Peer To Peer Lending UK - A Liquidity Snare

[@Patrick-rj8gh]

I'm so impressed with this channel. I'm going to share it with all my friends.

[@Pensioncraft]

Thank you Yossarian I really appreciate your support. Ramin

[@michaelemonds]

An eloquent analysis by Ramin that could be summed up with: don't touch peer to peer with a barge pole.

[@Pensioncraft]

Hi Michael, thanks! Ramin.

[@TynOng]

It's great you use a pointer in the video. In some videos, the graphical information is a bit complex, easy to lost track of what item you're talking about. Thanks for another great explanation.

[@Pensioncraft]

Hi Tyn, thank you. It's funny you should say that because I used the pointer because someone else who doesn't speak English as a first language said _exactly_ the same thing! Thanks, Ramin.

[@yorgosprotogeros3541]

Amazing presentation. You explained everything with a lot of details. I subscribed

[@Pensioncraft]

Welcome aboard! And thank you for your comments

[@tc9634]

"let's look at that in a bit more detail" is my alarm now

[@Pensioncraft]

LOL Tim, that's preferable to the one from the video on correlation between the FTSE 100 and sterling... Thanks, Ramin.

[@tc9634]

@@Pensioncraft grr I still egt duped by that theory and I keep ahving having to remind myself that the companies deal with the currency risk, not me

[@battmarn]

Would love an update on this given the current coronavirus fears and historically low interest rates for savings

[@RobCLynch]

Yes I'm watching this a year later. To think that as this video was uploaded, somebody was eating a bat.

[@FinancialThing]

I agree about liquidity but one thing to note, liquidity can be challenging in any investment vehicle and p2p never guarantees liquidity. It's hard to obtain decent returns without accepting levels of risk. Peer to peer lending has a place in an investment portfolio but company and loan diversification is key. I wouldn't invest too high of a % of liquid net worth into p2p. I've been fortunate to visit many of the p2p companies and get an insight into their inner workings and talk to the people running the companies. Each p2p company is vastly different regarding the lending products they offer. I'm moving away from higher-risk p2p lending in favor of companies that have a sound lending criteria (based on experience and borrower screening) and sensible business plans to reach profitability.

[@Pensioncraft]

Hi Financial Thing thanks for sharing that. As you say each P2P company has very different loan types and diversification is important. However, most of the junk that has been regulated off bank balance sheets has found its way into the P2P market and it's going to be tricky to avoid it when we get a recession and loans start to default at a higher rate. Liquidity is going to become a huge issue then. Thanks, Ramin.

[@FinancialThing]

@@Pensioncraft P2p actually solves a large problem for small business owners who are constantly turned down for financing by high street banks which have been in control of the finance world for decades. Not all of these borrowers are bad, most don't meet high street bank criteria (I experienced this myself). In addition, peer to peer companies are able to finance loans relatively quickly (important for property developers) whereas the banks take months. Many loans are sourced by the peer to peer companies themselves, some of which have competent underwriting. Yes, there are some poor loans out there which is why it's important to invest through the reputable companies (not just the large ones as large doesn't always mean reputable). There are a good number of reputable p2p companies offering sensible products. It's just a matter of knowing which. P2p investments were never established as an easy access product but more for a longer-term investment (up to 10 years).

[@drrakeshmadhyastha]

fantastic unbiased take on p2p.. thank you

[@Pensioncraft]

Thanks Dr Rakesh Madhyastha, i'm pleased you liked it. Ramin

[@TonyStawBridgeClass]

How well did p2p do during the Covid period? It would be interesting to have an update of p2p that covered the last two years.

[@benjaminm39999]

It's just the same kind of stuff that goes into junk bonds. The only difference is it's not packaged up in to bonds, and you don't get the daily liquidity you'd get with a junk bond OEIC, IT, or ETF. And the returns are often nowhere near what is advertise.

[@Pensioncraft]

Hi Benjamin that's right, at least junk bonds have a secondary market so they can be sold much more easily than a loan to a private investor or small company which can't. I've also heard from PensionCrafters that they don't get their advertised return and that payments are sometimes delayed. Thanks, Ramin.

[@alexandralyansberg9127]

The best Video on this topic 😍

[@Pensioncraft]

Thank you @Alexandra Lyansberg i'm glad you think so! Ramin

[@mutton_man]

I've been investing in p2p for a while now. Over 5 years and not had any issues yet. But I think youve evaluated the risk quite right in the video and I will lower my holding of p2p. Lendy was a good example and I didn't expect the avg losses to be 40%. Therefore I must consider that risk when investing in p2p.

[@Pensioncraft]

Hi Mutton Man I'm glad the video helped. It's useful to see what _actually_ happens when a P2P platform goes bust, although it all depends on the type and credit quality of the loans you take on. Thanks, Ramin

[@paulmolyneux9503]

I'm not sure the bank intermediation model is a reflection of reality. The Bank of England suggest it is not.

[@Pensioncraft]

Do you have a reference Paul, that sounds interesting. Thanks, Ramin.

