Sunday, 30 September 2018

Selecting my first Peer to Peer provider


After identifying the potential candidates to invest my money, the next job was to select one of the four available to me (Money Spot, Rate Setter, True Pillars & Wisr).   Below is my assessment of the four different providers.  I have focused on the following key areas
  • How the investment logistics works,
  • What are the minimum investment terms
  • What are the fees involved
  • What is the historical performance

Money Spot – the target market is short duration (up to 90 days) loans.  As such, you don’t fund individual loans but you money is pooled with other investors and you receive an average return on the pooled fund performance.  It also had a minimum $1,000 buy in and six months investment term before you could access your capital.  According to the website the annualised fund return for the June through August 2018 ranged 12.47% to 12.95%.  Fees that are payable are 1.075% Management Fee and a 1.025% Expense fee.

Rate Setter – Has the lowest starting value of $10 has different term options to invest your cash.  You select your risk profile and term and they match you with an anonymous loan.  In the event of a default you may be able to draw on the provision fund to cover your loss.  At time of writing this Rate Setter website indicates the 2018 default rate (Actual lifetime bad debt rate) was 0.37% of total loans issued this year.  According to the website the 2018 returns performance has been 7.69%.  Fees that are payable are a 10% of all interest earn on loans plus interest earnt on your funds waiting to be invested.

True Pillars – Focus on loans to small and medium businesses. Although the minimum investment to open an account is $100, you can bid on a new loan in $50 lots.  The provider has two markets.  The first is to bid on new loans when they become available and the second is to buy an investor’s loan portion they are prepared to sell.  In the platform you see some general description of the business and the purpose of the fund as well as the overview of the Profit and Loss statements and Balance sheets to help you make an informed decision on the company to invest.  There is no provision fund if the business defaults.  According to the website the average rate of return to date has been 12.02%.  Fees that are payable are the first 2% of the interest rate (eg if the borrower interest rate is 10% - you receive 8% on your investment) plus interest earnt on your funds waiting to be invested.  In addition if you on sell a loan portion to another investor, the sale costs you 0.5% of the value.

Wisr – was previously called Direct Money and looks to work similar to Money Spot where your money forms part of a pool.  The minimum term is 36 months and takes 36 months from when you make the decision to withdraw funds paid out over monthly instalments.  According to the website the average rate of return to date has been 7.57% since inception May 2015.  Fees that are payable are an investment management fee of 1.79375% per annum and a fund administration fee of 1.045% per annum. 

I’ve summarised these in the table below for ease of comparison including links to the respective provider performance pages so you can check out their current stats. 

Provider
Fees
Min Investment Term
Historical Performance
MoneySpot
1.075% Management Fee
1.025% Expense Fee
6 Months
12.95% (1)
RateSetter
10% of all interest earnt
1 Month
7.69% (2)
TruePillars
2% of the interest rate offered to the borrow
1 Year
or on sell loan
12.02% (3)
Wisr
1.79375% Management Fee
1.045% Fund Admin Fee
36 Months
7.57% (4)

(1) Performance based off annualised July 2018 results
(2) Performance based off year to date in 2018
(3) Performance based off all loans since June 2016
(4) Performance based off all loans since May 2015

As an observation, MoneySpot and Wisr work as an investment of a fund meaning that loan risks are worn by everyone while Ratesetter and TruePillars you are invested in individual loans and are subject to their performance.  In these cases it is up to you to create your own diversification to spread your risk.  Just something to be mindful of when selecting your own investment provider. 

As a first pass I ruled out Wisr due to the large capital and longer investment terms.  It was not what I was looking for to test the waters and understand the investment I am making.  As such I’ve also ruled out MoneySpot with its $1,000 starting point. Based on the remaining two providers, I have chosen TruePillars as my first Peer to Peer lending experience.  While both have low entry points, the thing I liked best about TruePillars was that you have good visibility and choice of the loans you are investing into.  That was important to me to help know where my money was going and allow me to feel like I have a hands on approach to where my money is invested.

While I recognise there is a potential diversification risk with investing in single loans, I look the challenge of exploring how easy it is to achieve my own diversification and what other strategies I can implement to minimise the risk.  Now sit back and join us on the highs and lows as this investment journey sets sail… 

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