Platform casualties

Whereas health authorities and governments alike are updating Corona related casualty curves, it could make sense to do the same in a P2P context. There have already been several confirmed pre-Corona cases this year; Kuetzal, Envestio, Monethera etc., but with no appearent link to the current economic climate. 

However, for the next platforms to collapse, the Corona crisis might be the trigger. One indicator of the financial health of a platform is the loan volume. Steady volumes is usually good for business whereas great volatility is typically not a good sign. In a time of crises however, large variations are to be expected and this is indeed confirmed by the March 2020 numbers.

With an average of -25 % across the platforms, the general tendency is clearly dark red. It seems very dramatic but remember that similar trends are also seen elsewhere including the global stock markets. Some of these numbers stand out and deserve an additional comment.

Bondster

Removed the exit option due to Corona, which probably explains why this platform wasn’t hit harder.

Estateguru

Almost no change in volume but projects do take longer to be funded indicating that some investors have left or are less eager to invest.

Mintos

I would assume that many new P2P investors start with Mintos. This might partially explain the slightly larger impact, as these less experienced investors are more prone to panic.

Swaper

Also seems largely unaffected. Have experienced severe cash drag prior to Corona but now the cash drag seems to have vanished.

General comment

No doubt that P2P has been affected. However, the issue with P2P scam sites has surely amplified and deepened the crisis. Also, it is commonly known that in a time of crisis, investors will prefer low risk options, which P2P is not.

If you dive into the actual numbers behind, a lot of the platforms are not worse off than 1 year ago. Mintos and Viventor who have experienced the largest declines are both at the same level as February 2019.

What we do not know yet is if this tendency will continue next month. I expect that the decline will continue but I expect it to be less steep, perhaps even stabilising. This will nevertheless still continue to stress the platforms. Let’s see what the consequences will be.

Yield (YTD) March 2020

2019 was an easy year as a P2P investor. Most of the year you could just lean back, relax, and count the money. The P2P industry seemed to be running smoothly, of course there were still some hiccups but nothing too alarming. Fuelled by new insights and more sceptical investors, this radically changed in 2020. And was even amplified by the Corona crisis leading to outright investor and industry panic.

In the wake of all this, it became clear that my previous income reporting was insufficient and did not properly incorporate losses. I therefore decided to create a new indicator, an annual yield taking all losses and profits into account. For platforms/LOs that are closing down or that are severely stressed (based on community input), I anticipate that all is lost.

All money lost is obviously a worst case scenario since the actual outcome is not yet confirmed. However, I expect that the list of troubled platforms and LOs will grow during the year, at least as a consequence of Corona. This in turn could favour the initial estimate.

Looking at the yield (YTD) it seems like break-even is within reach at year end. However, much can still happen and data is only based on Q1, which creates substantial uncertainties. Also, the income side is expected to decline due to withdrawal of funds. This will make it even harder to reach break-even this year.

Corona vs. Investments

Stock markets are plummeting, unemployment rates are drastically increasing and governments around the world are creating financial stimulus packages to save their local economies hoping that other countries will do the same. There is no doubt that the current crisis will put its mark on the global markets. The question now remains whether this will be a short but intense intermezzo or if we are looking into a longer lasting, potential recession situation. It all depends on how soon societies can be re-opened.

China now seems to have the pandemic in some sort of control whereas in Europe and the US it is just getting worse. I anticipate it could take months before reaching a stable situation and then months before countries are back to normal. The re-opening of economies will probably be a long, slow process. All initiatives will require monitoring to reduce the risk of fallbacks and this will take time.

The big joker is the US economy. The US was slow to react, seems to be lacking an overall strategy, has the most corona patients in the world and consequently might take a harder hit. But it will also be interesting to observe some of the European countries such as Italy and Spain whose health systems are sincerely stressed combined with relatively weak economies. They will certainly be looking to the EU for financial aid as will many other European countries.

Investments

But how does this Corona pandemic affect P2P? Well, until now I would say that the impact has been limited. But as a amateur investor, I only see the tip of the iceberg. What I do notice is that platforms have generally increased their communication towards investors and some platforms are offering higher interest rates to combat the lower activity.

Some platforms such as Crowdestor have decided to postpone payments for a period to avoid too many project defaults. This makes perfect sense from an investor point of view, since succeeding projects tend to pay better than defaults.

The current crisis has also led me to reflect a bit about my own P2P portfolio. My gut feeling tells me that I am too exposed. I have therefore stopped autoinvesting on selected platforms, hoping to withdraw 1/3 of my P2P investments within the next 2-3 months or quicker depending on how the situation develops. Hopefully these funds can at some point be invested in stocks or real estate once the outlook is a bit more stable.

Mintos LO spring clean-up

Based on the seemingly endless string of troubled LOs on Mintos during the last half a year, I have decided that it is time to do a little spring clean-up. To start with loans of LOs rated at 40 acc. to explorep2p or less has been put on sale. Why 40? Well, I had to start somewhere and I could see that Monego was rated 34. So I thought a small buffer to that level would be nice. But it might as well have been 45 or 50.

