Pete2Peer Portfolio Performance Update

 It is hard to believe it is the start of a new year and a year on from when we first heard of COVID-19, yet here we are. 2020 has been a year like no other and while I’m glad that it is behind us, I suspect this year will also throw out a few challenges as the world continues to deal with COVID-19 and the impacts it is having both economically and personally on people’s health and wellbeing. This is the backdrop in which we invest in and as such I have been keeping a close eye on my P2P portfolio and the performance it has been achieving.  Overall, the portfolio has performed reasonably well and am happy with the performance achieved to date.  We will break down the individual platform performance and an overview of the whole portfolio.

TruePillars

I’ve found my portfolio of active loans in TruePillars has been shrinking over the last year with more loans paid out and a couple of defaults (more on this later) which has outpaced new loans on offer.  So much so that by October 2020 I had 30% in cash which was pulling down my returns.  As such I’ve pulled a fair chunk of this money out of the platform and redistributed most of it to Plenti (formally Ratesetter) to keep the money invested.  The reduction is reflective in the number of loans I now hold compared with the last update (currently 137 vs 165 loans). This would be much lower had it not been for the 12 new loans since October which is great to see a pick-up in loan initiations compared with the 3 months prior.  However, I will add back into the platform as loans start to exceed the repayments again to continue the diversification.

The 137 current loans are diversified across multiple industries.  The following pie chart breaks out my portfolio diversification based on the allocated industries assigned to each loan.

Over the last 12 months my TruePillars account has averaged around 10% down about 2% from last year.  There were two factors to this result, the first was the driver was holding up to 30% unproductive cash (I calculate based on all funds in the account and not just what is invested). The second driver was the number of loans on deferred payments. Thankfully this has dropped right off with only nine loans now on deferred payments compared with a high of about 55 loans.  When it comes to defaults the last 12 months have seen five defaults with the first occurring in back in January last year.  This still sit on the books as they go through the default process to see if any of the funds will be recovered. The losses for these will be worn in my profitability numbers once the default process is finalised and TruePillars write off the amounts that were not recovered. The value of the defaulted loans from the last 12 months equated to 23% of the interest I earned over the period.  Factoring in the full right off would lower my returns for the 12 months to 7.3%.

While the last 12 months has seen an increase of defaults, over the last few years I have made 227 loans with 89 loans paid in full and six defaulted with the remaining 132 still active. 

Moneyspot

This platform has been a consistent earner for us with no active involvement required from myself achieving annualised returns of around 13.02% over the last 12 months. Given the short-term nature of the loans, I had expected the returns to be affected by bad debts. The one figure I have been following closely. MoneySpot’s bad debt was 5.33% in January 2020 to moving up to 5.61% in July 2020 and continuing the upward trend to 6.66% in December 2020. While this has yet to affect returns it is something that can’t be ruled out and one to watch in the next few months.

Plenti (Formally RateSetter)

The returns over the 12 months have been 7.4%.  However, the last two months were around the 6% mark due the new funds introduced that were redistributed from the TruePillars.  Last year also saw a number of changes to the Plenti platform which includes capped interest rates with a maximum on the five-year lending market of 6.5%.  As such, the average returns on this platform will continue to decline as my earlier loans are paid out and reinvested at a lower interest rate. The performance over the last 12 months as shown little impact on the provision fund to support investors against defaults.  At time of writing the provision fund was still sitting at 157% of expected defaults with the latest fund performance found here. 

OurMoneyMarket

This platform I’ve made the call to not actively use and will see out the current investments only.  As such I’m only on every month to track its progress and withdraw my available funds.  The platform has achieved an average annualised return of 10.6%.  The few times I’ve logged in I’ve noted a couple of the loans were behind schedule repayments.  This fluctuates from month to month and as of the start of January all were up to date.

Overall Performance

The overall performance for the last 12 months has been 10.6% with the last four months sitting a little lower at 9.6%.  I’m comfortable with the performance received to date and while I’m aware that there are some capital losses on TruePillars that I’m waiting to finalise that will be reflective into the returns once they finalise. 

To keep track of the individual performance of each platform, I track them on a single graph below and then aggregate the results to give my overall portfolio returns. We can see that the overall returns of the portfolio are trending down from 12% to around the 10% mark for the previous 12 months. The driver for the returns trending lower were the underutilised capital in TruePillars and the loan deferrals.  As this has now been redeployed, I do expect this to stabilise however Plenti have a capped max rate of 6.5% which will also contribute to the overall returns trending lower in the longer term as more weight is added to this platform.

