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Post by ydobon on Apr 7, 2016 7:42:02 GMT
Over the last 6 months I have been disposing of holdings in FC and RS to focus on secured loans with mainly AR, MT and SS.
As another funding tranche for an existing development appeared on MT the other day, I took a look, but realised that I was already funding part of the first 3 tranches. It looks like I've let my enthusiasm for yield chasing get the better of me - I'd initially envisaged no more than 0.5% of my portfolio against any one loan/group of loans for the same thing. As it stands, I've lent 2.5% of my portfolio against this one project.
What do others think is suitably diversified? At a bare minimum, I'm sure I'd read in investment terms that 30+ stocks would protect you from company-specific risk, presumably it would be similar for P2P loans?
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ben
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Post by ben on Apr 7, 2016 9:42:54 GMT
Personally I do not have a set figure I will look at the loan and invest what I am comftable with. Although I think my highest loan is about 3% of what I have invest in p2p
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investibod
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Post by investibod on Apr 7, 2016 10:19:57 GMT
My largest investment in any one loan is ~2% of my total portfolio.
However my lending to one borrower across multiple loans is sometimes higher, specifically MT managed portfolios. Here I am nearer ~5%.
I am hoping to slowly grow my portfolio, so the relative percentages should hopefully gradually fall.
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Post by yorkshireman on Apr 7, 2016 13:24:54 GMT
Slightly off the topic of the original question and it may have been asked on another thread, what percentage of your overall investment portfolio is in P2P?
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Post by mrclondon on Apr 7, 2016 13:55:15 GMT
Over the last 6 months I have been disposing of holdings in FC and RS to focus on secured loans with mainly AR, MT and SS. As another funding tranche for an existing development appeared on MT the other day, I took a look, but realised that I was already funding part of the first 3 tranches. It looks like I've let my enthusiasm for yield chasing get the better of me - I'd initially envisaged no more than 0.5% of my portfolio against any one loan/group of loans for the same thing. As it stands, I've lent 2.5% of my portfolio against this one project. What do others think is suitably diversified? At a bare minimum, I'm sure I'd read in investment terms that 30+ stocks would protect you from company-specific risk, presumably it would be similar for P2P loans? My target is a maximum of 1% of p2p portfolio in a given loan / tranches of the same loan (my highest 5 at present are 1.4% in a FS speedboat, 1.2% in AC's Spondon BL and 1.1% each in MT's recent Bolton loan, AC's Manchester Commercial and AC's Kidderminster BL)
That is not the wisest strategy I'll admit given the risk of multiple loans to the same borrower defaulting if the borrower got into difficulty. MT's recent coding of major borrowers (e.g. MTAF CSP etc) helps the analysis but remember some borrowers have loans on multiple p2p platforms. (I think my largest multiple loan borrowers are 2.2% with DA on TC, 2.1% in CSP on MT, and 1.6% each with AE, MTAF & MTAG all on MT, and 1.5% with SB on TC ).
Given some loans have restrictions on the amount that can be subscribed, its easy to get to the situation on a given platform that a few large loans to a single borrower going bad could have a disproportionate effect on returns of your loanbook with that platform if the rest of the loans are all small amounts. In an ideal world I'd say the target should be around 1% per borrower ....
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Post by solicitorious on Apr 7, 2016 15:40:24 GMT
I think my maximum was about 5%, in a couple of new loans on SS, for a few weeks while waiting to diversify. A calculated risk, and very short-term, and very much the exception, but something I could envisage repeating in limited circumstances.
When I started with P2P, I thought about a max of 2% for property-backed loans, and a max of 0.5% for SME-type stuff. I was too optimistic...
I got badly stung on one property-backed platform, who trumpet their collective 500 years of "expertise" in the sector, when 4 of my 2% loans went bad in quick succession, for reasons distinctly less than impressive.
a) mixing "hard" and soft assets as "security" to come up with a seemingly reasonable LTV. Loan almost immediately went belly-up, and when the dust had settled, the soft assets returned 0 recovery. "We don't know what happened to them/can't find them." I lost about half my investment on that one.
b) borrower led everyone a merry dance, and when time was called it turns out he may have got one over on the platform or its lawyers, such that possession may not be readily obtained, or at all. Loss unknown at the moment.
c) another loan, same borrower as b), valuation now around 34% down from that initially given 2 years ago. A sale we thought we had might now fall through. My loss will be at least 10%.
d) an offer from a recalcitrant borrower to buy back the property for around 55% of its initial valuation. My loss would be at least 25%.
Moving on to a popular SME lending outfit, which I am now out of completely.
a) a firm of lawyers who dissolved as soon as they got their hands on the money. Not sure if they made even one repayment... My loss virtually 100%
b) several others who, as luck would have it, may deliver good recovery.
So now, my SME loan exposure would be limited to about 0.1%, except at that level it just isn't worth my time chasing hundreds of micro-loan parts, and the inevitable micro-losses - so I am out of SMEs altogether.
