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Post by formertrader on Sept 16, 2014 19:32:58 GMT
Hello all, I am new to the forum but thought that my tuppence was worth contributing anyway. I have been watching P2P for a while but on the sidelines. My day-to-day job is bringing new bond issues to the market on behalf of banks, governments and large corporates (think BMW, Glaxo etc etc). P2P is the family-friendly version of this, allowing the man on the street to lend easily in a way that previously only his pension fund could. Whilst there has been a lot of speculation over whether P2P will kill banking (it won't - it is all of the stuff that banks won't touch), I thought that it might be interesting to ask you all why YOU as an individual do or don't behave in a particular way. Don't take it as a massive criticism and I suspect that over time things will change because of supply and demand but at the moment to a banker it looks strange. Actually, there are three or four things that puzzle me, so feel free to answer any or all  1. Ratings - do you genuinely trust the "ratings" assigned by P2P platforms? In banking, ratings agencies have long established relationships with the people that they are rating and they STILL get it wrong sometimes. In P2P, the relationship may consist of a few days looking over statutory accounts and a couple of conversations, I suspect. 2. Why would you ever buy unsecured debt from a company that you don't know? If you trust the business that much, buy equity and earn the upside. If you don't know them, surely you would want to see some form of security? For example, I just invested in a lease on packing crates. 10% interest; security over some packing crates and a director's guarantee. I would NEVER lend to a business that I don't know without some form of asset behind it. It may only be £100 of your money, but better yours than theirs if they default? In bond markets, secured debt is much more sought after than unsecured debt and pays a much lower interest rate for this very reason. So if the choice is to lend to Unsecured Business X at 12% vs lending to Secured Business Y at 10% is a no-brainer for me to take the lower rate. 3. Whilst the economy is doing well at the moment (until Thursday night!), it may well dip down if we have some shock. In that situation, the first thing to fail are small businesses. Do you look at a 3 month horizon or a 3 year horizon with your investments? 4. Do you feel that AFTER you invest you are kept up-to-date about the company or in the dark by the platform? For example, I have seen that on certain platforms, businesses go from "paying interest" to "in default" with nothing in between. In professional markets this would simply never happen. Does your platform keep you in touch once they have your money or just leave you to fate? As I said, no criticism intended and I am happy to answer any questions. I am just very interested in the psychology of the market Happy investing! |
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Post by wiseclerk on Sept 16, 2014 20:35:25 GMT
re 1) depends on the platform. On some I do. On some I know from experience why I do not
re 2) depends on relationship between risk and return and demonstrated history of default and recovery rates of the platform.
Suppose in an imaginary example
- p2p platform A has totally unsecured risk at an average interest rate of 15%. Platform A has 5 year track record. 2% of those loans defaults (say at halftime of loan term). Of the defaults 25% are eventually recovered
- p2p platform B emphasizes loans that have strong securities. The average interest rate is 7%. Platform B has one year track record. So far no loan has defaulted, but they estimate bad debt is 0.3%.
Which one would you prefer and why?
re 4) again, depends on the platform
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baz657
Member of DD Central
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Post by baz657 on Sept 16, 2014 21:34:58 GMT
1 - No I don't trust the ratings. I work on a "gut instinct" taking all factors in to account. So far so good. 2 - In 2008 my bank lent my business (essentially me) almost three quarters of a million on the basis of two property valuations and how my current bank account was run. They thought they knew me. Lucky for them I'm still around. They also screwed me on the rate but that's come back to haunt them. 3 - Yes, yes and further (especially when it's in the same business as I am in). 4 - No. But having access to any account information that a business wants you, as a lender, to know isn't always good either. Especially when they tell you lies just before they fly off into the sunset. The banking industry has had hundreds of years to screw things up. They have managed to do so on several occasions. The worst we can do is lose our own money. Can you say that formertrader??? |
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webwiz
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Post by webwiz on Sept 16, 2014 21:44:40 GMT
1) No. For this reason I only invest in loans which appear to be backed by assets.
2) For the most part equity in the borrower is not available. Some platforms lend to individuals not companies and others lend to privately owned companies or where the stock is not traded on the main markets.
3) I try to invest in loans which are due to mature in under 2 years or where there is an opportunity to sell before maturity.
4) No.
Savers have been driven to this and other risky forms of investment by the low rates available on FSCS backed investments. Equities are an alternative but share prices can go down as well as up and the FTSE100 is down on its peak several years ago and IMHO is currently at an artificial level supported by funny money. Bonds are a possibility but if (when) interest rates rise they will lose capital value.
Where does a banker put his money?
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Post by formertrader on Sept 16, 2014 21:47:32 GMT
I'm not sure what you want me to say in response but I can safely say that I have helped pension funds and governments invest hundreds of billions of pounds and I have never sold a deal where there has been a default or a loss! And I have even turned down deals where I thought that there might be. All clients in my old industry had much better visibility on the prospects of their investments than any P2P investor and the sellers were much more accountable than any P2P platform. That's why it interests me so much....
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Post by formertrader on Sept 16, 2014 21:52:15 GMT
Where does a banker put his money? Nowadays, most goes into things that I trust and are tangible. I agree that the FTSE is overvalued. On a 10 year look, so is property. Personally I think that the best assets are : 1. Secured 2. Inflation-linked 3. Liquid I punt very rarely (sold sterling two weeks ago and am sitting pretty now but that is rare!). There isn't a "right" answer to investing and P2P is new to me. I like investing in people - I am far more likely to invest in someone that I KNOW that is setting up in business than any perceived interest rate.
