Update on Envestio – All good?

Since my last post about envestio some weeks have passed und last week the first repayment of a project was up. As with all interest repayments everything went as planned and I got my principal back on time. End of this week, the next capital repayment is on schedule. Let’s see if this will be on time as well. Frankly speaking I thought there would be some delays. with at least one project. To me it seems weird that there is not the slightest delay anywhere (pretty bizar that I would like to see delays..). Envestio replied my question why there is no single day delay with the argument that the borrowers pay slightly before the schedule we see in our dashboards… I was less then impressed with this answer as in my opinion it does not adress the source of my question. I draw the following conclusions: 1) The marketplace makes an outstanding job and has everything under control (although we should differentiate here as most problems will occur normaly between 6 and 18 months, and the loans are not live that long so far), or 2) I did not fully grasp the risks involved in these types of loans or I do not understand the business, or 3) The multiple tiers are used to generate liquidity. I will describe this point further below.

To be clear: I do not accuse the platform to be a fraud or something, for this I have no evidence (if you have, bring them to me) and it is too early to tell.. For me, it is just weird that everything seems to go very smoothly. For this reason I am thinking through some scenarios. I still believe in the old formula: Very high interest = very high risks.

Multiple tiers

It is obvious that the same companies frequently take more loans. These loans are marked with the different tier. Tier 6 means that the same borrower has 6 loans open. At the moment there is one borrower (container) with 9 live loans in the amount of EUR 650’000 hat. Possible that every loan is secured by some sort of security coming with the loan, but I find this a bit special. One could suspect here that the new loans are just extensions for older tiers. As long as the loan volume stays the same, there is no big issue. If the volume raises over time, then I have questions. Seldom there are new borrowers, mostly I see new tiers from existing borrowers.

Possible strategies

To reduce my exposere I try to invest only in one tier by each borrower and I try to catch an early one. If I am confident, I take a second tier. Further I only invest in secured debt which gives me the instant selling option with 5 percent discount. There might be other loans (subordinated) which do not offer this feature in the future, but as of now I only saw secured debt loans. Moreover I only buy loan parts with a duration higher then 3 months. This for the reason that I can sell without a loss after 3 months (assuming 20%, makes roughly 5% after 3 months). At loan expiration I can only count on 90 percent minimal payback (if the platform can pay that). If I really redeem early is a different story, but I like to have options available. Another question is if the platform has enough liquidity to provide the 95% of capital needed for early sellers, if lots of investors choose to sell. Basically this is the same as if savers call their funds from the banks. Let’s hope that we do not come to this point. As said before, it is possible that my assessment is just wrong.

Something else…

Withdrawals from the marketplace are free of charge, as long as they are higher then 5 Euro. For amounts below there is a handling charge of 2 Euro. Envestio needs to do that as lots of investors required small amounts daily and their bank is charging them for that.

For the end

Maybe I am too hard on Envestio, but I remain sceptical. I believe the marketplace earned a chance, I stay with the platform and hope for new loans. Interest rates of up to 22 percent support me with that 😉 If you decide to give it a try, use this link for registration and you will get 0.5% cashback on your investments for the first 9 months.

Crowdestor now has a growing pipeline

During February I reported about Crowdestor and its Tesla project (seems I was lazy back then as I did not translate it from German ;)) the first time. Then I had my doubts about the marketplace and the Teslas as well. In the meantime someone enlightened me and told me the story behind Teslas in the Baltics. As it seems the Baltics really like Teslas and their uber counterpart, taxify, especially has a button in their app to order a Tesla as taxi 😉 I really like to learn new things (even unessentials), but more important is that the loans obey their loan schedule and pay. This is the case with the Tesla project. According to the marketplace all other projects are on schedule or already repaid.

