Time to reduce P2P exposure?

It seems to me there will always be people predicting doom in whichever market sector you invest.

I'm happy with P2P at the moment although I expect to add more platforms to give a better spread of investment types. 

It has to be a personal decision as to whether you are comfortable with the amount of money you have invested in P2P.

P2P or gambling on high risk property and pawnbroking speculations?

Ratesetter have messed up on some business loans, but so far no one has lost any money.

Zopa got Zopa+ returns wrong, but again this was a clearly signposted risk.

FC have considerably improved their offer to the average investor by removing the gaming and bot options

Assetz seem to have a strong offer and a good recovery record (if somewhat slow)

Octopus offers 4% on residential property and has the strongest financial backing of any P2P platform


Looking at the rest it seems the plan is to pile in for 12%+ and bail out before the final payment fails. Great until the music stops, but not really linked to the general credit market. This area of lending appears to be profitable for the platforms (some of which seem to be run from a garden shed), but it is high stakes gambling with other peoples money.

 

Where you moving your money to if I may ask?

The OP is just feeling the impact of reversion to reality.

It seems most of the higher yielding platforms evolve the same way. At startup, they offer decent quality loans since they can't afford to drop the ball with an early default. Given the rather niche areas most higher yielding platforms focus on (bridging, speculative property development, pawnbroking etc), however, scaling up origination volumes requires a willingness to print more and more marginal deals. As time goes on, and the loan book seasons, the proportion of non-performing loans starts to rise. FS and SS are good examples, starting with niche stuff (boats and pawn) then scaling with bridge and development loans. So returns in 2014-16 looked good but the NPLs are now building. FC's attempt to get into property development loans looks similar. MT and ABL may well be 12-18 months behind. Take a look at TC's NPL book and the loss rates from 2011 to get an idea where are more seasoned book can end up. Some platforms, perhaps seeing this issue, instead attempt to switch to lower yielding, but hopefully higher quality loans. AC and LI are examples of this. 

So the basic lender strategy in high yielding P2P is to get in early, make hay while the sun shines and then dump it all before it all start to go wrong (say 3 years in). Repeat and rinse. This requires effort (how much is your time worth?). You can hold the higher-yielding loans but accept that you are going to take some significant haircuts i.e NPV your loans using sensible default and recovery rate assumptions, effectively like taking a credit reserve like a bank does. Alternatively shift to lower yielding, less risky forms of P2P, where you just buy a portfolio of the platform's loans.

I'd also say a 25% allocation is pretty punchy. While P2P may have offered some outsize returns in the short-term, long-term I can't see why it would outperform other forms of fixed income credit. Something like senior unsecured spec grade junk bonds yield 5.5-6.0% so you can't really expect something yielding 12% to be low risk. My allocation has been 5-7% and it's been an underperformer in my portfolio simply because everything else has done so well in capital gains terms. 

I am reducing my holdings in p2p. At one time I had quite a sizeable investment across 3 platforms. I have been reducing it over time. I believe in cycles and we are overdue for a financial shock of some type and given the amount of debt and global economic imbalances it might be nasty. The only platform i am keeping my holding in is AC, but even with that I aim to be out in 12 to 18 months. P2P is high risk but it is credit risk so it looks safe until it goes bang.

I see the sense in platform diversification, but all the major platforms in which I have not already invested seem to feature here regularly due to assorted "issues"...

I invested in quite a few P2P platforms last year. I think I must have had a rush of blood to the head. I was blinded for a while by the high interest rates. I think of it as a crazy year.

I started to weigh up the risk and the possibility of losing a lot of money. I now consider myself lucky to have got out of most of it with only a small loss. That's not to say that I have given up completely. I will probably put some money into one or two platforms that don't seem, as somebody else has said, to be run from a garden shed.