More than a year ago I wrote this post on how returns in the p2p world will shape in the future. Time for a victory lap? Recently RateSetter, one of the pioneer of the sector in UK, announced the closing of its retail activity:
RateSetter announces that Metro Bank is purchasing the loan portfolio
Today we are announcing that Metro Bank is purchasing the RateSetter loan portfolio in line with Metro Bank’s strategic objective to grow in consumer loans.
Metro Bank has been funding all new consumer lending following its acquisition of RateSetter in September 2020, since when the investor loan portfolio has been in run off. Today’s announcement follows the subsequent sale of RateSetter’s residential property development portfolio, a line of lending which is not an area of focus for Metro Bank, and was made possible by Metro Bank’s recent sale of a 3 bn GBP residential mortgage portfolio, which freed up capital for the purchase. The performance of the consumer loan portfolio has allowed the purchase to be at full value, despite the ongoing economic uncertainty.
The portfolio purchase means that all RateSetter investors will receive their money back in full and the investing side of RateSetter will close. In line with our Investor Terms we are providing two months’ notice of account closure and so this will happen on 2 April 2021.
What happens now?
All invested money will return to investors’ Holding accounts from 2 April 2021, as will money on market. This process is expected to take five days. Naturally, no investment release fee will apply to money retuned to investor’s Holding accounts from the purchase. Invested money will continue to earn interest until then and repayments will continue to be treated in line with investors’ account settings until then too.
Thank you for being a RateSetter investor
We launched over ten years ago and grew to be the UK’s most popular P2P platform, attracting over three quarters of a million investors and borrowers. We are proud to have delivered an average annual return of 4.4%, while our credit management and pioneering Provision Fund ensured no investor ever lost a penny of capital – a unique track record that has been maintained throughout the current time of economic uncertainty and through to the purchase we are announcing today.
Going forward, RateSetter will focus on being a market-leading consumer lender consistent with Metro Bank’s strategy to grow in consumer finance.
We are committed to continuing our customer service. If you have any questions or require any further assistance, please contact our Investor Services team
This is what happens when you can borrow at (close to) 0%. Even a normally not-exiting 4.4% (sure, in reality bit more because RS was not passing through all the juice to retail customers) becomes something you would jump on, if you have a long enough proof that their origination model works. Good Loan Originators are going to disappear because there are players full of cash out there ready to HAUMP!. 500bps margin over cash rate might not attract thousands of likes on a Reddit board but there are pension funds, endowments, institutional investors that would sign without hesitation for that. Really. Now think again at those 20% buy-back guaranteed returns on Crowdestor, the 6.75% with instant liquidity on Bondora. For sure, those opportunities are still there for you to take because investment managers that are paid seven figures do not have an internet access to learn their existence.
The 2020 crisis demonstrated well how p2p investor’s sentiment can turn, and turn, and turn back again, on a dime. Every gyration is reflected in the yields you get: one day your cash drag increases, the next a secondary market is full of loans at double digit discounts. This reality of ‘risk’ is the only assurance extra-yield will persist in the sector. The moment everyone gets complacent, new scammers will joyfully enter (or re-enter) and the roller coaster will spin again. Scammers are actually good for small investors because their existence keeps the big HAUMPers away, at least temporarily; the lengthy due diligence and the career risk for a professional investor (you do not want to be the first one to bet on an investment idea and surely you do not want to fall with someone else money for a scam) are the reason why good returns are there for me and you. Which brings me to my second topic of the day.
Extra returns are scarce and limited. Why would you write about them?
Couple of posts ago I was discussing with good Kristaps about Viventor. In short, he is convinced Atlantis Financiers is not legit and did research about it; I did zero research about it but I see AF paying interests and late fees every month on Viventor. My personal opinion is that AF is facing the dire (and hard to be foreseen) consequences of COVID lockdowns, doing in the meantime the best they can; they might go bankrupt in the future but if it happens, it will be for that reason and not because of a scam. There are plenty of AF loans at 30% or more discount on Viventor secondary market and I think they are a good investment (on a risk-adjusted basis).
The fact that I write about it goes 100% against my primary interest. The available loans are limited, a seller reading here might change his mind, I might convince new buyers. Same logic applies to platform reviews: these days I cannot re-invest immediately my balance on Viainvest (cash drag), I had to set-up the auto-invest on FinBee because new loans were getting funded in seconds, I cannot be as picky as I was on Linked Finance.
You cannot maximise for audience AND investment returns…at least not until platforms will start to give priority to old investors vs new. RoaringKitty started to push for $GME AFTER he built his position, he got mad when Burry was buying because it was driving the price up before he had deployed all his capital. The bloggers out there with a YouTube channel, a podcast, a profile on every social network, books, a bloody conference on p2p, they maximise for referral fees: if you do not see the conflict of interest, the joke is on you.
This morning I was listening to Ron Baron interview on The Big Picture podcast. At the beginning of his career in WallSt, he was doing research and was getting paid commissions if his customers were buying or selling according to his advices.
And then after about five or six or seven or eight years, I was — I look back and I said, “Man, I am a disaster.” I looked at all these companies and …
(LAUGHTER)
… and — and they had gone up so much. And — and I said, “I could’ve been rich,” you know, I said all these things. “What am I crazy looking at these things and selling them so quick.” And I invested in Daylin with Ken Langone.
Ron realised that in the brokerage business he was getting a 1% commission for each buy or sell order its customers were placing with him. But his customers were getting 10x, 100x returns via HIS stock picks because they were buying those companies are riding them to the moon. That’s when he decided to quit broking and became an investor, opening a mutual fund business.
RIP suggested me this video in the last post comments. I did not know the guy and found the video well made; the red flag came at the end when he pushes for his subscription service. I understand that asking for £8.5 / month is not going to make him rich and he is probably just trying to cover some fixed cost for real. I run ads on this blog for the same reason. The problem is the wrong incentives that model introduces. He is swinging for the same fences as Ron did: however small your initial capital might be, open an excel and see how fast your wealth compounds when you invest in 10 baggers. If you can do what you praise, you do not need 8 quid a month from your readers. Plus you are promising at least one good stock every month; that’s the biggest illusion on WallSt, finding any ‘regular’ idea or return that fits a calendar. The only regular thing on the markets are the fee you pay. Financial Markets move in cycles, in clusters, some years you have plenty of good targets, others you have none. It is the reality of the game.
GMO just changed their website recently, one year ago it looked like a website from the ’00s. Why? Because it is almost a decade their return sucks. When your performance is good, your performance is your marketing strategy. When your performance is great you despise someone else money, because the opportunities are limited and you generate enough capital to do it all. Financial markets, especially on the debt side, are a zero sum game: for each good p2p loan you fund there is a borrower that got a bad deal, either for their or a system fault. Even in the stock market, prices that go up favour current shareholders at the expense of future ones (when prices do not strictly follow fundamentals). In a world where more and more investors get access to low cost leverage, referral and subscription fees are a risk management tool (at best) for someone that is supposed to believe in its ability to choose the best investments (for you) and instead spend time to build another revenue channel ‘just in case’ for himself.
What I am reading now:
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