Until now Crowdestor stood to their word and delivered the projects which they announced. Sadly there have only been a handful projects on the platform so far during the last months. Good news for us, these days seem to be over. There are two open loans at the moment. One is a start up in the fashion business, the second which was launched today is a property financeing in Riga. Currently the loans need weeks to fill, but this is not a problem for investors as interest accrues as soon as your bid is placed. Even if the project will not be withdrawn, you will be compensated by the marketplace. Really nice, but to honest, it is what a platform in this early stage needs to do to get projects funded. Good for us investors, even better that the interest rates are really good;)

A Start up, a property and a Berlin Restaurant (and more)

Crowdestor now has a good pipeline for new projects. Currently there are two loans live, the start up which yields at least 17 percent annually (and might go up to 22%, subject for that to happen are the turnover figures achieved by the start up in 2019). The second is a newly added property loan, paying 12% on an annual basis and runs for 9 months. In a week there will be a project live on the platform for a restaurant in Berlin, Germany. Somewhat special to see a German project here. I do not know if I like that really, as most German p2p marketplaces have difficulties with arrears and defaults.

Crowdestor Restaurant Projekt
Restaurant Projekt in Berlin

It looks like that the marketplace gained momentum as there should be two more projects coming in the next weeks. So there will be plenty to invest in. Sadly I haven’t got more information on these coming loans. Follow me to Crowdestor.

Envestio – my so far review (interest up to 22%)

First of all I want to offer my appologies to my english reading visitors. Normally I try to translate my posts from German into English within two days after the German post has been released. Lately, I really had a lot of things to attend, so my time was very limited. I hope the situation will get better in the next weeks and you get my posts translated shortly after the German ones are published. Here we go:

At the beginning of this year Envestio got my attention when a Latvian digital marketing agency introduced it to me. Their goal was for me to publish a post about the marketplace. I highlighted my concerns over the platform as I found the loan supply confusing (Real Estate in Spain, Cryptomining etc). Further I could not imagine that there really were projects paying 18% of interest to investors (including buyback). The cryptoloan paid far more then 20% if I remember correctly. In the end I had not enough trust to try the platform and review it at that time, even though all my questions were answered and they tried to be as transparent as possible. So I declined, but still watched Envestio, until in July I was confident enough to give it a try with some pocket money. Now I am able to give you an overview of my so far experiences.

Registration/Deposit/Withdrawal – Cashback included

If you are registering thorugh this link, you’ll get 0.5 percentcashback on your investments during the first 9 months. Cashback will be credited around the fifth every month, directly on your investment account.

Sign up is straight forward, confirm your email and you are in. Copy of your ID plus utility bill (or bank statement) is needed only before withdrawing. I suggest you do the verification in advance, so a withdrawal can be made any time. Somewhat special to me is that if you request a withdrawal you can fill out a blank form with your bank data, the data can be overwritten and is saved after each request. The first thing that came to mind was: What happens if I get hacked and all my money will be sent to another person. Envestio implemented a security mechanism for that, they double check withdrawals before processing. Only withdrawals will be processed if the beneficiare is the same person as the registered investor.

Minimal deposit amount is set to EUR 100, but you can invest from 1 Euro into each project. A little strange handling, huh? 😉 But that did not stop me 😉

Buyback guarantee/secondary market

Envestio does not (yet) provide a secondary market in the traditional sense, but they will rebuy your loan parts at a 5 percent discount rate. This means you’ll get EUR 9.50 back immediately for a EUR 10 loan part. This option is available until the maturity date is reached. If you do not sell your tranche and the loan defaults, you will get automatically 80 percent of your capital back. For the remaining 20% your got two options: 1) immediately take 10% and get 90 percent total. Or 2) you wait for the recovery process to happen and could get in the best case the rest back. I think this is just hypothetical, but it is your decision. Worst case you do not get anything out of recovery and have got back 80 percent. I asked if a loan can be prolonged if the maturity is reached and interest is paid monthly. Envestio would ask the investors if they would like that to happen, but generally they would like to send the loan into default and begin recovery proceedings. My impression is that the marketplace would not wait very long to get active with the recovery. They wrote that on their blog. But this is only my gut feeling. If this happens like that in reality is another, not yet tested, case.
So far, no loan was in default according to Envestio.

