It has been a while since I wrote about my whacky alternative investments. Two things happened in the past:
- With two kids and my wife taking the full-time job to run after them, we have less disposable income to play around with (maybe I also became more responsible?)
- the move to Switzerland gave me access to US-listed ETFs: I can easily find all the diversification I want in one place. I want to grow my enhanced model portfolio the fastest I can because it is the best investment option I have by a wide margin.
P2P Lending
I am left with some boomer platforms in this area. Maybe some of these names would generate a bit of nostalgia in the reader; what impressed me the most is that Bondora is alive and, allegedly, still raising funds.
- Twino, FinBee, ViaInvest: they were winners for me. By regularly taking out half of the gains, I have now fully repaid my initial investment and I am left playing with “house money”. Despite all the things that happened from COVID onwards, these platforms managed to constantly generate a higher than 10% yearly cash flow. Sure, 10% with rates at 0% is not the same with rates at 5% but still…
- Bondora: even here I managed to recover my initial investment! It took only 10 years… The issue is that there is not much left as a gain. Being flat nominally over a decade is a Pyrrhic win if you consider the opportunity cost and inflation but if we want to be fair, at least half of the amount went out before 2019 and I reinvested the proceeds so…
- EstateGuru: their entrance into the German market was a total disaster but, even assuming a 0% recovery from those loans, my adventure with EstateGuru would still be profitable. What pissed me off was them introducing a management fee. Many platforms introduced bogus costs like withdrawal fees in recent years and I was still fine with that. The management fee is where I draw a line so, off my money goes. But…I invested in EstateGuru equity as well with Seedrs so, probably the management fee idea wasn’t that bad after all…as long as everyone else is not following me.
- Mintos: their platform had several problematic issuers and the Russian invasion of Ukraine didn’t help but it is holding up well, considering the circumstances. Their recovery process has been so far effective. I tested their fractional bond product and is working fine; I didn’t even check what they do with their “etf” and “smart cash” though.
- Fellow Finance: some time ago they decided to turn into a bank and stopped the p2p biz. I got my principal and a very small part of the interest back, the rest was used to cover loan losses.
- LinkedFinance: out of 200 loans I made, only 1 guy ran with the money. Not bad, considering that LF is doing small-biz loans and it was doing it during Covid. I am close to doubling my investment and moving LF into the same category as Twino&Co.
- InRento: I got involved in the platform because they bought EvoEstate. Instead of taking the money out, I decided to play along and it is working so far. Probably as long as Russia doesn’t decide to invade the Baltics; after that, I am not bullish on real estate investments in the region.
- Iuvo: at the beginning, I didn’t properly set up the autoinvest function and, surprise, got more than a third of the capital invested with a counterparty that went bust. In four years, the gains have covered 83% of that loss, assuming there will be no recovery.
- Kuflink: I opened it because I wanted some geographical diversification (most p2p companies are based
in the Balticson the doorstep of a lunatic). I didn’t like in principle the low risk/low return type of investment (the “low risk” is related to the fact that loans are backed by real estate properties but I still bear the platform counterparty risk, which is big and only partially rewarded) but I went for it anyway. Recently the platform decided to raise the minimum investment to GBP 500 and I started to take my money back. So far I have an IRR of c7%, withdrawn half of the principal and no write-downs.
Was it worth it?
I understand the above analysis is a bit scant and some Excel pics, even not fancy ones, would have added a lot for the reader. But I never created one… and I am not going to do it now. Plus, I always had a certain reluctance in sharing figures: without the wider context, their weight compared to my Net Worth, is rather meaningless anyway. And I am definitely not going to share my NW. This means I would have to rescale the whole file to a hypothetical size, which makes me doze even just writing about it.
Was it worth it if I did not even have the dataset to reach a meaningful conclusion? I think so. It was an “experiment”, I was fascinated by the instrument and I wanted to learn more. And the only way for me to learn was to get my hands dirty (I repeated this concept several times in past pieces and I suggest you go read them if you want more context).
