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.

TruePillars Platform Changes

To get started back into the swing of writing after a bit of break from writing (my investing has been continuing as normal) I thought I would take this opportunity to share some new developments happening on the TruePillars platform. At the end of October, the PDS was updated to reflect some new changes to the Platform. I recommend everyone have a read of the PDS (for latest PDS there is a link at the bottom of the home page) to ensure you are familiar with what you are investing in, how it works and what risks you are taking on.

Some of the key highlights and changes on platform for me are

• Changes to the security ratings on new loans
• Auto bid now also purchases loans on the secondary market
• Part interest received when you sell loan units
• New TruePillars Select loans
• New loan status definitions in the investments tab of your portfolio

Changes to the security ratings on new loans

This change is adding a different element to the rating of a loan. Previously the rating was only on the quality of credit worthiness of the loan (ability to continually pay or having a strong income verse expenses of the business). The new security rating adds some additional guidance of the assets that support the loan application. This security used in the unfortunate event of default of the business where it can be sold off to recover the capital to investors. The security is rated on a score of A to E.  Loans with an A rated security are better equipped to recoup investor capital than those rated E. It should be noted that Loans issued prior to the addition of this security rating category have been automatically rated an E regardless of the potential security of older loans. 

This is a great change and allows for investors to make more informed choices when deciding to invest in a loan. 

Changes to Auto Bid

Auto bid was used to automatically place bids into new loans on your behalf based on your criteria. I’ve been using this feature for a while to make my investing easier.  This has now been extended to the secondary marketplace where the autobid will purchase loans on the secondary market which meet your loan criteria.

While this is good to help people automate their portfolios, there are a few features I would like to see changed / added.  The first is if you have purchased secondary market loans manually (my portfolio has quite a few), the autobid does not recognize you already have investments in the loan and will purchase it again if they become available.  These means that my strategy to keep loans at set investment values has been put out of kilter. The system also does not recognize if you have sold out of a loan as it automatically repurchased a couple I had sold out of (one of which is now on my defaulted list).  

In addition to changing the above I would like to see an option to choose whether autobid purchased from the secondary market or not.  Given the current climate with COVID-19 TruePillars has disabled autobid for the moment.  You can still manually purchase new and secondary market loans with my current straight only to purchase new. 

TruePillars Select Loans

In December last year TruePillars started offering the purchase of Select Loans as the result of the purchase of an existing loan book from another bank.  This was on the back of strong Investor demand for loans that was outstripping new loans becoming available on the platform. These loans were issued by another bank meaning the loans are part way through repayments.  There is a great video explaining the Select loans here. 

You can easily identify the Select loans in the Market place as loan icons contain a watermarked “S” in the top right corner.  

New Loan Status definitions

As part of continually improving the communication to investors and help draw the distinction between loans two new categories have been added.  The list of definitions that can now be applied to loans you are invested in are as follows:

• Active
• Attempting Collection
• Overdue
• Credit monitoring (New)
• Deferral agreed (New)
• Defaulted

 The new categories allows investors better visibility at a glance which loans are overdue and which loans have been proactive and worked with Truepillars to come to an agreement on deferred payments.  This change is even more relevant in the current climate of COVID and helps us quickly view those businesses currently experiencing some hardship.  Detailed descriptions of the different loan statuses can be found on the Investor FAQs under the question What does Loan Status Mean?

TruePillars is continuing to evolve and grow.  While I would prefer to see a few tweaks to some of the new functions, I’m happy to see the site refining their product offering to make it easier and better for investors.