So much for care free due diligance investing...

Re 19% rates: invoice discounting rates can appear high, due to the short term nature of the finance.  It also reflects the risks.  The rate is only one of our considerations in loan assessments.

Re why not all in default: we are only able to tag loans in default if they have been reported as "in default" by the underlying platform.  In some cases there are legitimate reasons why an invoice discount finance goes beyond its estimated repayment date (one-third of all invoice discounting loans go beyond its estimated repayment date), but may still result in a repayment (full or partial). 

Re 1% return: I think there are three things here:

(1) What will actually be your return when the status of all these loans is known. For now, it is too early to tell. 

(2) What has led to the possibility of a meagre 1% return for you, and what are we doing about it. This question needs addressing:
 - we conduct detailed due diligence and meet with platforms prior to investing
 - all of these defaulting loans are invoice discounting loans, which we know are more risky, with higher rates, but can still yield an attractive net return after defaults

 - we work with four platforms that provide short-term finance, including invoice discounting finance
 - three of these platforms have performed in line with expectations (or above); one has not
 - we have scaled back our activity with this platform (it is now less than 2% of the overall exposure, and decreasing). Sadly it appears we got our judgment wrong and/or they have been unlucky with performance.
 - we have introduced a maximum of 0.5% per invoice discount loan - sadly these loans in your portfolio pre-dates this setting

(3) What does it mean across the board (for all clients and future expectations): whilst the overall performance across BondMason is still ahead of expectations, because of the 2% and 1% settings and the nature of the service, every client has a different portfolio - and the performance of these portfolios broadly follows a skewed-normal distribution.  A few clients are at the lower end of the tail - which may include yourself at the moment. However, over the long run, your returns (and those for other clients) should still tend toward the average: 7.0%.

P2P Lending (in our opinion) is best seen as a long-run defensive asset class. Its positive characteristics are that (1) capital, whilst at risk, can be protected and/or preserved (2) volatility can be lower than stocks & shares and (3) returns can be attractive. Over a 3 to 5 year time horizon, on a well diversified portfolio, defaults will be incurred, but the overall net performance should still be attractive: e.g. 6-8%. There may be the odd bump, there will be no "fast-bucks" and patience will be required. But the outcome should be worth it.

I realise that may do little to console you right now rookyone - all I can say is we continue to work very hard to deliver the best outcomes for all clients, and I am genuinely sorry that your portfolio has under-performed against expectations to date.

Am I right in thinking that in your case above, BM won't make very much if anything? Their 1% is off your interest rate I think? So if you make 1% return... what do they make? I'm not sure how it would work.

You paid BM fees to carry out DD, and invest your money as they saw fit. They saw fit to put some (what proportion?) into higher-rate short-term invoice discounting. The rules of the game say some stuff goes south. They've realised that ID has had higher than expected defaults (yes, expected - and calculated into whether those rates were good value), and are winding back on it.

Seems to me that BM are doing exactly what they'd be expected to do - and what you asked them to do... A nice easy black-box.

I did thank Steve for his comprehensive reply, it's good to see that level of effort in explaining the issues BM are facing, and the way it is evolving going forward.  I also commented on defaults are to be expected.   With regards to BM 7% annual target, my current dashboard figure is 8.8%, so you could argue they are hitting their advertised figure.  These stats only trip over when potential loses are factored in, which is the same for many P2P platform reporting. 

Again, my main concern was risking my capital at 16 to 19% when attempting to return me 7%...  In my mind the maths don't add up, it seems reckless.

Brilliant! I wonder if BM will respond

Re: "What happens if you only make 1% return gross at the end of the year is that BM have over the course of that year taken their 1% so that leaves you with 0%. What is worse is crystallised losses. My recent crystallised loss which was asset backed, resulted in a return to me of 10% of capital invested and BM made their 1%, so in effect I suffered a 80% loss plus loss of interest, and BM "suffered" a 1% gain which works out at 10% of the money recovered. Let's see what happens with the other 3 loans in default and the other 2 which are not in default but are way over due."

- I understand the point, but I think you are only looking at one side of the coin. The significant majority of clients are achieving net returns in excess of 6-7%+.  And in those cases I don't think there is any issue with the hard work we put in for our fee.

Nonetheless, please be aware that we do care deeply about any clients underachieving the target return; and what we can do to improve this tail of performance.  We are investigating some changes here.

Re: "BM as they keep repeating only have a default rate of 0.03% the problem is the losses affect disproportionately those who unfortunately have those losses and those with smaller holdings. But BM don't really want smaller holdings as they complain to much! So it's best if you put in a large amount into BM and hope and pray you don't suffer a crystallised loss. Of course if you do put in a larger amount into BM the loan chunks are bigger so that doesn't really work. So for what ever amount you put into BM it is basically best if you hope and pray that you don't suffer a crystallised loss. Which of course for p2p is to be expected. So it's probably best....."

 - Loan defaults don't impact smaller investor disproportionately, generally. Its the 2% or 1% setting (and the new 0.5% setting for all Invoice Discounting finance) which dictates individual client exposure to a single default (although larger clients are more likely to have a 1% setting based on our client records).  We do forecast 0.5-2% default rates in our expected return targets - so we do anticipate defaults.

You've touched upon one key point - which is patience - returns are best considered over a 6-12+ month period. We don't consider P2P Lending to be a quick in-and-out investment product.