My Quarterly P2P Lending Results – Q1 2016

We have had quite a month of news here in the P2P lending industry. But now I want to return to a regular feature on the blog, something that I have been doing since 2011: sharing my quarterly returns.

I like sharing the details of my investment returns because I believe in transparency and I know returns are what motivates many, if not most, investors. I started out with just Lending Club and Prosper but slowly have added new investments over the years all focused on the lending space. I included a relatively new account this quarter, P2Binvestor, they are an asset-backed small business lending platform open to accredited investors – you can read my original review here.

I have a total of 11 accounts now, most are with Lending Club or Prosper and I will be adding new accounts to this list over the coming year as I am adding new money into a couple of different real estate platforms. I have a relatively large exposure to unsecured consumer credit, small business loans through Direct Lending Investments and now I want to diversify a little more into real estate. More on this later in the year. Now, let’s get right to the numbers.

Overall P2P Lending Return Now at 9.28%

The downward decline in my returns continues. Almost all my Lending Club and Prosper accounts are now at least five years old and at this level of maturity my initial investment has long since been repaid and in some cases I am cycling through my original principal for the second or third time.

This past quarter saw another decrease in my overall trailing twelve-month (TTM) return from 9.85% to 9.28%. Just a year ago my TTM return was over 11% but as Lending Club and Prosper decreased interest rates for borrowers and defaults also increased a little my return has been hit. Now, the platforms have been increasing interest rates over the past several months but that will take a while before it is reflected in my returns here. My six core holdings, those that have been opened the longest, also continued their decline to come in at a TTM return of 8.39%.

Now on to the details. Click the table below to see it at full size.

P2P Lending Returns Q1 2016

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 previous updates.
  6. I do not take into account the impact of taxes.

In the past I have gone through each of my accounts in this table individually but in the interests of brevity with this post I am going to group all the Lending Club and Prosper investments together.

Lending Club

Lending Club Main Returns Q1 2016

I have a total of five Lending Club accounts dating back to my very first account that I opened in June 2009 – the above screenshot is of that account taken at the end of last quarter. My original account was a taxable account and soon after opening this account I realized the tax benefits of holding these investments in a retirement account. So, I opened both a Traditional and Roth IRA in my wife’s name and now I have both types of IRAs in my own name. I try to invest in different notes across all five accounts using mutually exclusive filters. For those wondering how I feel about these Lending Club accounts given the recent news you should check out my post from last week.

Prosper

Prosper Main account Q1 2016

When I first opened my Prosper account back in 2010 they didn’t have an IRA option. So, the first couple of years I focused all my Prosper investing in taxable accounts. Historically, Prosper charged higher interest rates than Lending Club and had a higher risk mix of loans so my average interest rate has been higher there. Today, the platforms are more in line and the average rates are within one percentage point of each other. My newest Prosper account, my Roth IRA is focused on lower risk loans as I seek to diversify beyond the high risk segment.

Direct Lending Income Fund

Direct Lending Income Fund Statement Q1 2016

This fund managed by Direct Lending Investments is now three years old and continues to be my best performing investment. It invests in high yield, short-term small business loans across multiple lending platforms and has consistently returned in the 12% – 14% range for me. I am very pleased with the work Brendan Ross and his team is doing as they continue to provide high yield even as the fund has grown tremendously in size – to around $575 million in AUM today.

Lend Academy P2P Fund

Lend Academy P2P Fund Q1 2016

The Lend Academy P2P fund, managed by the team at our sister company NSR Invest, invests in Lending Club, Prosper and Funding Circle loans and has a small position in Upstart as well. While I have been very happy with the way the fund has performed, when Lending Club and Prosper raise interest rates, as they have done several times recently, it impacts the NAV of the fund. Bo Brustkern explained it best in my last quarterly update:

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 nearly all 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

P2Binvestor Statement Q1 2016

My new entrant this issue is P2Binvestor, 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 short-term loans, backed by accounts receivable, with 30-60 day liquidity.

Final Thoughts

As I said in my last update I think the new normal for returns is in the 8-10% range. While I would like my returns to be higher I am not reducing my holdings by any means. I still feel that investors are rewarded well for the risks we are taking.

Speaking of risk, I have always tended to focus my investments in the higher risk segments of the platforms. These have historically been the best performing loans at both Lending Club and Prosper. But that could be changing. If and when the next recession hits the best returns may well come from the lower to medium risk loans. So, I have been slowly moving my investments into slightly more conservative loan grades.