From a raw number POV, I would have been richer by investing it all in a 60/40. But this consideration smells a lot like “resulting”. My expectations were either a complete bust of the sector driven by frauds or a severe deterioration of returns driven by increased demand and capped supply. We landed in the middle scenario, where a combination of defaults and COVID drove away enough interest to keep returns high for investors but not enough to make the whole proposition un-economical for the platform managers. Until the next default. Or euphoria, considering that risk-free rates are going down again.
Considering the hype around Private Credit, I do not feel I wasted my time playing here. I learned valuable lessons and the knowledge applies to other investment areas. The costs and risks are heavily concentrated at the beginning, the final result depends on how long the above platforms are a going concern. Even after 10 years, your uneducated guess is as good as mine to say how long the music would play.
Also, without p2p lending there might not be this blog 😉
Masterworks
I like the idea behind Masterworks; I liked it a bit less when the budget started to be tighter 😉 Anyway, it is funny that I wanted to invest with the firm principle to buy only art produced by dead artists and…I am 50/50 so far. There is ALWAYS a lesson to be learned.
I got the first exit not a long time ago:
I “owned” the painting for almost 4 years, so that 26% translates to an IRR of 6.3%. Fine? It is hard to draw any conclusion from a single data point but considering that Basquiat is a conservative play I am not disappointed. Their target holding period is 7 to 8 years, so this was a rather fast deal.
Masterworks is a US-based platform and I was surprised how smoothly the cash-in/out process went using Revolut. Unfortunately, living outside the US, I had to receive the cash here and then send it back to re-invest but it was still like a 10-minute process. For the same reason, I am not allowed to use their secondary market, which is a pity.
My goal here is not to make the deal of my life. I know that when they launched, they waved around a Citi research boasting a double-digit annual return: that’s a tad too optimistic (or full of survivorship bias, if you prefer). I like investing in art and I do not have the means to do it properly. Now, if you invest in cars, watches, wines, pokemon cards, that’s REALLY stupid!!! (I. am. joking. As long as you do it with the same spirit).
When I was living in Geneva, I went to an art fair with my wife and she fell in love with Lynette Yiadom-Boaky. At the time, her paintings were going for around 100k: way out of our budget. Now she sells for almost 10 times over. Always. Listen. To. Your. Wife. At least, thanks to Masterworks, I was able to buy her a 1/700th of a painting while crossing my fingers the trend will continue.
Seedrs Republic Europe
Last but not least, my ongoing adventure as a VC/angel investor.
I did 27 investments and my current IRR is 11.31% [these investments have a favourable tax treatment in the UK. IF I bothered, the IRR would be above 17%. But I did not]. As it happens for this type of investment, 90% of the gains come from a single investment, a ghost kitchen company whose shares went from 1.6 to 28.93.
I had 6 defaults and 2 others are most likely to go soon. I got screwed by the Italian founder of 8Sleep: he saved one of the companies I funded and promised to pay previous shareholders if the founding team would stay for a year more. He fired them after 11 months… Guess I am not going to buy his mattress after all.
I loved the service so much that I bought shares of Seedrs on the secondary market. A few months later they got acquired by Republic and, unfortunately, they didn’t let small shareholders swap their Seedrs stake for a Republic one.
It is a type of investment exercise that I would suggest to anyone, to realise how many potentially great ideas are out there. When done well, it requires a lot of research, experience and understanding. Still, the odds are against you because of adverse selection: if a company arrives to raise on Seedrs, it means it got passed by many, MANY other knowledgable and resourceful investors. You see only the worst deals. And you have zero opportunity to speak with the founders: their character is usually more important than the idea.
The best thing about Seedrs is that you can invest just 100 quids (and probably even less than that): mistakes are cheap and you get 70% (?) of the real experience.
What I am reading now:
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