My Quarterly Marketplace Lending Results – Q3 2016

Every quarter I take some time to share how my marketplace lending investments have been doing. I open the kimono and take you inside my Lending Club and Prosper accounts, as well as many other investments, to share my returns. I do this because I believe in transparency and I want people to see how returns can change over time. I have been sharing these returns for almost five years now.

My list of accounts keeps growing. You will see in the table below that I now have 12 accounts – eight Lending Club and Prosper accounts (I know it is a little excessive) and four other investments. The new kid on the block this quarter is PeerStreet – listen to my podcast with their CEO Brew Johnson from earlier this year. PeerStreet is a real estate platform primarily focused on fix and flip properties – so short term loans. I like the marketplace lending real estate vertical and will be moving more money into this sector in the coming months.

Now, let’s get right to the numbers.

Overall Marketplace Lending Return Now at 8.21%

I am beginning to wonder when the decline will stop. I thought it would have stabilized by now but in Q3 my overall returns saw another substantial decline. I think it is safe to say that Q3 was my worst quarter ever when it comes to defaults at Lending Club. I have been focused on the higher risk end of the spectrum and those loans with vintages in 2014 and particularly 2015 continue to perform worse than previous years. Both Lending Club and Prosper have increased interest rates several times this year as well as tightened their underwriting and that will help going forward. But because these are three and five year loans I am investing in I won’t be seeing the benefit in my returns here for quite some time.

This past quarter saw another decrease in my overall trailing twelve-month (TTM) return from 8.72% to 8.21%. It has now been six quarters in a row where my returns have declined by approximately 0.5%. Just two years ago my TTM return was at 11.28%. I have been hearing from many other investors who have been experiencing similar drops in returns so I know I am not alone. And in the scheme of things an 8% return is still very good but when you get used to double digit returns year after year it is somewhat of a disappointment. My six core holdings, those accounts that have been open at least five years, also continued their decline to come in at a TTM return of 7.42%, the lowest return I have ever had.

So, here are the details. Click the table below to see it at full size.


As you look at the above table you should take note of the following points:

  1. All the account totals and interest numbers are taken from my monthly statements that I download each month.
  2. The Net Interest column is the total interest earned plus late fees and recoveries less charge-offs.
  3. The Average Rate column shows the weighted average interest rate taken directly from Lending Club or Prosper.
  4. The XIRR ROI column shows my real world return for the trailing 12 months (TTM). I believe the XIRR method is the best way to determine your actual return.
  5. The six older accounts have been separated out to provide a level of continuity with my historical updates.
  6. I do not take into account the impact of taxes.

Now, I will break down each of my investments from the above table grouped by company.

Lending Club


This was not a good quarter for all five of my Lending Club accounts. The above screenshot taken on October 1 is my main taxable account, that I opened in June 2009. What is interesting here is that the Lending Club Net Annualized Return number has dropped considerably this past quarter after being pretty steady for many quarters. In September I had the unusual situation of incurring more charge-offs than interest earned, so the total account value actually went down that month, only the second time that has happened. But the biggest disappointment for me this quarter was in my largest Lending Club account, my wife’s traditional IRA. The TTM return on this account dropped from 7.41% to 6.48% in this past quarter, down from 8.16% in Q1. This is a significant drop caused primarily by increased delinquencies in loans issued in 2015.



My Prosper accounts have proven to be remarkably resilient compared to Lending Club. The reality is that my largest Prosper account, which has been open for six years, has maintained TTM returns of between 8.5% and 9% over the last three quarters. While there continues to be significant delinquencies their level has not been much higher lately than it has been in previous quarters. My newest Prosper account, my Roth IRA is focused on lower risk loans as I seek to diversify beyond the high risk segment which is where most of the increased defaults have been concentrated.

Direct Lending Income Fund


I invested in this fund, managed by Direct Lending Investments, back in April 2013 and every quarter since then it has been my best performing investment. The investment strategy has changed somewhat from investing only in short term small business loans to providing warehouse lines to a variety of platforms offering short term and high yield investments. You can learn about how the Direct Lending Income Fund works by listening to the recent podcast I recorded with Brendan a couple of months ago. The fund is now one of the largest in the marketplace lending space at almost $800 million in AUM.