Instead, I am aiming for maximum 0.5% exposure in any property or pawn loan. Must have simple "hard" security, low LTV. These things I can readily measure and understand, and perform "what if" calculations and simulations across my entire portfolio to get a good feel for the overall risk. I'm not completely there yet, but should be in six months. I may still make occasional exceptions, mostly on the SS platform, of a distinctly short term nature. I would also try to limit my total loans to the same borrower to about 2.5%
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Post by Deleted on Apr 7, 2016 20:10:25 GMT
solicitorious, I trust the above losses were well flagged up by your Monte Carlo analysis  |
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Post by solicitorious on Apr 7, 2016 20:25:37 GMT
solicitorious, I trust the above losses were well flagged up by your Monte Carlo analysis No, but they jolted me into doing proper quantitative analysis of the sites I was investing in, including Monte Carlo analysis. 
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am
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Post by am on Apr 7, 2016 21:05:35 GMT
Over at RS I might have single contracts at several percent of my total P2P assets. But the provision fund there means that diversification ain't worth sweating.
Apart from that I've recently increased my holding in one loan elsewhere to nearly 2.5% of my portfolio - that loan is in the process of refinancing and I hope to get several weeks worth of interest for one weeks holding. Apart from that, my target normal maximum loan size is about 0.7%, with up to twice that for the occasional tempting proposition. (Not including any additional holdings via GEIA/GBBA/QAA, which are all intended to be sold down when decent loans become available.)
So far I've been lucky about losses, which (ignoring what RS has hidden from me) have totalled about 0.07% of my portfolio from two loans, with a third loan elsewhere achieving a full recovery, including default interest at 18%. But there have been quite a few overrunning property development and bridging loans, and there's a commercial mortgage that might be dicky.
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Liz
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Post by Liz on Apr 7, 2016 21:36:15 GMT
2% maybe lower sounds about right. I've got 3% in one loan that is defaulted, and am taking a big hit. 7% is my highest, but it is very well secured.
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bigfoot12
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Post by bigfoot12 on Apr 8, 2016 7:15:42 GMT
I'm sure I'd read in investment terms that 30+ stocks would protect you from company-specific risk, presumably it would be similar for P2P loans? I think that is the number such that the cost of further diversification is higher than the benefit, and it assumes that those 30 are well chosen you can't have shell, BP, Total, Exxon Mobil, BG etc. as part of your 30. Your question would be how correlated are your P2P investments likely to be? Iit seems quite easy to hold 200 loans if you build up over a year or so. I am not saying that 0.5% is or would be my maximum if there was a good reason, but there are lots of loans out there, and this month it is a buyer's market on many platforms. I have build my portfolio up over many years and I am mostly spread across many 100s of loans (and quite a few platforms).
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james
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Post by james on Apr 8, 2016 18:21:37 GMT
My highest about 17% of gross investments in one loan. About 7% in another. Two different platforms. All of the rest well below those except perhaps temporarily. Those two exceptions are due to a combination of rates and the protective features involved, that for my risk tolerance and capacity for loss make the risks acceptable to me. My total gross income is expected to exceed 17% of gross investments this tax year.
I don't recommend that level of concentration to others. It's high and most people would not be able to take a sufficiently phlegmatic approach if things were to go badly wrong.
Under 0.5% is what I'd typically have as a maximum per loan though I might well go to 5% or exceptionally 10% to one borrower across multiple loans with suitable security-related arrangements. That's more pragmatic reality than desire. Given the deal flow I'd go to 0.5% or less per borrower.
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stevio
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Post by stevio on Apr 8, 2016 21:32:21 GMT
It's really what your comfortable with with regards to risk vs return
You can get 100% security in a 3% bank account with no diversity. Is it wrong to have no diversity if you have high security? But there is no point having security if you aren't getting the return you want. Use it as your measuring stick by all means (ie anything less than 3% return, should be 100% secure).
Then you can increase your level of risk from there, proportional to the level of return you want
Theoretically you could push it to your limits to find your parameters. So say 15% in one loan provided it has chance of 16% return or maybe just 2% for a 6% return
What works for others, maybe not fit your level of risk, polling others only gives you their risk comfort zone, not your own
And finally, even with the best will in the world, I just go by 'if I like it I put a bit more money, bit less if don't'
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littleoldlady
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Running down all platforms due to age
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Post by littleoldlady on Apr 9, 2016 8:30:35 GMT
IMO diversification is more important than cherry picking based on DD. Having said that, once you are well diversified say >50 loans on 3 or more platforms then you can vary the size of each loan according to your view of its prospects.
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paulgul
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Post by paulgul on Apr 9, 2016 8:38:07 GMT
Generally less than 2% per loan across 7 platforms (SS MT AZ FE FS ABL and PM). I don't bother with much DD just small amounts in as many loans as possible
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