Envestio offers a 100 percent buyback guarantee on certain projects, if you invest a defined amount, like 10k for example. In such a case, please keep in mind that this guarantee comes from Envestio, so if Envestio defaults, to guarantee is not worth that much.

Securities

Each loan is secured as laid out in the project description. There are commercial pledges and owner personal guarantees. An owner guarantee is not much worth to me as mostly the owners money is already inside the company. Furthermore as the loans are mostly to small enterprises with low capitalization.

One can ask if these companies are really that desperate as they pay 20 percent (I just take this number for the ease of the example, although the loan would cost more like 25 percent when platform fees are included) interest. I think we have to differentiate here a bit, as most loans are maturing within 3 to 9 months. If a company pays 20 percent annual for 6 months, this makes 10 percent effectively. If a company needs that liquidity to purchase material or for working capital purposes, I guess 10 percent are feasible. If they can operate with a good margin, my guess is this is an alright situation. To be clear: I still think the loans are high risk, but I can understand the need for bridge finance in a business.

Envestio is online since 2017…

… as marketplace, but already operation since 2014 as a private fund, according to their website. I asked the management why they came public and deal with retail investors, and why did they not stick to sophisticated/whealthy people. Background of my question: to get 100k in funding, one sophisticated investor is sufficent, but to get the same amount from retail investors, you would need like several hundreds. What is the easier path? I guessed the first one, but Envestio thinks otherwise. They see a huge potential in crowdlending, plus it is scalable. Furthermore crowdlending is only one part of their services the will offer. Last but not least, the Envestio people think that offering nice interest rates to the crowd for bridge financing business is a win win situation for everyone and it supports the economy. I agree on that one. Oh, if a big hitter is reading this: The platform has always some special projects available for people wanting to invest 100k plus. Just register and get in contact with them.

My closing thoughts

To date all my interest payments came punctual, no delays (which makes me sceptical). As no loan has reached maturity yet, I cannot talk about defaults or recovery proceedings.

You may have read between the lines, I am torn between that this is a great investment but very very risky. On one hand I like the idea to provide liquidity to companies for growing their business, on the other hand I think this is as risky as it gets. Such high interest rates do not come without high risks. One should remind himself of that before investing. I often consult the magical investment triangle (liquidity, return, risk) to assess investments. We here have good liquidity (monthly interest plus partial buybackback option), stellar returns so this means risks must be high (appologies if I repeat myself, but my mind is swirling around the risk part). What can I say more, just remind yourself of the risks involved and do not invest more then you are able to lose.

Ok, this is it from for now, if you are interested in Envestio, use this link to register and get your cashback. Maybe read this article before you invest, to make sure you got the risks in check.

Peerberry: 8 months on board, it runs smoothly (mostly)

Somewhat surprisingly last in November Aventus Group launched their own p2p marketplace Peerberry. Surprisingly because I did not expect more p2p marketplaces launching in Latvia as long as the regulatory environment is not fully binding. I really liked the platform from the beginning, as it already offered an autoinvest function and everything else looked nice. I guess this is the time for an update.

What happened during the last months?

Peerberry was further developped and some new external Loan Originators were added. Aventus therefor chases the path to become an open platform like Mintos or Viventor. Not like Viainvest, which uses its marketplace only for their funding needs. The financials of the loan originators added to Peerberry look reasonable, although most of them are relatively young.

The loan offering was also extended to more countries. Danish loans were ment to be sold at 11 percent but the investors luckily did not buy them at this rate. I guess 12 percent is the red line for lots of investors 😉 It is a good thing that it did not work out with lower rates, because the platform would go even lower with the next batch. Lower rates are ok with me, but not with unsecured payday loans. Real Estate deals like Estateguru is no problem for me to be below 12 percent. I guess the executives have now learnt their lessons, as the newest loan originator pays 13 percent from start.

