Investment Performance - targeting 7.0%+ p.a.

Why get 6.7% from Zopa for high risk when you can get 12-15% on such as SS, FS, MT etc?

I'm no expert, but I would be more inclined to compare this to the Zopa classic, which gives an estimated return of 4.3%

paul123 - a fair question.

Firstly, Zopa has done a lot for P2P Lending - they were one of the first P2P Lending companies in the UK, and our lawyer helped to set-up Zopa.  So we wouldn't talk them down, and they have proven to be one of the more sensible operators over time.  You could do a lot worse than invest some of your capital through Zopa.

To answer your question, there are probably 3 key things to consider:

1. Alignment: we only operate on the investors' (lenders) side of the table. We don't have relationships with brokers or borrowers to manage, so our alignment to our clients' needs is stronger.
2. Loan types: we don't invest (lend) into unsecured consumer lending.  We have a preference for secured and asset-backed lending; so the risk-return profile is very different.  Although you may end up with a similar return, the variance may be much greater - for example, the long-run equity risk premium from the stock market is c.5.0% p.a.; but we wouldn't consider our target of 7.0% p.a. from diversified direct lending to be as volatile or risky as the stock market.
3. Diversification and platform diligence: we enable you to deploy capital across a large number of opportunities quickly; and we also spread this risk across a number of carefully diligenced platforms operators. So your exposure to a single operator is reduced.

You don't own the underlying loan parts in an IT. You're also exposed to price fluctuations of ITs based on nothing more than market sentiment. i.e. ITs can trade at a discount to NAV which means that you could end up selling for a lot less than you bought for because the market is negative on P2P in general. Market whim wouldn't affect BM at all and your loan parts would be worth exactly what you paid for them assuming all else is equal. Happy to be corrected by those with more knowledge.

"history" - the history of your performance and current balance sheet is set out in your dashboard.

"transaction list" - there is a list of all your current holdings accessible via the "View all your investments" link.  The investment trusts only provide aggregated charts, with a few breakdowns.

"cash flows in and out" - this is being added.  The Investment Trusts do this at the fund level - I'm not sure what they provide you at the individual level.

"not so much daily reporting" - the data is updated every day (contingent upon data from each underlying platform); this is in contrast with the Investment Trusts that provide a monthly fact-sheet, often 1-2+ weeks after month end.  

So I think it is fair to say that our reporting is more frequent, more immediate and more transparent than the Investment Trusts.  Although I'm very happy to be proven wrong if you can show me an Investment Trust that displays a break down for every Client's individual holding at the individual loan level, and which is updated daily.

There is a contract attached to each receivable, and I don't think BM can do anything with it once it has been assigned; I'm not a lawyer but that's how I read it. As the buyer I can sell it, but BM have no right to take it off me and re-allocate. But interesting questions.

From the Agreement:

'The Seller shall not assign, transfer or otherwise dispose of your rights or obligations under this agreement.'

"collective elements" - I understand the point, but we've spent a long time building software to solve this for this issue. A couple of key aspects are: (1) that you do have a direct 1-1 relationship with every position you hold (it may be other clients are exposed to the same underlying single loan, but your actions aren't impacted by theirs and vice versa); and (2) you retain sufficient control over your day to day management of your holdings - (e.g) you can alter your investment settings, sell or add more funds at any point on any day, and in any direction.

"specific receivable" - yes, you do have the right to a specific Receivable in every case. Please click the link next to your holding to see the legal doc relating to that Receivable reference.

"target return" - there two points here:
(1) can our clients continue to get this: we feel 7.0% +/- 0.5% is a reasonable long-term sustainable target based on good credit disciplines.
(2) how P2P platforms may respond to over supply of (ISA) capital: we've already seen the over-supply of capital problem for specific platforms, who have reduced their lending disciplines as a result. Just because you have more investor capital, doesn't mean the credit quality has improved. We would be very wary of any platform that does this, and likely not invest through those that reduce lending rates just because they have more investors.

"arrears" - yes, they are 'frozen' with each investor. In these scenarios, we do everything we can to chase down that debtor for the benefit of our client(s) - this is where our alignment to our client's interest is very important.  Non-performing loans are not reallocated amongst clients.

"reallocation of losses" - no, we don't reallocate losses.   
 

I understand that there is a specific allocation of the receivables to each investor at any point in time. What David & I were saying is that these can be altered by BM at any time. I agree that increased rate will often be obtained at the cost of increased default risk. While 7% may well be obtainable over the long term. But market rates do change. If the whole market is generating loans 2% cheaper than previously, then BM will be forced to accept a lower return. As a lender I would like to retain my existing investments that were purchased at a level I was happy with, and might choose not to invest further until the market improves. Are you saying that I could set my plan to opt out of the portfolio reallocation? If so, would this just be when not investing, or could I retain this when choosing to reinvest further funds?