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!

febbondoraprivate

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

feblatvians

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.

janbondoraprivate

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.

janomaraha

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.

2015 social lending summary

One of the focuses of this year has been to reduce the importance of P2P investments in my portfolio – at the start of the year P2P investments made up probably about 70% of my overall investments, then by the end of the year I’m finishing somewhere in the 25% range. Moving P2P investments under my business account will likely mean that I’ll allow this percentage to rise a bit again due to not taking such a huge tax hit.

The “winners”: Bondora, Omaraha & CrowdEstate

Bondora

I spoke about my Bondora portfolio in more detail in my previous post, but overall, despite all the drama, lack of information and overall chaos, Bondora is still performing well. Total interest earned climbed over 2K and my steady montly interest income was 100€. This level will start dropping with the withdrawals, but overall I’m happy. Total interest & recovery as follows:

2015totalinterest

2015recovery

Currently in the process of building the business account, focusing on Estonian loans only. Managed to give out 100 loans in December, if the pace keeps at that level, It’ll overcome my private portfolio rather soon.

Omaraha

For a long time I kept away from Omaraha due to not having enough extra funds available, and the relatively questionable reputation they had, but this year I finally looked into it. The interest rates are comparable to Bondora, and similarly to Bondora, I managed to give out about 100 loans in the month of December, making it seem realistic that it will keep up with the Bondora portfolio – so far other P2P portals in Estonia have struggled to offer meaningful volumes.

However, from others’ experience I am assuming a portfolio up to 10K shouldn’t be an issue even there. I’m predicting a 2:1 rate of deposits between Bondora and Omaraha. (Overall, lack of a secondary market remains an issue though!)

CrowdEstate

With the first exits made in the second half of this year, Crowdestate’s reliability also skyrocketed. One of my investments just exited and I have 9 more running (2 as a private person, the other 7 as a business). Other than the disastrous new web page they have done rather good. As usual, would have waited for more projects, but reliability is king, so I’d rather they take time and do proper due diligence.

Overall, will remain a part of my portfolio for sure, and waiting for interesting times once new projects start exiting – I’ll have to decide whether to start increasing my investment size or keeping it at the current level. This will probably largely depend on the amount of projects available.

The “losers”: Moneyzen, Estateguru

Moneyzen

Theoretically everything is fine with Moneyzen, practically if you want to actually build a meaningful portfolio, then no can do. Currently I haven’t managed to really increase my investments there (and in my opinion my loan % rates are low enough as they are). Also, two big issues – the promised low level of defaults (definitely not seeing that in my portfolio!) – still a lack of a secondary market (makes me not want to transfer in any more money). Overall picture at the end of the year, nothing too interesting:

2015moneyzen

Total interest earned for this year comes to ~60 euros, which is a nice sum of money, but as you can see from the standing money on the account – nothing is just happening. I’m rather sad about this, I hoped for a lot more from them.

Estateguru

Now, with Estateguru it’s an interesting case. They started out with a different profile than Crowdestate, but by the end of the year they had grown quite similar. Shows that there isn’t enough room in the Estonian market to be so specific.

Overall, I invested into some of their projects, but surprisingly I think the thing that put me off most was the minimum investment size of 50€. To keep any meaningful money moving (to reduce cash drag) I’d have to invest a bit too much money at the moment to feel comfortable (since, once again, no secondary market). Currently planning to not add more money in, maybe every now and then when I see a project that I really like.

The “unknown”: Mintos, Twino, Fundwise

Mintos

Mintos came to the market with a bang and is showing rather nice growth in terms of both loan volumes and investor amounts. Biggest draw is probably the buy-back guarantee, which I can see is luring in a lot of investors.

However, looking at the overall returns they are getting lower by the month, and I’m not sure it’s worth the effort to diversify into another portal (However, they do have a secondary market, so that makes them rather attractive). I might just throw in 500€ to see how they work.

Twino

Twino is another new portal that hit the market with a bang and as with Mintos, their main appeal is that of a buyback guarantee. However, due to the loans they give out – essentially payday loans – they run a rather more risky business model (or maybe more profitable, will have to read their financial reports to know that).

However, a guaranteed 12%-ish return is something that I can see people appreciating. Another thing that for me makes them more appealing than some others is the short time frame of the loans – being able to actually fully exit rather quickly instead of dealing with long term rescheduled loans and a drawn out exit. Once again, I might just throw in 500€ to see how they work (business accounts became possible just in December).

Fundwise

Fundwise is offering out a whole brave new world for P2P investors – equity based investing for those interested in start-ups. From afar it looks amazing, taking a closer look, there are a lot of problems and at this point I would still classify their main purpose to be similar to a charity.

Why? You get no rights, no returns guarantees (note even your principal is in any way guaranteed), there is no way of predicting any returns whatsoever, you are locked down for years and the valuations (500K-1Mil) are taken out of thin air. I get contributing if you feel very passionate about a business or a product, but I wouldn’t really take this as a serious investment.

 

 

I created an Omaraha account

For a long while I was rather sceptical about Omaraha. Their PR wasn’t the best – many people cited quotes from forum discussions where the owners didn’t communicate to investors in the best of ways and not much analyzable data has been moving around.

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Essentially the site works similarly to all other P2P lending sites. People can ask for loans, and the current loan maximums are similar to Bondora – up to 10K, however most loans seem to be on the smaller side of that. Also, of course the volume of loans being moved isn’t comparable to Bondora, and while they expanded to Slovakia a while ago, I’m not sure how well that is going.

What is problematic though, is the lack of information about investment statistics. They have a rather interesting method of earning their money. Investors can bid to be included in loans with two different metrics – loan interest they desire and the “bonus” they are willing to pay to the portal (so I’m assuming it’s straight to the profit line). Also if you are willing to offer money at the same % as someone else, but they are willing to pay a higher bonus rate then they get ahead of you in the queue.

Overall I’d say it’s definitely  a confusing system. Figuring out how log or high to set the percentages can definitely be a challenge and I ended up asking others for their experiences. I’ve played around with them a bit here and there, but at some point it seems like the money stops moving. Currently I’ve managed to invest 500€ into 35 loans, meaning that I’m about on pace to invest the initial 1000€ in a month. I can probably test increasing the interests a bit and see how it works out, since I’m likely to aim for a 500€/month rate of reinvestments.

Definitely an interesting experiment, but a bit more effort than I wanted for tuning the interest rates. After I manage to invest a bit more, I can start running statistics on which groups get more loans sent out, and start increasing those rates slowly. Sadly the statistics part seems to be a bit lacking. However, they do have a warranty fund for defaults, and as the economy might start doing worse, then it’s definitely a nice extra perk to be able to sell defaulted loans, not wait for a very long perspective recovery happening. So far the numbers look like this:

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If you have any good recommendations, then I’m all ears!