You can see below an increase in monthly lending volume. Currently we are over 11 million lent so far. End of May there were 1354 investors which received about 55k Euro interest. This is a really good result for such a young platform.

Autoinvest and my yield

Just a hint about the autoinvest before I will talk a bit about my yield. The autoinvest seems to run only once a day, mostly by the end of the day. I notice that my funds are invested slightly before the day change. This is nice as my funds are then reinvested without cash drag. There were some days where my funds still needed a day or two to get invested, but this was due to the high loan demand.

My yield is shown as 12.43 percent in my dashboard. I cannot reproduce this figure, as I calculate my yields with the XIRR function. With XIRR I get below, but this has also to do with the XIRR function which is comparable only after 1 full year.I estimate my yield will be above 12 percent after one year.

During the next months we should see more development of the marketplace and welcome some more new loan originators. Follow me to Peerberry.

Grupeer now offers autoinvest plus some stats

Finally the autoinvest feature arrived at Grupeer. About 3 weeks ago this feature was introduced on the platform. Due to the low number of loans plus the great availability I think the autoinvest is nice to have at the moment, but it still makes my life easier to invest. I can spare me the log ins after I got a repayment or interest received information. Following I will show you my settings I use with my autoinvest. You can see it on the below picture (by the way, you find the ai in the invest menu in your account):

Unfortunately we have to set a minimum and maximum with the interest rate. I tried to set it from 14 percent to open end, but this does not work. Same thing with the loan duration. Plus you need to set an expiry date for the ai, again this field cannot be empty. There is room for improvement, especially with this point. For what do we need an expiry date for an autoinvest function? Ok, we can work around that by selecting a date in the far futur. Basically the ai is a smooth and intuitive solution, expect for the points I mentionned. Below the settings you will find a guide for the ai, if you need one. The ai kicks in within 5 minutes after you activated it. It just invested in one loan in my case. Really nice of my ai to choose the loan with the highest available interest rate, matching my settings. This is really great. It could have just invested in a loan with 14 percent and would still be between my parameters. It seems there is a rule in the background which tells the ai to pick the highest interest rate first, which lies in the settings. Unfortunately it was a project without cashback, well, we cannot have everything 😉

At the overview of the ai on the right hand side you see the button named “old”. If you push this button, your ai invests again in projects which you already have in your portfolio. If you press it again, it does it again 😉 This helps if there are only few loans available and you still want to invest all your funds. You do not need to change your criteria in the ai, and can still invest all your funds.

Stats: a clear uptrend

During its first year after inception Grupeer funded about 2 milions of euro. Right now we are over 5 millions, this means during the last 3 months about 3 million were funded. And the trend continues, as they increased the volume of new loans significantly. The marketing department sent me below chart:

We can really see an increase in new investors and funds invested. Really interesting that in April and May the Spaniards financed more then half of the total investments. Spaniards can be found in the top investors on other platforms as well, but never like in this case. Sure, the chart only shows two months and not the whole picture, but still impressing in my opinion. Spain seems to be very open to crowdfunding and crowdlending. I can see that as well, as I got a lot of traffic coming from Spain. I believe they are reading it in English or use google translate. Let’s hope that the marketplace can grow further and we do not have to deal with defaults. Follow me to Grupeer registration.

Fastinvest: A post with mixed feelings

Fastinvest got my attention nearly a year ago due to this German thread. Back then the marketplace did not seem very interesting as the yields used to be much lower then today. Further, apparently there were people which clearly promoted the platform by impersonating as investors. You can see that in the mentionned thread. The postal adress was and still is in a building were virtual offices can be rented. The people behind Fastinvest are all from Lithunia and I guess they are working from there. Moreover the marketplace is under observation from Polish financial market authority.

Some weeks ago I was directly contacted by the platform’s marketing staff, as they wanted me to review their marketplace. I told them about my concerns by mentionning the above points. They told me they did not know anything about the fake users, which was the truth, as the guy in contact joined Fastinvest only recently.

Why do I now publish a post?