Lend Academy P2P Fund


The Lend Academy P2P fund, managed by the team at our sister company NSR Invest, is my largest holding and it invests in Lending Club, Prosper and Funding Circle loans and has a small position in Upstart as well. One of the differences about investing in a fund like this one is that it creates a monthly NAV and this is impacted by changing interest rates as well as by defaults in the underlying loans. The CEO of NSR Invest, Bo Brustkern, explained how this works:

The Lend Academy fund’s NAV reflected the change in rates at Lending Club and Prosper when each of these origination platforms raised rates, in the month it occurred. That means an immediate price adjustment is recognized, which is very different from what happens for a fund using the typical Loan Loss Reserve methodology, which many other funds in our industry are using. Funds that use Fair Value are attempting to deliver a more accurate NAV, which naturally means a more “fair” NAV for investors entering and exiting a fund.



P2Binvestor is an asset-backed working capital platform for small businesses based in Denver, Colorado. Full disclosure, I am on the advisory board of this company and have known the founders since before they began operations. I am including them here now because they have built a decent track record and I believe they provide another nice diversification for accredited investors. These are revolving lines of credit, backed by accounts receivable, with 30-60 day liquidity.



My new entrant this issue is PeerStreet, a real estate platform focused on short term loans of 6 months – 2 years. These are all secured loans with an LTV below 75% so if the borrower cannot pay back the loan the property can be foreclosed and the proceeds returned to the investor after it is sold. The loans on Peerstreet pay typically between 7% and 9% to investors. So, the purpose of this investment is not so much to juice my returns but to bring some downside protection and provide some diversification into property.

Final Thoughts

While I am disappointed with my returns this quarter I am not making big changes. I still very much believe in Lending Club and Prosper and will continue to make reinvestments there. Although I will be changing strategy somewhat and will continue to slowly move to a more conservative loan mix. More on that in a future blog post.

I am also looking to diversify beyond unsecured consumer credit. Including the Lend Academy P2P Fund, which is primarily unsecured consumer, I have well over $500k invested in this asset class. As I said above I will be looking to slowly build up other asset classes. Going forward I will be investing new money mostly in real estate as well as small business loans with the long term goal of having a roughly equal amount in all three asset classes.

At the end of every quarterly update I like to highlight my Net Interest earned number. This quarter it is $53,877 for the previous 12 months. This number really brings home to me the impact of defaults. One year ago that number stood at $56,074 on a closing balance of $640,487. Today my balance is much higher but the income generated by my portfolio is more than $2,000 lower.

If you have any questions or comments I am happy to discuss in the comments section below.

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Nov. 18, 2016 3:47 pm

Hi Peter. Excellent post!! I have a question for you. I’m investing in Lending club too but I want to move my investments to a more secure one. I’m looking at the real estate crow funding. My question is if you know the difference between, peerstreet, diversyfund and lendinghome? I’m a little overwhelm for so many options available that I really want to choose the right one!! Hope you can give some feed back on this. Thanks

Nov. 22, 2016 5:18 am
Reply to  Alex

Fundrise and RealtyMogul are the ones open to non-accredited investors. They also both make things really simple by investing in a fund vs manually investing in every single property yourself. It’s a great way to get into it.

Nov. 23, 2016 2:49 pm
Reply to  QVP1

QVP1 thanks for your comment. I did not know about fundrise. I took at look at it and I really liked it. The one that I had found for non-accredited investor is groundfloor but they are not still open where I live. I already signed up. They will let me know when my state is open. Now I have those 2 options. Thanks

Nov. 23, 2016 3:06 pm
Reply to  Alex

Cool. Thanks for the comment. Fundrise now has 5 funds available. I’ve been in the first two of them since they opened (Income and Growth funds) and I’m happy so far. Hopefully things continue. 🙂

Robert Davis
Robert Davis
Nov. 28, 2016 5:07 pm
Reply to  QVP1

I am using both Alphaflow Alphaflow funds and RealtyShares for P2P realty investments. I like both. The Alpha funds is a like a P2P fund of funds… they select P2P investments from major P2P markets (peerstreet, lending home, etc)

Alejandro Di Michele
Alejandro Di Michele
Nov. 21, 2016 9:29 am
Reply to  Peter Renton

Thanks Peter for your feedback it was really helpful. 🙂

Dec. 3, 2016 12:31 am

Hi Peter.
About a year ago you “dipped your toe” into a European platform called Bondora. I followed your lead with a similar small sized investment to your own. The results, for me, have so far have been impressive: a return to date of over 14%. As I don’t see your Bondora investment reflected in your quarterly return, I am wondering if you still have it and, if so, what is your experience?

