TruePillars: A change to the way you invest

TruePillars was the first Peer to Peer platform I invested through. When I started, their offerings were based on investing in the available pool of individual business loans, with contributions into loans with as little as $50. TruePillars has now added pooled investing to the options available to investors with the pooled investing fund going live in March 2021.  This change has resulted from feedback from investors over the last few years and looking at how best to create a sustainable business model.  

While I like this concept of investing in individual loans, this only works well when there are plenty of loans available to diversify your risk.  Individual loan investing typically has a higher risk associated as you have direct exposure to default, and the increased risk of “cash drag” (a positive balance in your account but nowhere to invest the returned capital and interest) when the demand for loans exceeds their availability.  While you may receive higher interest returns on the cash you have invested, this is offset somewhat by the defaults and cash drag. I have noticed this in my own portfolio over the last 12 months during the COVID-19 pandemic where there have been a lot less lending, some businesses either going into default or on extended repayment holidays with the biggest impact coming from cash drag.  

While I have sufficient diversity in my portfolio to continue to give a positive overall result, I can see how a small portfolio of loans could be significantly impacted.  This is because the less loans you have exposure to, the more risk a single default has on destroying any gains the overall portfolio has achieved.  

Pooled Investments

The premise behind pooled investments is to remove some of the risks behind the diversification problem (risk of default) and the cash drag problem. To accommodate this TruePillars have adopted a model where investors funds are pooled. TruePillars then uses the pooled funds to issue loans to multiple businesses. This gives you diversification from a single investment and removes the cash drag as you are earning interest on the full invested amount allocated in the pool. To address the risk of default, the pooled investment funds will have a Loss Reserve attached to the fund that will supplement any defaults while there are funds available in the Loss Reserve. The pooled investments have three options of differing duration and expected rates of return.

Fund	Investment Period	Expected Returns	Minimum Investment
Go	30 Day Rolling	4.35% net p.a.*	$500
Flow	12 Months	6.10% net p.a.*	$1,000
Power	36 Months	8.10% net p.a.*	$5,000

* Net of the impact of borrower defaults and all fees and costs, excluding tax.

To see the latest stats of the TruePillars fund you can find them here (scroll down the page).  Note at time of posting this blog, the fund had just gone live and thus stats updates were pending.  As a starting point TruePillars have contributed 500K to the Loss Reserve. Given this is a new funding model, the expected returns are all indicative. 

The pros and cons

Pooling investing gives several positives for an investor.  It gives a new investor on the platform instant diversification and can allow them to have all their capital earning interest once it is accepted into the pool. The added loss reserve also adds a layer of protection (not a guarantee) that your income will not be impacted by any defaults in the fund. It also gives people a very hands-off investment for those who wish to have little involvement.  

On the flip side some of the negatives I see is that potential returns will be lower overall.  The loss reserve and diversification to combat cash drag comes at a cost of potential returns of selecting individual loans and managing available cash. 

While my preference is individual loans, I am happy to give it a go having moved my spare cash into the pooled investments to keep my capital working.  I will endeavour to keep people updated on how the fund is performing against targets and compared against my portfolio of individual loans still held on TruePillars. Before investing ensure you read the PDS documents that can be found at the bottom of the TruePillars website.

Let us know your thoughts on the new funding model and if you like or dislike the new setup.

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.