Browsing through the loans, there is a lot of LOs that I did not know I had invested in. Some of them might also have changed name along the way. I wonder why?

Perhaps these investments are related to the I&A function that I briefly tested but decided not to use. I found that the diversification level was insufficient and I did not like that LOs could not be deselected. Both aspects are possible with an auto invest function. Yes, with I&A you can liquefy your investments quickly, which might be beneficial for some investors. However, I have a hard time imagining that I will find that useful unless the P2P market crashes. But, in that case we are all screwed anyway. For my investments the reduced level of control was a too high premium for the I&A function to make any sense.

And so now I am just waiting to see whether the loans will sell or whether I am stuck with them. Perhaps I do need to offer a small discount or perhaps they will sell like ice cream on a hot summer’s day. I hardly think that will happen but let’s see.

Portfolio February 2020

This is my P2P portfolio, which constitutes about 50% of my overall investments. Mintos is by far the largest single contributor with Viventor and Perberry on 2nd and 3rd place followed by Viainvest and Grupeer. I would have liked to diversify more but I find it difficult to identify alternatives that provide a reasonable risk/benefit ratio.

Particularly with the recent commotion in the European P2P market with multiple platforms under the suspicion of scamming investors. This has highlighted some of the risks of P2P investments and the importance of a proper due diligence process, which I must admit is not always so easy. In these circumstances it is nice to see investors coming together. Lets see what the lawsuits will bring and if there are any values left to retrieve…

Interest Rate (XIRR) February 2020

An average interest rate of 10.8 % for this month with Crowdestor leading the pack at 14.8%. Some platforms are still under-performing due to last months re-distribution of funds. Hence, next months average might be even closer to 11%.

Cashdrag is currently not such an issue. Robocash, Swaper and Viainvest have all improved, which should be visible in next months performance.

Brickshare, Crowdestate, and Trine do not pay on a monthly basis and has therefore been left out.

Recent P2P Events

What a crazy month of January 2020. This time it wasn’t just loan originators in trouble, this time it was actual platforms!

Platform collaps

It was a result of the P2P community applying pressure to several platforms as part of an increased focus on due diligence. Platforms were faced with questions to their businesses and many answers or missing answers were not to the community’s liking. So 2 high-risk platforms collapsed, Kuetzal and Envestio.

The aftermath

And now we are waiting to see what the aftermath will bring. Both platforms are facing law suits but whether that will bring anything back to investors, remains to be seen. In the Envestio case, the platform was according to the platform itself, attacked by hackers during the collapse, which meant that their site crashed. How most unfortunate for Envestio that their site crashes just when investors are panicking and looking to withdraw funds. This is indeed a rather peculiar coincidence. 

Their site is still not accessible but at least investors are not waiting patiently for access but have started the judicial process with the lawsuit already funded. As an investor myself, and participant in the lawsuit, I will be following the process eagerly. Luckily it is only about 2% of P2P portfolio that is at stake.

Nevertheless, my personal take is that the money is gone and the persons behind have disappeared. At least it is clear, that key personnel have done a lot to erase all connections to Envestio on various social media, thereby attempting to erase their online link to the company. They are probably hiding somewhere in the Caribbean with the 33 million Euros invested in the platform. But you never know, the lawsuit might actually bring something. I will together with many other investors cross our fingers.

Bloggers attacked

In relation to both cases investors have obviously been frustrated. This has lead to a lot of discussions and also attacks on bloggers who were endorsing these platforms. Even to an extent that the atmosphere got so hostile that some bloggers decided to close down their sites due to threats and personal attacks.

What have we learned?

Clearly even though I perfectly understand the frustration, threats are never okay. We are all personal responsible for our own investments and should not blame others for our actions. If we have relied on advice from bloggers etc. on investments and the investments goes bad, we have clearly not carried out an adequate due diligence process and we should learn from that.

At least I have learned a lot from this process and will in the future do more research before investing in a new platform. Also this have given me an opportunity to reflect on current investments and whether they actually reflect the risk level that I thought. Currently I have no plans for further adjustments but this can soon change, just like the weather or the next P2P shitstorm.

Portfolio January 2020

My current investment portfolio consists of three legs; P2P, property and stocks. The majority is in P2P but there is also a large amount in property, savings, and a small, but increasing amount in stocks. On the portfolio page you can find more details and reflections on my P2P investment portfolio including a Risk Grid and financial KPIs for each platform.

Interest Rate (XIRR) January 2020

It seems like that most of the platforms have now settled at around 10%. Due to the recent redistribution of funds some platforms are under-performing this month whereas Mintos has gotten a 1% boost. This is expected to even out in the next couple of months, as the platforms adjust to the new baseline. Viventor gets the honourable mentioning this month as the best performer. Envestio has been removed from the overview as it is currently inaccessible and pending a lawsuit.