I always like to highlight my Net Interest earned number. This quarter it is $56,582 for the previous 12 months. This is actually down slightly from my Q4 2015 update as I suffered slightly more defaults this quarter and did not add to any positions. I expect this will rebound nicely in Q2.

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

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Mark
Mark
May. 24, 2016 9:45 pm

Thanks for sharing. I believe all of the above (outside of LC and Prosper) are for accredited investors only, correct? I’m looking to further diversify but haven’t found much outside of Fundrise and Street Shares. Not exactly the same as P2P Lending, though.

I’m seeing the same dip in returns for my accounts as well. Probably 1 percentage point down from 6 months ago. I was considering the transition back to higher grade/lower return loans as well but staying the course with my strategy for now. For example, for LC I’m investing in A-G loans with the vast majority of my investments going D-G. Are you just being cautious or do you recommend incorporating more conservative loans now?

Mark
Mark
May. 25, 2016 7:30 pm
Reply to  Peter Renton

Thanks, makes sense.

Zach Aronson
Zach Aronson
May. 25, 2016 6:55 am

What are your thoughts on LendingClub’s secondary market? Have you sold any of your loans on it or tried to?

ali
ali
May. 25, 2016 9:08 pm

What is the minimum amount needed to invest in p2binvestment?

I have invested very large amount in lending club over past 5 yrs. Very happy. I have NOT noted any decline in my returns. I guess I too will experience the pain.

I have been buying LC stock hand over fist. What a beautiful gift from Mr. Market

LC
LC
May. 31, 2016 8:40 pm
Reply to  Peter Renton

Hi Ali/Peter,

I reached out to P2Bi and they are accepting investments only from those who have been invited to participate. Any idea when they plan to accept investments from other investors?

LC

Valery Stanley
May. 27, 2016 9:23 am

Hi, love your site! Thank you so much for sharing your experience. I’m following your strategies (more or less) and as of today have NARs of 9.42% (main) and 13.96% (trad IRA). I’m worried about the current news, but not enough to think about pulling out. Thanks again.

CJ
CJ
Jul. 6, 2016 6:34 am
Reply to  Valery Stanley

You can’t “pull out” even if you wanted to unless the loans either defaulted or went to maturity.

LC
LC
May. 29, 2016 2:15 pm

Hi Peter,

In the above article, you have mentioned that you are planning to invest in real estate. I am curious to know what platforms you are considering for real estate investments.

Thanks,
LC.

LC
LC
May. 31, 2016 8:03 pm
Reply to  Peter Renton

Hi Peter,

Thanks for the response. Do you plan to be as transparent with you real estate investment returns as you are with P2P lending returns?

Did I miss a post from you regarding your Realty Mogul returns?

Thanks,
LC.

Lalit Chhablani
Lalit Chhablani
Jul. 11, 2016 6:48 am
Reply to  Peter Renton

Awesome! Will be waiting.

Willy05
Willy05
Jun. 9, 2016 12:13 pm

Nice going Peter. I see the returns are not the LC “adjusted returns.” Your thoughts on this?

Regarding diversification – I agree P2P is a distinct asset class – however, it should NOT be the mainstay of a diversified portfolio.

It looks like LC is starting to address borrower quality concerns. Time will tell – along with investor returns.

Gregory
Gregory
Jul. 5, 2016 11:17 am

Hi Peter,

I have been exclusively using your “Super Simple 4 Hi Returns” filter on a Lending Club account for just over a year. Net Annualized Return reported by LC is 6.64%. I should expect a higher number than this, yes?

CJ
CJ
Jul. 6, 2016 6:32 am
Reply to  Gregory

You’re lucky to be getting 6%. My NAR has dropped to 5.67% and my ANAR is now -2.05%. I’m looking at a 15-20% default rate and will end up losing money on this when all is said and done. Recently stopped auto-reinvesting and now just hoping to get whatever I can out

When I read the returns by the author, I think he got in at the right time. I don’t think his experience is possible anymore. I’m glad I only invested $3k!

Warning to all – DO NOT INVEST IN LC!

Gregory
Gregory
Jul. 6, 2016 9:50 am

CJ – I referring specifically to Mr. Renton’s “Super Simple 4 Hi Returns” filter. Is this what you are using?

