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
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!