I really wrangled and am still wrangling, if I should write about them or not. Some days ago I had a conversation with a frequent reader of this blog, who is an investor at Fastinvest for nearly a year now. According to him everything is running smootly with the platform. After posting my German post I received an email from another legit investor who confirmed what the other guy told me. Lastly the marketplace was introduced by an affiliate provider who runs the schemes for Mintos and other p2p platforms. Bevore they let new marketplaces on their platform, they check the company and the people. Mostly the representatives have already been met in person. This gave me confidence. In the end it just might be that I am too prejudiced, but still I am not completely convinced. Therefor I remind interested investors to be careful and do not invest huge amounts to start. I got in with a few hundreds of Euro.

Registration

It is easy to register and pretty fast. Just click register and you will see below overview. It seems as Fastinvest is also developing a crypto exchange und you can participate in their ICO. This is another point which I do not like. Anyway, for p2p loans, just take the middle option.

After typing in your data you need to chose an account currency. Available are USD, GBP, PLN and Euro. Watch out, the currency setting cannot be changed by you. I chose USD, as I liked the opportunity to invest in Dollars. But there are no USD Loans at the moment as it seems. So I will go with Euro, which I sent there. By the way, they offer an fx exchange facility, with no fees… but with huge spreads I guess 😉

Buyback and yields up to 16%…

But only in Zloty 😉 Euro loans are up to 15% with a duration of 6 months. All loans are equipped with a buyback guarantee (reminder: a guarantee is only as good as the party which gives it). The loans can be sold back to the marketplace on a daily basis, but in this case you will lose all the interest. The buyback will be activated the day after maturity, so no waiting period of 30 to 60 days as we know it from other platforms. So we have an idea about the cash flows we will receive. From the loan side the platform looks promising.

Autoinvest und Portfolio

There is already an autoinvest feature or you can chose to invest in existing investment profiles. Investment profiles are already preset and you just need to activate it and are good to go.

Conclusion

I have to admit that I like the marketplace from a technical point of view and I am really happy with its features. It looks clean and smooth. There are a lot of features which other platforms don’t have. This is really positive. The odd gutt feeling didn’t disappear though. I cannot ignore the points I stated at the beginning. I wil run my testinvestment and will update my experiences in the coming weeks. Maybe I will know more about the employees by then. Follow me to Fastinvest.

If you have already some experience with Fastinvest, please leave a comment below.

Grupeer accelerates the supply

It has been now over a year withGrupeer, since I found the marketplace. On February 17th 2017 I started my first investments on Grupeer. I really do like the marketplace, even if there are some shortcomings (read more below), although I have placed them in to the Top 3 of my Top 10 ranking.

Loan supply increases drastically

During the last weeks, there were always more loans coming to the primary market. Further the supply of Russian loans increased and should now be at about 200k per month. At the moment there are over 300k available on the primary market, all loans have 14 or 15 percent interest, some offer 1 percent cashback additional. You get the cashback paid out on your account, just after you invested. The loans have a duration of up to 12 months, some are only 4 months.

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The Russian loans are originated by two Russian companies where Grupeer holds the majority, they want to have the control over these companies so that they can intervene and monitor. There are no property projects at the moment, and I don’t have any information when a new one will be added. The first property project (Hotel Dominik) was repaid in time.

What’s missing

Still no secondary market available, although it was announced on the platform’s start. Ok, the loans are not long term, so we do not really need a secondary market. But I think a platform should have this feature, it is standard in my opionion. I cannot give you any indication when we will get a secondary market, but we will get one 😉

As it seems all loans have been repaid early or on due date (we ignore the few cases where it was one to two days too late due to weekends). There comes the question to my mind: How can this be? I have no clue and did not receive a satisfactory answer to date. I will stick with it and inform, when I know more.

Latvians are excluded

Coincidentally I discovered that Latvians, better put: people who live in Latvia, are excluded from the platform. I was really surprised to hear that, as Grupeer is incorporated in Latvia. There is an easy explanation though. In Latvia it is forbidden to sell debt to private investors. I have written an article about regulation in Latvia here, and this is the reason why Mintos had to restructure their loan contracts. It seems that Grupeer just took the easier path and excluded the Latvians, as it seems there are not many of them investing on Grupeer.

