locutus
Member of DD Central
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Post by locutus on Aug 2, 2016 20:21:53 GMT
<snip> I'm far less skeptical you can do that with tens of loans. The worst example of this is the P2P ITs like P2P Global and VSL; these funds have got 15,000 loans on their book. The're too big already and are struggling to deploy capital, so the've just bought the market and add precisely no value in my view. Isn't that the point and the value add? No single investor could afford the time and fees to invest in 15,000 loans. A single provider that can do that for you is the reason that someone would buy that IT.
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Neil_P2PBlog
P2P Blogger
Use @p2pblog to tag me :-)
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Post by Neil_P2PBlog on Aug 2, 2016 20:54:59 GMT
<snip> I'm far less skeptical you can do that with tens of loans. The worst example of this is the P2P ITs like P2P Global and VSL; these funds have got 15,000 loans on their book. The're too big already and are struggling to deploy capital, so the've just bought the market and add precisely no value in my view. Isn't that the point and the value add? No single investor could afford the time and fees to invest in 15,000 loans. A single provider that can do that for you is the reason that someone would buy that IT. As I understand it thanks to samford71 (great post) there's two types of value add: (1) diversification across thousands of loans across many platforms (2) picking a few really outstanding loans & accessing those only available to HNW/institutional investors
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Post by stevefindlay on Aug 2, 2016 21:20:12 GMT
samford71 - Thank you! And no harm in challenging consensus... We aim to do both: (1) Provide Access: Enabling our clients to access loans and investments they can't otherwise access. This has already started with one group that has a minimum investment level of £250,000; and we are in conversations with other banking-type providers to co-invest in their loans, again, which are not available to the retail market (2) Diversification: 50 loans per client is the minimum each client should be in (in our view), ideally 100+. At present we run a book of c.500 loans to keep everyone happy. But this doesn't need to be 10,000s of loans, as you note, if we are effective in our sourcing and investment strategy. Beyond a certain threshold it becomes Investment Allocation as opposed to Investment Selection; its important to know which side of the line you are on (either can be effective, but they are different approaches, and we aim for Investment Selection). On the investment trusts, we feel the listing and associated share price volatility of Investment Trusts, significantly reduces the risk-adjusted return available from P2P Lending (in the absence of a NAV-based redemption policy for investors) - please see this short piece we did on ITs a while ago.
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Post by propman on Aug 3, 2016 8:41:09 GMT
Personally I am on the opposite end to Samford. I am looking for p2p to give me a reliable return (ie low volatility). Returns are hit hard by defaults as it takes a dozen loans a year to replace one 100% default. As a result, to reduce the random impact of defaults on an investor's portfolio relative to the portfolio it is drawn from requires several hundred loans, I favour >400. I take Samford's point that it is the portfolio return that matters, but I also like to review the performance of the components. If I lost 2% due to a default, I would not know whether this was bad luck or part of a wave of defaults that should have me looking to withdraw due to lack of confidence of their DD. As a result, I would not want to see the individual investments increased as my portfolio does. I too would welcome either an option for a lower % (minimum no higher than 0.2%), or a fixed amount.
- PM
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dj
Posts: 9
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Post by dj on Aug 3, 2016 11:41:33 GMT
I too would like to see an upper limit option. In my case a £0.02 interest payment from and early repayment of a loan means that £720.00of my original 1K deposit will be invested at 3%, I am glad I did not invest 10K as an initial investment. dj I understand your concern, but the issue (and maths) doesn't scale in that way: If you've invested £10,000 at a 2% concentration, say, then your loan investments are £200 to begin with. After starting to earn some interest, your loan investments then become £210. And stay at £210 until you have £10,500 invested. So your concentration would be 2.1%, not 3%. Doh! I really should engage brain BEFORE posting.
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