[@paulmolyneux9503]

@@tc9634 I don't think that exists in the UK. Banks don't lend a fraction of deposits (again, according to the BoE, if I'm reading them correctly: www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy)

[@paulmolyneux9503]

@@Pensioncraft www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy

[@GavinLawrence747]

@@paulmolyneux9503 That link brings up a 404 error for me Paul. www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy Does this work?

[@GavinLawrence747]

@@Pensioncraft Ramin, are you familiar with Prof Richard Werner and his research on money creation?

[@huguybear]

No issues for the past 5 years with Assetz Capital but had over £50k invested with Saving streams/ Lendy back in 2018 and happy to have taken my money out on time.

[@gatekeeperboxing5898]

I am currently investing with 8 Peer to Peer Lenders, I will not name them as I do not want to be seen to be promoting anyone in particular. Some seem to be handling the Covid Crisis well without any discernable changes and others not so much.

[@tc9634]

I'm still comfortable with the risks of Funding Circle, Ratesetter and Zopa. My total deposits count for less than 10% of my net assets, and if I lost it all I could replace the loss within 3 months. What I worry about is people who rely on a particular platform for essentially their life savings. That's dangerous and stupid. I'm not bearish on P2P because I see it as a natural and healthy evolution and democratisation of the saving side of banking. Banks make money from loans - now I can too. I like that I am lending money directly to the real economy, to real people and businesses to do real things. I accept that within the next 10 years or so there will be a recession and default rates will rise, perhaps exceeding the gross interest rate, but I don't believe the negative (or positive) hype around P2P. I've made my deposits and I leave them alone.

[@rdubitsk]

Tim Collins But are you making money at Funding Circle?

[@tc9634]

@@rdubitsk for the first 6 months or so yes but then a lot of loans started becoming late, sometimes the total in arrears actually created a loss. But overall the value continues to rise fairly steadily and I'm going to wait 5 years until my first lot of loans are paid of before passing judgement. I accept that funding circle is the riskiest platform and I am concerned about the recent rise in property development loans. However after a bad period with maybe a -5 - -10% loss, the loans that survived that period and new loans issued in the period will probably be stronger.

[@woohay]

@@tc9634 Would be interested to hear how you've done after 5 years. Is that 5 years from now, or 5 years from the point at which you invested? If the latter, how far are we from this point?

[@christopherellis2663]

A fool and his money are soon parted. Never imvest more than you can afford to lose. \|/ why is it necessary to repeat this?

[@Pensioncraft]

Hi Christopher, a good point. Although it is worth saying that if the investments you choose are less risky there's less chance you'll lose money. Thanks, Ramin.

[@jbullionaire2749]

Interesting video. Especially the discussion about the banks at the beginning I'm going to steer well clear of P2P! Not that I was considering it anyway, but you've made me doubly sure I don't want to dabble

[@Pensioncraft]

Thanks J BULLIONAIRE thanks, I thought that video of the CEO of the FCA giving evidence to the Treasury Committee was fascinating, and pretty scary too. He essentially said that he knows that the toxic assets that banks now shun have now shown up in the Peer To Peer market and are going to cause a liquidity crisis at some point in the future. Thanks, Ramin.

[@maurociocchetti3724]

I think p2p lending is quite risky investment. You could add this kind of investment into your portfolio but I suggest to use only a very small part of you assets. I rather prefer investing in stocks, bonds and ETF.

[@Pensioncraft]

Hi Mauro, I agree that if you are going to invest in peer-to-peer lending it should be a small proportion of your portfolio given the high risk involved. Thanks, Ramin.

[@abrahamarbores3135]

@@Pensioncraft I have experienced borrowers defaulting on their loans over the past five years with P2P lending. The risk is mixed I think. I'm in NL and borrowers are all from NL, so there's no geographic diversification. The big problem I think is the investments being very illiquid in nature (as you pointed out). Your money is locked for 2 - 5 years. Even when finding borrowers who put on collateral, like real estate loans, aren't entirely free of risk, as houses are also subject to losing value during certain market conditions. As long as the investment allocation to P2P lending is small, the risk is manageable. That being said. The financial markets aren't without risk either. Even government insurance of money in savings accounts isn't entirely risk free. In extreme market conditions, when there are lots of bank runs, the government must borrow heavily to bail out savers, which puts pressure on already overburdened government debt obligations. Also, with negative interest rates you have a negative return on savings. I think tail hedging is very interesting. Under normal market conditions markets compound over time. With taking specific types of insurance to hedge against black swan events, you can weather the storm during those times. You do have to take counterparty risk into account though.

[@isodb4348]

@@abrahamarbores3135 what p2p platform do you use that only lends to people within the Netherlands if I may ask ?

[@abrahamarbores3135]

@@isodb4348 geldvoorelkaar.nl. That's the biggest dutch P2P-Lending platform.

[@markonthemarkets6150]

Would really like some reviews on the likes of Loanpad, kufflink and easy money.