Conclusion

As I already said I really like the Grupeer, but it seems to be still unknown to the majority of investors. There were only financed loans of about 1.5 Million Euros, which plays in one league with Robocash I would say. It would have been more, but the supply was not there during the first months. I will post a follow up when I know more about the non existing delays.. Follow me to Grupeer.

Why Mintos is one of the best p2p marketplaces

Ok, the subject is not that accurate as Mintos is not a real p2p marketplace in the classic sense, as there already funded loans are securitized and sold to investors. I was a little upset with Mintos beginning this year aus the rules often changed (interest rates up/down, foreign curriencies etc).It is not that this situation would not persist to today, but it has its advantages.

Mintos offers the broadest loan supply

As other platforms like Viainvest, Swaper and Robocash serve (mostly) as financing platforms for their respective loan originators, Mintos is some steps ahead.. At Mintos there are several unrelated loan originators on bord which use the platform as funding source. This opens a lot of possibilities for investors to invest broadly. It is clear that at some point problems occur with a loan originator, as the eurocent case shows us. As I wrote before, I believe that this case is good for us (except for the investors who lose money though) and strengthens Mintos’ business model and helps the platform to further develop. It would be a misbelief that this is the only time a loan originator struggles. This is valid for all platforms, not only Mintos. So do not back everything on the wrong horse, diversify!

Mintos related loan originators (Mogo, Lendo etc)

Here you find an overview of Mintos Originators, for further information, click on their logo. Even though Mogo is not considered as a related party according to IAS 24 (which doesn’t mean it isn’t related, might be different under other accounting standards), I still think it is possible that it is somehow related to Mintos. Mintos and Mogo share the same physical adress with their headquarters for example. Lendo ist the Georgian subsidiary of Banknote, the Latvian payday loan originator (related to Mintos). Even if such structures have been critisized before, this doesn’t deter me. Free market economy has a lot of examples of related enterprises. The only disadvantage I see is that if one party has control over the other party a domino effect could take place in case of problems with one party (accounting tricks etc). This is just hypothetically thinking. If we hit a recession, then the whole economy is involved anyway and one firm pulls down the other (ok, in the case of related firms, this could of course be more drastic and take place quicker, but the principle is the same). From this point of view I have no problem with Mintos’ structure. I always believe that the entrepreneurs want to make profit and not to be involved in “criminal activities”. Of course a can’t exclude such motivation completely (but it should be clear to any investor that such high yields come with high risks). At least Mintos is operational for more than 1000 days, so I guess the business model is succesful. I do hope that Mintos has a deep insight knowledge about their related originators and tries to avoid a default there as this would hit the company double. 😉

There are nice yields available at the moment

Last week I invested in Lendo payday loans which yielded at 13.5% (Euro not Lari of course) and have a duration of 24 to 36 months which seems rather unusual. I can only remeber to have seen durations of up to 12 months before. I don’t care about the longer duration as I expect most loans not to reach maturity anyway. The buyback comes in play much earlier as down the road most loans will redeem early, amend the contract or just don’t pay up. In this case they are bought back prematurely. This leads to much shorter duration of these loans then at the point of issuance. I estimate that more then 90% of these loans won’t reach the set maturity. I cannot prove this number, it is only a estimate. How do I get to this number? When I check my buyback quotas of the shorter loans I see a buyback rate of about 50%, given the longer duration, I guesstimate that the buyback figure will be significantly higher.