I feel the full impact of COVID-19 on the loan space is yet to fully materialise so am keenly watching the space to see how my investments continue to perform. As with all investments there is risk which is why we diversify into multiple loans and platforms. 

Hope all are faring well and staying safe in these crazy times. 

Plenti current performance during COVID-19

Continuing with my assessment of how P2P platforms have been performing during COVID-19, I am focusing this blog on Plenti (formally RateSetter). The focus of this review will be on the performance of the provision fund during this time. 

In the case of Plenti, the platform has a provision fund that is designed to buffer investors against potential losses. I would have liked to have include analysis of the benefit of the provision fund to my own portfolio. Unfortunately, Plenti informed me they do not provide visibility to individual investors when they have been a beneficiary of the provision fund when I contacted them regarding the details, and they directed me to the general performance of the provision fund. I personally find this a little disappointing given, as the lender, I am obliged by Plenti’s practice model to take the risk of the loan without any details of who I am lending to, and yet am not guaranteed support out of the provision fund should the loans I’ve invested in turn bad. Having details of received payments from the provision fund would help me appreciate the reduced returns we receive as an investor as part of the interest the borrower pays is channeled into the provision fund.

To assess the provision fund I started by pulling the monthly blog updates on how the lending platform was going and their view on the risks.  The data ranges from April 2020 to August 2020. The October blog does not mention the hardship payments, however, does contain September’s provision fund numbers.

Figure 1: Penti’s provision fund details April – September 2020

It is great to see the number of loans under hardship arrangements drop off and as such the expected provision fund losses reduce moving forward.  At this stage, the improvement in forecast and the drop off in hardship loans means the people Plenti have lent money to (our money), have got somewhat back on their feet, and a great result for Plenti.  Currently the provision fund ratio to expected losses sits at 157%, with Plenti boasting that no member has missed out on any interest courtesy of the provision fund. I do feel we are still in some challenging times and will be watching this closely over the months ahead.  

The performance of Plenti year to date has shown the provision fund has served its purpose and continued to fully fund investors for any losses they may have occurred due to bad loans. Forecasts for the provision fund indicate that there is still plenty of buffer, however it is something that should be monitored as the continuing effects of COVID-19 on the economy are felt.  

As always, I hope everyone is safe and well, as we adjust to the new normal of way work, life and travel.

Moneyspot current performance during COVID-19

While we are still in the throes of COVID-19, I feel there are still risks in the world of lending which may see more headwinds in the future. Continuing with the reviews of the different platforms and how they are holding up, I have broken down and the available Moneyspot data. I chose this platform for my next deep dive given the nature of the fund. From an investor side, it is a pooled investment, with no hands-on involvement in the P2P lending. However, the borrower side focuses in on small value loans ($200 to $5,000) which are typically repaid over weeks or months.

To analyse the data, I’ve documented from every monthly fund performance report the following key pieces of information:

• Annualised Return
• Average Bad Debt
• Average Loan Size
• Funds Lent to Date

To get a picture of how the lending is going, I first compared the I first graphed the average loan size and funds lent to date in the graph below.

The growth in the funds lent has shown very little signs of slowing down, something I was not expecting. In the current climate I was expecting a slowdown in lending as I had observed on other platforms and read in news articles. However, on further reflection, this does make sense when you think about the people taking loans. The need for short term loans may increase during the current COVID-19 environment and economic fallout.

Next, I pulled together to annualised returns of the fund and the average bad debt. I figured we would see a drop in returns and an increase in bad debts (loan defaults). To date, however, returns and defaults have been steady.

Interestingly, there was an increase in defaults in March 2019 and again in March 2020. However, this has started to drift lower. I do feel this may change in the future as some of the government stimulus wears off, so it will be a metric I will be monitoring closely.  

The overall performance covering the last six months on Moneyspot has been consistent and while bad debts are something that that need to be monitored, have not yet impacted investor returns.  I believe the next six months will give a much clearer picture of how this platform will continue to perform in current conditions as we see how COVID-19 continues to play out in Australia and impacts it has on our economy.  

Hope everyone continues to stay safe in these crazy times.

