re still in trouble. Secondly, even with the best laid plans, issues might happen – for example in case of a crisis buyback may be (temporarily) cancelled. Thirdly, this is an untested way of financing – issues may occur that none of us have been able to predict.

This means that you should still firstly diversify between different loan originators, still diversify between loans themselves and diversify across different investments and take a critical look at the background of the originators to see if their financial models work out. However, this might just be something that will take more ground in the world of P2P – reducing risks is one thing that might motivate more risk averse investors to try out P2P investments.

Social lending portfolio (January, 2016)

This month has been fun in social lending. I’ve been discovering new portals, rearranging investments to switch things to my business account and overall making plans for this year.

Bondora personal portfolio

I’m starting to take money out of my personal portfolio as of this month. Currently I’ve set it to invest into Estonian AA & A loans, seems like getting about 10 of those a month is a solid enough strategy. I’m hoping to take out all the money invested within the next two years and then make a full exit within the third. Despite that, January was a record month since the lack of reinvesting isn’t felt yet.

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Total interest earned climbed a bit over 110€, next month should probably be a bit smaller in terms of the total amount yet. This month brought about many changes at Bondora, a lot of the new reports I like, the lack of meaningful recovery data is still a bit annoying, but overall I like the new cash flow, especially the predictive part of it.

Bondora business portfolio

There isn’t much to report here yet. I’ve invested into about 150 loans, and most of them start repaying in February. January interest income was ~10€, but the interest income for February should already be in the range of 50€. Current strategy is Estonian loans, up to C class (a bit of D as well), currently investing 20€ per piece mostly, seems like getting 100+ EST loans with non-strict criteria is rather easily doable.

Omaraha portfolio

Now, Omaraha is rather interesting. The guesswork included in trying to figure out which interest rates to use is definitely an intriguing thought exercise. Seems like I’ve managed to reach a sort of a sweet spot where I have, on average, one loan go out per month. No loans have reached delinquency yet, but time will tell how that starts impacting my portfolio. The defaulted loans get sold off to a buyback fund, so you can assess your returns in a more immediate manner than you can do in Bondora.

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I started with the portfolio in November already, the interest payments are however just now ramping up, February totals should be somewhere in the range if 45€ already. Overall, not much to follow here and you don’t really have access to any meaningful data to analyse. Lack of secondary market is still problematic, so this can’t ever be the biggest part of my portfolio, even if the returns at this point seem rather good.

Mintos & Twino

The two Latvian sites are also in experimental stages at this point. Since I wanted to add money into short term loans, then so far Twino has been winning out on that – super easy and sleek user interface, no cash drag to speak of, and a wide array of loans to invest into. For Mintos, it seems that short term loans (or invoices) are in short supply if you want to actually diversify reasonally. Due to this I’ve added less money into Mintos so far, and I’ve had to pick out more long term loans to actually employ all the money. Both sites have secondary markets though, so exit is possible. So far looks like Twino will be winning out for me personally in this duel.

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Estateguru & Moneyzen

I did not add in any money to Estateguru or Moneyzen. If possible, I would exit Estateguru as a private person and switch to a company portfolio. For Moneyzen a lack of a secondary market and lack of volumes makes me not want to add more funds either. Currently I’m just seeing how their recovery processes work.

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Crowdestate

Not much happening on this front either. Waiting for some projects to end (the first one I was involved in, was finished in December). There will be a new project open on Monday so I’ll look into that and decide whether to contribute as well. Still hoping they manage to actually hit the pace of 1 project/month.