Bargaining is getting tougher on the secondary market

Someday in the past I had nearly reached 20% yield (NAR not XIRR) with Mintos, due to nice transactions on the secondary market. Right now I have fallen back which comes from 2 reasons. Firstly I was not able to sell everything like I wanted and used to and secondly there is a lot more competition on the market. In the beginning I was able to manually grab some snaps, but that got a lot harder as since some weeks some IT guys created their bots to do the heavy lifting. Sadly I am not able to write a bot myself, so I have to rely on some luck. Consequently this means that my yield will be somewhere around 14 and 15 percent, which is still a great return. If you would like to start with Mintos, use this link to register and get 1% cashback on your average investments during the first 3 months.

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Lendix p2p loans versus bond ETF (yield comparison)

Today I am trying to compare between ETF bond investments and an investment with Lendix. I do that to get an idea how p2p loans perform in comparison to high yield and corporate bonds. I’d hoped to get some clues if the ETF bond investments could be replaced by p2p loan investments. Beforehand, the comparison is not as fair as it should be as I had to guesstimate some datapoints, so a part of it is comapring apples and oranges. Following some factors which are not congruent and therefor make it hard to be compared. Nonetheless I am convinced the benchmark gives some insights.

What you should consider while reading this comparison

Lendix funded its first loan in March 2015, this means the loan portfolio started from scratch and could only been built over time, contrary to an ETF where you can invest once to hold. This increases the difficulty to match the yields, as I would need to time wheigh them, what I can’t given the data available. From a risk profil high yield bonds are the most comparable to Lendix loans, although they are not exactly the same segment. Most of the borrowers would not be able to emit a quoted bond. The regional distribution is different, as Lendix only offers French loans (I excluded Spanish and Italian loans from this comparison due to their youth which would dillute my results). The analysed ETF have a broader regional segmentation. France counts for about 15 and 20% of the ETF’s regional allocation. A sectoral comparison is hard due to the fact that the ETF provider allocate the sectors differently. In the ETF the banking sector accounts for about 1/5 of the total portfolio, whereas on the other side Banks are nearly not existant at Lendix. As the oldest Lendix loans only are running for 2.5 years I guess the default rate is a little to low at the moment. Further: Quoted bonds react on shifts of the yield curve. Is the curve shifting up the bond prices go down (interest goes up), as the yields adapt to the new interest rate environment. This results in an increase in yield to maturity. Contrary when the yield curve shifts down the bond prices soar and the yield to maturity gets smaller. This does not happen to Lendix loans as they are not quoted or tradeable at an exchange. This can be an advantage (decreasing interest rates) or a disadvantage in case of increasing rates. Only newly added loans are affected as they orient at the current interest rate level. Ok this is a little bit generalized, but it works like this more or less. Of course there are other parameters which influence the bond prices to a certain degree in yield shifts. There is , for example, the duration. Loans with longer durations tend to react more sensitive to shifts in the rates then shorter ones. Higher coupon bonds tend to be less sensitive. But now enough with the theoretical approach, I could write many blog posts about this only 😉

Und jetzt zum Vergleich…

According to Lendix’ stats the average yield is 6.44% (but I can’t copy this value one to one due to the reasons mentionned earlier). Firstly I have lessend the yield because of the defaults by number (3.07% of the loan number were in default), which brings me (ok, not 100% correct I know) to 6.44% x (100% – 3.07%) = 6.23% p.a yield after defaults.

Lendix compared to ETF, Sources: Bloomberg / own calculations

This per annum yield I have lessend in the first image with 2 percent for the first year and 1 percent for the second, after that I have used the 6.23 percent p.a yield. As I passed on calculating monthly yields the Lendix line is stepped with a yearly recalculation (=addition of the yield, yes, no multiplication here). I am aware that not everything is 100% correct, but as I said earlier…. We se now that only the high yield bond’s yields came close the Lendix loans. This is what I have expected.

In the following image I have put together the per annum yields (over a 2.5 year period) of the ETFs and Lendix. Logically the high yield bonds and Lendix are in front.