TruePillars current performance in COVID-19

It is apparent that COVID-19 will have impacts that extend beyond health implications of the virus.  Economies are locked down around the world with many people currently out of work or working significantly reduced hours due to the forced closures of or restrictions on businesses.  The flow on impact of these measures designed to stop the spread is the ability of both small businesses and individuals to earn a sustainable income and thus repay loans they may have.  This impact will be exacerbated when the economy reopens as people currently out of work no longer have the same disposable income available to them to spend on goods and services. It is thus reasonable to expect, therefore, that the current economic situation will also have a flow on effect into the general lending market of which the peer to peer lending is part. 

I have chosen to breakdown the performance of my TruePillars portfolio in the first instance, as the loans to small businesses have shown the first signs of the impact of COVID-19.  

Before getting into the current performance, it is important to understand some general stats related to the portfolio since the beginning of my investment journey in August 2018. Over the 21 months, I have had investments in 203 different loans on the platform.  In that time, I have experienced one default that has been fully finalised and saw the outstanding investment value in that loan written off. This was only 0.15% of the current portfolio value. On the flipside, 16.4% of my current portfolio exists as a direct result of the interest earnt from loans.

The current statistics of are as of mid-May 2020 and are a snapshot in time. As you can expect, these stats are changing regularly with activity across the portfolio of loans happening daily.  

Active Loans – I currently have investments in 159 different loans.  The difference is between the 203 total invested and currently active loans comes from a mixture of activities.  Majority of these 44 loans I no longer have an active stake in are a result of being paid out (either at full term or paid out early), I’ve sold off the Investment (my strategy for loans I considered higher risk) and the one default that has been fully closed out.  Interestingly almost half of these loans (18 loans) have been paid out since February this year.

Overdue – There are currently two loans overdue with the outstanding loan values at 1.2% of the total portfolio.  One loan is a week overdue while the other is at one day.  This fluctuates regularly from nil to maybe three loans.  Its something I keep an eye on to see how they are going.  

Agreed Deferrals – (A loan status to show investors where agreed payment deferrals have been made between TruePillars and the borrower). This number has been steadily growing over the past few months.  When I first started collecting data for this blog about a month ago, loans for an agreed deferral was 47 (about 26.5% of the portfolio), This has now increased to 54 loans equating to about 31.6% of the portfolio.  Looking through the loans in this category, they all relate to industries most affected by COVID-19 (i.e. cafes, restaurants, retail stores, gyms, etc).  These are the ones I will be watching moving forward as the economy continues to open back up.

Credit Monitoring – (A loan status to show investors loans that TruePillars are monitoring for their ability to pay back) Currently there are no loans in this category.  A month ago, there were 12 loans equating to about 7% of the portfolio.  These loans have changed status back to Active, Agreed Deferrals and one went into Default.

Defaulted – I currently have three defaulted loans that are going through the process of debt recovery.  The outstanding value of these loans currently sit at 1.3% of the portfolio and are currently counted in the 163 active loans. Until these loans are finalised, the full loss will not be known (any recovery of capital from the sale of assets that may be received).  To put this in perspective the first went into default in January (one could argue it was prior to the impact of COVID-19) with the third happening within the month.  Defaults are certainly something I will be keeping an eye on to help understand the impact this will have on my portfolio.

Cash – The percentage of my portfolio sitting as cash has been steadily growing as of the last few months and currently sits at 8.5%.  Normally I like to keep this as low as possible as you do not earn interest on this amount.  However, new loans issued have been dropping off with only three being put forward in the last month and a half.  My approach at the moment is to not invest in the secondary market at this point in time (as there has not been anything on the secondary market that I don’t already have a stake in) to minimise the risk of these aged loans.

It is times like these where the diversification strategy is more important than ever to minimise the risk of loss.  In my case, my current largest exposure to a single loan is only 1.8% and this percentage is shrinking.  In addition, there are now only seven loans over 1% of the total portfolio.  This diversification has allowed for the spread of risk across multiple sectors and industries.  The figure below shows the breakup across the industries I have exposure to.  The more this is diversified the better for protection you have from downturns in any one industry.

An update on the April performance saw an overall annualised return of 9.2%.  This is still a good return and about 1% lower than the March’s 10.3% return. I do expect May returns to be a little lower again this month, however not by much. Future months are impossible to predict at this point, but with restrictions easing across Australia, I would expect conditions for affected businesses starting to improve.

These are hard times for many small businesses.  One thing I have admired is the approach True Pillars has taken and the open communication it has demonstrated with both borrowers and investors on helping businesses through this time.  While I may lose some interest along the way in the short term, I would prefer to see the business survive in the short term and replay the loan in the long term.