Feb. 5, 2017 9:14 pm
Reply to  Peter Renton

Peter I just checked out Bondora for the first time and opened account, not transferred funds yet. Looks like the returns will be good, but with some good competition for high class loans, One question about currency fluctuation – wouldnt net return be impacted by dollar getting more stronger in future ? so if the dollar gets 10% up from here in next year, that will be a straight 10% loss, and after paying US taxes, the returns could be negative ? of course if dollar goes down, it will be a gain..

Dec. 19, 2016 9:42 pm

Thanks for sharing your information on investing in different platforms.

Jan. 8, 2017 4:18 pm

Peter, thank you for sharing your returns. You were my first source for information on Lending Club back in 2013, and you have been immensely helpful.

My returns also have dropped in 2016. My portfolio is more conservative than yours, so my returns are “only” down about 1.5%; however, nearly half of my defaults are my top selected notes (also the category that pays off the earliest,) which I find odd. These high quality notes (job history, income, good DTI, credit utilization, NO delinquencies or inquiries) steadily outperformed the rest of the portfolio (controlling for the age of the notes.) Then, in 2016 they turned into a barbell of best performers and defaults. And the defaults in this group have a high rate of bankruptcy and fewer payments before becoming non-payors.

Steven L
Steven L
Feb. 14, 2017 10:28 am
Reply to  Peter Renton

I have noticed higher defaults over the last 6 months too. However, all of my defaults on Lending Club have been D,E,F,&G grade loans. Since noticing, I’ve reinvested most of my funds into A,B,&C grade loans to avoid further losses.


Jan. 9, 2017 4:43 pm

As always, I appreciate you sharing your data so we have a decent benchmark to compare our own accounts. I’m also interested in the PeerStreet experience, as I’m considering opening an account there and shifting some money over.

I’m disappointed in my LC returns of late as well. I’ve been drifting down from the 10% area to the 5% area over the last 2 years (my initial LC investment was in Feb-2013). My last 2-year XIRR is 5.0% in my regular account and 5.5% in my IRA account ($200k+ in each). I’ve been using the automated BlueVestment BPA (Aggressive) allocation for all new notes for just over a year now.

Like you, my Prosper IRA is holding up much better (8.2% XIRR). I’m considering shifting more money over to it. Unfortunately their IRA money deposit-transfer process is painfully slow and less-than-straightforward. And their response time on Customer Service questions is also quite slow.

My final comment is on taxes. I let TurboTax handle all my LC (non-IRA) taxes last year, which was nice. I still don’t fully understand all of what takes place with the taxes, particularly the charge-offs. But as best as I can tell, we get hit for the full interest income, while the write-offs are subject to the $3000 loss cap. Thus for larger accounts, it appears we’re having to report more in taxable income than our true net return on the account (unless I’m doing something wrong). Because of this — and because of LC’s apparent diminishing returns — I’m phasing out my non-IRA LC account and planning to use peer-to-peer lending only for IRA accounts once my notes get paid off. While IRA accounts can be messier to transfer money in/out of, the taxes are so much easier to deal with.

Jan. 19, 2017 8:25 am

Peter, Thanks so much for the transparency around your portfolio. What a valuable resource!

Could you share a little bit more about your investment/diversification strategy for P2BInvestor? How many different deals did you spread your ~$6,800 investments across? Did you have any perspective on how to classify the risk levels of the different investments?

Thanks again!

Feb. 15, 2017 8:56 am

Hi Peter

I am eagerly waiting for you to update your Lending results for 2016 Q4. I have investments in Lending club and Prosper from 2014. I have also been noticing drift in returns. My prosper account seems to be doing better than Lending club. What I am noticing is that default rates have been increasing and even notes that are older than 15-20 months have been defaulting more. I wonder if there is any change in model or lax in document verification during Loan approval process by Lending club to keep the Loan volume high. Your input is appreciated.
What are your thoughts on real estate crowd funding sites like Groundfloor. One would think that atleast there is some asset to back the loan instead of the unsecured Lending club loans.

Thank you