Grade: C,D,E
Inquiries in the last 6 months = 0
Loan Purpose: Debt Consolidation, Credit Card Refinance
Optional: Home Ownership: Mortgage or Own
Optional: Annual Income over $45,00

CJ
CJ
Jul. 6, 2016 10:45 am

yep

Scott
Scott
Jul. 18, 2016 1:44 pm

Peter,
As always, thanks for this information. As far as your future real estate investments– What are your thoughts on the company GROUNDFLOOR and the ability of the everyday investor to invest through their platform?

Mark
Mark
Jul. 26, 2016 7:35 pm

I see your quarterly returns have decreased almost every qtr since Q1 2014. Do you base this on an increase in charge offs, decrease in interest rates, going with a more conservative approach, or all of the above? My results have also decreased, significantly so, over the last 6-12 months. I’m wondering if this is an investor-wide concern that will soon stabilize, or not….

Mark
Mark
Jul. 29, 2016 6:49 pm
Reply to  Peter Renton

Thanks, I appreciate the detailed response.

CJ
CJ
Jul. 29, 2016 7:37 pm

And now you make -2% ANAR if you’re lucky. Whole house of cards is collapsing

John Gasca
John Gasca
Aug. 15, 2016 2:03 pm

Hey guys, I just wanted to add my experience here because I found this site & Peter Renton’s transparency about his returns very helpful. Thank you Peter! It was one of a few sites that I studied quite a bit before I took the plunge and decided to invest in P2P.

Peter as well as others that were successful in P2P stressed that you must use filters to get the most bang for your buck so to speak. I kind of combined filter recommendations from a few sites and established my own.

Here is a short history of my experience on Lending Club:

Opened Traditional IRA with LC
Initial Investment 5k September 30, 2015
First note issued October 13, 2015
Invested only $25 per note
Invested only in 36 month notes
Added investment of 10k March 21, 2016
My Current Loan Grade Mix:
C 6.46%
D 32.49%
E 43.12% (Highest ROI)
F 11.88%
G 2.73%

I currently have 728 Loans
NAR 18.18%
ANAR 8.00%

Current Loan Status
Issued & Current 656
In Grace Period 11
Late 16-30 4
Late 31-120 25
Default 0
Charged Off 2

I had those 25 loans that started not paying right around
May-July of this year which was a concern. It’s seems to have
gotten a bit better now. I did increase my C grade notes and
cut off allocation of more F&G notes because of that. I am 10 months
into my first notes that were issued and noticed that for quite some time
my ANAR was around 11%. Then after those 25 started defaulting, my
ANAR fluctuates weekly between 6.4% and about 8.25%.

This is still a learning process for me, but so far I am pleased with the returns. The part I like the most is that this P2P part of my portfolio is not
really correlated at all with the stock market. It is tied to the economy, so a recession that affects jobs would certainly affect payments and returns.

Well I hope that give another perspective on a real actual Lending Club account.

CJ
CJ
Aug. 15, 2016 7:42 pm
Reply to  Peter Renton

Must be nice. I used the same strategy and my ANAR is now -4.5%. Yes NEGATIVE 4.5%. This is quite possibly the worst thing ive ever invested in.

162 loans
15 in “grace” thru “120”
1 “default”
13 “charge off”

So that makes basically 29 dead loans after 9 months. Mind you, I have A-G loans, most heavy in C and D. The majority of dead loans are not G grade. They are C and D

Amazingly a few loans were charged off without a single payment. How the hell did Lending Club let this happen? Do they not recover any funds once the loans go to collection?

I would NEVER encourage anyone to put a dime in this scam

Just waiting now for the class action over their deceptive advertising

Jon Pildis
Jon Pildis
Aug. 19, 2016 12:33 pm

Peter – Are you going to publish a Q2 update? Q2, at least for me, was pretty challenging from a return perspective.

ALI
ALI
Aug. 25, 2016 8:34 pm

Hi,

Thinking about investing in direct lending income fund. What safety does investor have as far as fund safety (fraud / bankruptcy, etc)

Thanks

P.S. Many yrs ago I took you on line p2p lending course, best money spent.

Joe
Joe
Aug. 26, 2016 11:57 am

Hi Peter,

Have you ever tried to calculate a risk adjusted return using something like the Sharpe ratio or other risk-adjusted calculations?

Corpely.com
Aug. 21, 2019 4:32 am

Q1 marketplace lending results. Peter Renton of Lend Academy has been open about his marketplace lending investments for years. As usual, this is a must-read.