Comparison of p.a yields from ETFs and Lendix, Sources: Bloomberg / own calculations

Conclusion

Despite the different initial position I find that the comparison shows us somethings. We see that we would have been better of with Lendix loans then the ETFs (from a yield perspective). As the comparability is not really given I see p2p loans as addition to a multi asset portfolio and not as a replacement of standard bond products. The loans track record is too short and we have no liquidity option here which we have with the ETFs which can be sold nearly instantly. You should always watch out for liquidity if investing. What I will try further in a later article: compare the default probability of Lendix loans with high yield bonds.

ps: Register with this link and you will get 20 Euro cashback (= 10%) after you deposited at least 200 Euros.

Flender from my investor’s perspective

Some months ago I published an interview with Kris Koik, Founder and CEO of Flender. The platform just launched some months ago und we only saw slightly more then 10 loans on the public marketplace until now. Public marketplace? Yes there is a private market place as well, confused? I’ll try to explain:

How flender works

Flender has a special feature, which comes from the basic idea, which wants to offer a platform to friends. This is where the name Flender, has its origin. It is composed of “friend” and “lender”. The idea behind is that if someone needs money (no distinction between private or sme loans), the borrower has the possibility to launch a private borrowing project firstly, which can only be seen on invitation. Should the loan not be completely funded by friends and relatives, the borrower can still decide if he wants to make the project available to the public. This has not happened to consumer loans yet and I don’t know how many there have been in total. I question it generally if this works with these kind of loans. If I am in need of money, then I would ask my best friends directly, and would not go via a marketplace (although the advantage would be that there is a contract in place). I can very well be wrong about that and there is demand for such a service. Would not be the first time to be wrong for me. 2011 I did not believe that tablets had any chance in the market… look at the development now.

I still think the idea of flender is great, but I see it applicable more in the area of sme loans. If a friend would ask me for a loan for his business, then I would like to have it done through a platform, where the rules are clear and binding. For my friend it would have the advantage that he could ask several people for funds and can share his presentation with them. In most cases the friend funding would not be enough, and such projects could still be added to the public marketplace. In my opinion this is a huge advantage for us investors, a psychologial one. The borrower has already got funds from his personal network and should therefor be more motivated to pay in time. Who wants to deal with angry friends who did not get their money? If I invest in such a project I strongly believe the repayment moral is higher, I see that as additional, but of course intangible, security. As the borrower pays a monthly installment, none of the lenders can be preferred. I know, this is all theory, but I believe this model can function. Speaking for myself I can say that I would have a much better feeling for a project where friends of the borrower already have invested. Of course this is no guarantee, but I see it supportive. You can’t see if any friends are involved, but you can always ask 😉

Until now I have funded 4 projects

Four projects received funding from me, but only one has so far a duration of more then one month. This project has already made 2 payments on time. The other three projects are due to redeem in September. Then I will see if they pay on time.

What else is important?

At the moment the funding period is pretty long (and there is no interest for this period), this is due to the lack of investors (help flender grow and register now). I hope this will get better during the next weeks. At the moment there is only one project open for funding, but you can always ask the support if there are more projects (in private mode). You’ll get then a link to an additional project in which you can invest. One criteria with the credit check is by the way that the borrower must prove that they can pay the first three installements from their liquidity. This is nice, although it can change during the loan.

Wishlist to flender

I wish myself a secondary market 😉 This would assure me that I could pull the plug in a case of emergency when in need of the money. Before this would be realised I would be glad to get a better overview of my logged in area. A portfolio view would be nice. The funding period of the loans should become shorter, or if not, I would like to see some sort of cashback for the waiting period. The single most important factor to me is though that the payments will be on time and that the credit check is performed rigorously (if this is not done properly the platform is soon out of business, but the guys in charge know that. Linked Finance already proved that it is possible to operate in the Irish market with low default rates. Irish borrowers are amongst the best payers, what led to that Ireland was pretty quick through with the European debt crisis, although it was one of the PIIGS countries. Last but not least I wish that the support stays as quick as it is. When founders are so keen to get the job done, this sends a strong signal towards the investor’s community. Please keep up the great work. Click me to register with Flender.

I will report back in approximately one month to give you an update if all investments go as planned. If there are questions, please post them.