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Post by bracknellboy on Sept 16, 2014 21:54:43 GMT
That is an exceptional track record. Hundreds of billions with never having a default. Good work.
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baz657
Member of DD Central
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Post by baz657 on Sept 16, 2014 22:07:19 GMT
The reason P2P has grown is because it's been giving what the businesses of this country have needed when they have been asking for a little financial help when required. The (high street) banks were (are?) no help.
I got into P2P because a few months ago I was at the other end of the loan. I don't need it now yet my bank are willing.
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Post by batchoy on Sept 16, 2014 22:17:30 GMT
- Yes and no, it is dependent on the platform, I use a third party ratings service that I have a 10 year relationship with which I trust over some of the P2P platforms. However the Crowd provides a lot of due diligence though loan Q&As and in threads in this forum, potentially beyond what the ratings agencies can achieve because there are people looking to invest who have industry specific expertise and so can ask questions that the financially oriented rating agency staff would not even know to ask.
- Knowing how packing crates get damaged, miss treated, lost, stolen and how short a life they have and allied with a PG in my view you have done exactly what you state you would not do and lent to a business with no asset behind it. There are assets and there are assets some are more secure than others and I would rate packing crates lower than stock and only a little higher than a PG and as many have found out PGs can be as secure a Scotch mist when it comes to realising them. As wiseclerk points out there are a range of platforms that provide a range of P2P and P2B offering with differing returns and differing risk levels and there are ways of mitigating the risk so whilst I might put a four figure sum into a P2B loan with a 65LTV property asset security paying 9%, I would only put a few euro into an unsecured P2P loan paying 26%.
- It depends of the area that I'm investing in, but I actively manage all my loans, which are between 3 and 60 months duration. For P2B loans I utilise the notification service provided the ratings service I have access to and bear the information provided in mind when making decisions on the retention or disposal of the loan parts and whether the disposal will be attempted at a premium, at par or at a discount.
- It is dependent on the platform and the model which they employ, but I have moved away from those platforms that I perceive as being lax when it comes to enforcement and recovery and, or provide poor levels of data and feedback. I would contest your statement that businesses go from "paying interest" to "in default" with nothing in between would not happen in professional markets this would simply never happen. Firstly I know it happens though I subscribe to the school of thought that defines a default as a breach of the terms of the loan and not the one currently being peddled by the P2PFA which only classes a loan to be in default if it has gone 120 days with out settlement of a due payment and secondly I do not accept the premise that the P2P platforms are as whole in some way unprofessional.
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Investor
Member of DD Central
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Post by Investor on Sept 16, 2014 23:09:27 GMT
"All clients in my old industry had much better visibility on the prospects of their investments than any P2P investor". Might suggest you follow a few threads or read some old threads before making sweeping statements of this nature. You might even be surprised how astute some of the 'men on the street' in this forum can be.
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Post by yorkshireman on Sept 16, 2014 23:09:48 GMT
The banks, bankers and the financial sector generally still don’t get it do they?
Joe Public is sticking two fingers up at them as he /she has had enough of being shafted.
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Post by jackpease on Sept 17, 2014 7:51:29 GMT
>>>>>the first thing to fail are small businesses
Actually in 2008 it was the big banks that needed to be bailed out and subsequently squeezed small businesses at a time when it was harder for them to do business. It'd take a lot of small businesses to fail (not subsidised by the taxpayer) to total up the amount of money handed out to the banks.
P2P injects the ability to use common sense, gut feeling and luck into lending which has been completely stripped from bank lending criteria. It'd be a fantastic exercise, in a few years time, to see whether the banks with their fancy computers beat us amateurs!
Jack Pease
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merlin
Minor shareholder in Assetz and many other companies.
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Post by merlin on Sept 17, 2014 8:26:38 GMT
>>>>>the first thing to fail are small businesses Actually in 2008 it was the big banks that needed to be bailed out and subsequently squeezed small businesses at a time when it was harder for them to do business. It'd take a lot of small businesses to fail (not subsidised by the taxpayer) to total up the amount of money handed out to the banks. P2P injects the ability to use common sense, gut feeling and luck into lending which has been completely stripped from bank lending criteria. It'd be a fantastic exercise, in a few years time, to see whether the banks with their fancy computers beat us amateurs! Jack Pease Jack that is bang on the nail. The only thing I would add is the better rate of return P2P provides even after failures, than the High Street can even get close to.
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webwiz
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Post by webwiz on Sept 17, 2014 11:23:30 GMT
The fact that you have lent billions and never had a default merely reinforces the point that banks only like lending money to people who don't need a loan. Provided p2p and p2b investors are sufficiently diversified they can cope with the occasional default. Trade credit is more of a risk where small businesses are concerned but suppliers still offer businesses credit and hope to make enough profit on supplies which are paid for to cover losses. A supplier only dealing on a cash up front basis will usually do worse.
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debeast
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Post by debeast on Sept 17, 2014 11:46:24 GMT
formertrader I'd be interested in your view on invoice trading? You're essentially lending funds on a piece of paper. At least thats how i view it /beastie
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