pom
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Post by pom on Jan 26, 2016 16:27:36 GMT
We often talk about our platform diversity, but I don't remember seeing anything about loans, other than us all agreeing we need to be invested in as many as possible.
So I'm curious as to how many you're actively managing (ie only loans/investments you've chosen, not counting where the platform matches you to borrowers which soon add up rapidly)? Slightly surprised to find I currently have 198.
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ablender
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Post by ablender on Jan 26, 2016 16:46:49 GMT
I am currently invested in about 120 borrowers, some of which might have more than one loan. I think this is a better way of counting than the individual loans.
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registerme
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Post by registerme on Jan 26, 2016 16:48:22 GMT
I'm not doing precisely the same as you, but I am tracking exposure to different (fairly arbitrary) sectors. One of the problems I've had is that there is, potentially, a large degree of overlap between say, asset backed and SME, or asset backed and bridging, etc. Lastly, I don't update it regularly or rigorously, only taking another pass at it when the difference between it and my "real totals" is more than 1%. Excluding Zopa and Ratesetter I probably have pieces of some 250-300 loans.
It's useful in as much as I might decide to increase / reduce one asset class vs the whole of the portfolio.
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Liz
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Post by Liz on Jan 26, 2016 20:02:32 GMT
I would rather not just diversify into poor platforms, just for the sake of diversity. I like profitable platforms and those with a plan in place if the platform fails.
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ablender
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Post by ablender on Jan 26, 2016 20:55:03 GMT
I would rather not just diversify into poor platforms, just for the sake of diversity. I like profitable platforms and those with a plan in place if the platform fails. FCA regulation requires this. I learnt that it is called a "living will".
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baldpate
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Post by baldpate on Jan 26, 2016 21:07:46 GMT
The way I count them, I have about 550 'loans' over 8 platforms. For unsecured SME loans I'm counting distinct borrowers, but for secured loans I'm counting distinct security packages (e.g. if I lend to three tranches of the same FC property development, that's one loan ; if I lend to three different MT Cash Shop portfolios, that's three loans)
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pom
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Post by pom on Jan 27, 2016 11:09:51 GMT
Interesting... my total seems quite low now, but then again had I not quit FC mine would have been considerably higher.
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nick
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Post by nick on Jan 27, 2016 22:07:55 GMT
I've long come to the conclusion that my biggest risk is credit concentration and not being diversified over enough loans, particularly a problem when first deploying funds as it takes time to build-up a portfolio. This was is initially compounded by trying to be too selective in the loans I invest in. After reviewing my investment decision in respect of the few loans that went bad, I concluded the level of DD one can undertake remotely is fairly limited. I now invest in every loan that meet my risk/return target by default, and only exclude those that are to obvious lemons (losses and negative equity tend to be a give away!). My loan portfolio has now grown to 500+ over 6 platforms, although two thirds of my investment are on FC and RebS.
I'm weary of platform risk. I have been stung in the past when I had funds at MF Global, the now defunct equity broker. Unfortunately for me, whilst I had liquidated all my investments, my final instruction to transfer funds back to me wasn't acted on and were still held by them in a client account when they went bust. Despite MFG being FSA regulated and being obligated to hold client funds in a segregated account, they hadn't been doing this properly in realtime and thus there was a shortfall in client funds and many, including myself, were treated as unsecured creditors. My exposure was significantly greater than the FSCS limit so didn't try to claim compensation early on as I would have had to novate my creditor claim to FSCS and wait years for a final settlement. Instead, I sold my claim to a bank for 95% of claim value 2 years after the original failure (I believe all client money was eventually fully settled). This experience enlightened me to how messy things can get when a company goes into administration and the time it can take an administrator/liquidator to sort things out even when there wasn't a final deficit in client funds. Obviously MF Global was a massive insolvency on the scale of a mid sized bank, but I believe that were a P2P platform to go bust, we would have the following exposures:
1. Liquidity issues - the new administrator is unlikely, at least initially, to operate any existing SM. It is quite likely that funds would likely be tied up for the term of the loans.
2. Likely higher default rates - at least some borrowers are likely to try gain advantage from the demise of the platform and ensuing chaos and try their luck to late pay or not pay at all (often happens to companies that go into administration - rarely is the full value of the debtor book realised
3. Higher charges payable to the new operator/administrator
Fortunately the number of reasonably established P2P platforms is growing so it easier to spread investments over 4/5 platforms to help manage this risk, but a residual risk will always remain.
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