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How much longer direct investment in LC and Prosper will continue to be viable alternative for retail investors?

1 more year
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forever

Author Topic: P2P Front-running  (Read 12745 times)

runnovato

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P2P Front-running
« on: August 12, 2013, 06:28:39 PM »
It is shocking how few loans are available to retail investors on LendingClub and Prosper.  They talk about billions of loans issued, while one does not get more than a dozen released per day.  There was some discussion on it, but I never saw anything that addresses this huge discrepancy.  How bad is front-running in this places?  Surely, hundreds of millions of dollars are not invested by picking a few loans here and there.  Lending Club has LC Advisors, prime accounts and API access, all ahead of an average Joe that logs in every once in a while.  Prosper for some very strange reason does not run Quick Invest until an hour after loans are released.  Is it even legal?! 

Of course, I have to say I am looking for D-F grande loans.  May be "big-money" invested in lower return notes?  Just trying to reconcile. 

Thanks for your thoughts.

brycemason

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Re: P2P Front-running
« Reply #1 on: August 12, 2013, 06:33:44 PM »
Front running implies a market for trading. There's no trading going on here. It's issuances of new securities. Brokerage houses like Sachs gets the rights to new issuances through IPOs all the time, and guess who gets priority access to the offering price? Their customers. That's not front running.

Right now, simply put, you need a tool to help automate your note selection in order to compete with the big guns. There are 300-400 notes hitting the platform every day.

New Jersey Guy

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Re: P2P Front-running
« Reply #2 on: August 12, 2013, 06:44:24 PM »
"Right now, simply put, you need a tool to help automate your note selection in order to compete with the big guns."

I think what he's trying to say in no words is that you need to check out P2P-Picks.
http://www.p2p-picks.com/

I think Bryce doesn't want to sound like he's soliciting.  It's worth the mouse click.

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runnovato

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Re: P2P Front-running
« Reply #3 on: August 12, 2013, 06:52:28 PM »
Ok, get your point, the originator can decide who gets what first, "front-running" is a bad term here.

Still, 300-400 notes are mostly low interest rate loans.  So guess my follow up question is, are all high interest rate loans consumed by big investors first?  Should P2P lending be now called HedgeFund2P lending? 

As a retail investor, my main concern is that you learn things after the fact.  Are retail investors becoming too peripheral for these platforms to have more than just borrower defaults to worry about? 

The interesting thing is that you won't know until after 5 years when all of these notes are paid back.  And if you reinvest, there is no accurate way to measure true performance (i.e. balance outstanding overstates the true loan value).  Because this style of investing is such an investment performance tracking nightmare, you have to have some trust in that originators are doing the right thing. 
« Last Edit: August 12, 2013, 06:54:00 PM by runnovato »

brycemason

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Re: P2P Front-running
« Reply #4 on: August 12, 2013, 08:13:13 PM »
Yes, you are right. I'm of the opinion that there is a need for 3rd party credit modeling for all direct lending that separates origination from ownership.

Although New Jersey Guy flatters me, there are a number of tools at the retail investor's disposal to help give them a leg up, including P2P-Picks (mine), Interest Radar, BlueVestment, Nickel Steam Roller Premium, and LendingClub's API (if they approve you for it and you have the skills to use it). Each of the aforementioned has advantages and disadvantages, but right now there's room for all these tools.

The high interest stuff generally disappears within 1-10 minutes after release, but the tools above generally allow you to get in quickly enough. It is definitely the case that there are a few big investors out there buying huge loan fractions. I frequently see an instantaneous 70% purchase by 1 investor, and then I see the tools investing in $25, $50, and $100 increments shortly thereafter.


rawraw

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Re: P2P Front-running
« Reply #5 on: August 12, 2013, 08:28:33 PM »
Big money wants high interest rate stuff, which is rare relative to all grades. A select all feature would help a ton! :-P

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Fred

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Re: P2P Front-running
« Reply #6 on: August 12, 2013, 08:44:45 PM »
Of course, I have to say I am looking for D-F grande loans.  May be "big-money" invested in lower return notes?

There is not enough D-G grade loans in the first place.

As you can see from the "Grade Mix Over Time" chart in https://www.lendingclub.com/info/demand-and-credit-profile.action, the A-C grades are about 75% of all loans in 2013, which leaves only 25% for the piranhas (institutional or retail) to consume the D-G loans.
« Last Edit: August 12, 2013, 08:56:02 PM by Fred »

New Jersey Guy

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Re: P2P Front-running
« Reply #7 on: August 12, 2013, 08:55:17 PM »
"Although New Jersey Guy flatters me, there are a number of tools at the retail investor's disposal to help give them a leg up, including P2P-Picks (mine), Interest Radar, BlueVestment, Nickel Steam Roller Premium, and LendingClub's API "

He's being modest.   ???

Actually Bryce, not being able to join your site is bitter-sweet.  If I was able to purchase on LC, I'd be a subscriber.  No doubt.  On the other side of the coin, I'm happy I don't have to go through all that aggrevation of the feeding frenzys.  I don't envy you guys trying to get funded.

Yup.  Every single note I bought off of Folio this weekend is already in my account and (hopefully) ready to pay!
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Fred

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Re: P2P Front-running
« Reply #8 on: August 12, 2013, 09:32:58 PM »
And if you reinvest, there is no accurate way to measure true performance (i.e. balance outstanding overstates the true loan value).

I am not sure if I understand your statement correctly, but LC does reduce outstanding balance every time there is a principal payment.

The outstanding balance in the middle of account details page (https://www.lendingclub.com/account/lenderAccountDetail.action) should reflect the accrual basis for interest calculation.

AnilG

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Re: P2P Front-running
« Reply #9 on: August 12, 2013, 10:05:24 PM »
Is there any data to support the statement big money wants high interest rate stuff or just your gut feel?

Big money wants high interest rate stuff, which is rare relative to all grades. A select all feature would help a ton! :-P

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New Jersey Guy

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Re: P2P Front-running
« Reply #10 on: August 12, 2013, 10:18:14 PM »
"Is there any data to support the statement big money wants high interest rate stuff or just your gut feel?"

He read it on a fortune cookie.
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investforfreedom

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Re: P2P Front-running
« Reply #11 on: August 12, 2013, 11:11:04 PM »
This topic has been extensively discussed in other threads:  http://www.lendacademy.com/forum/index.php?topic=1321.0
http://www.lendacademy.com/forum/index.php?topic=1271.msg8760#msg8760

I don't believe automation is the solution--at least not a permanent solution.  However much you automate, small investors simply can't compete with big investors.  Who do you think are better positioned to develop the fastest APIs or autoinvest to scoop up the best loans?  Institutions with deep pockets: they are the ones who will (eventually) out-compete.  (It's very much like the average day trader trying to compete with Goldman Sachs with highly sophisticated computers and algorithms to do HFT trading.)  And retail investors simply have no access to or can't afford to subscribe to the automated investing programs used by the big boys. 

Moreover, if institutions and big investors are allowed to scoop up 50% or 70% of the loans, often including the best--depending on which of the two platforms you are talking about, retail investors are still left with crumbs.  Even with automated investing, only a handful of retail investors will get the best loans; most are still left holding the bag.

The real solution is to block investors from putting in more than a certain amount or a percentage--the lower the better--during the first 15, 30 minutes or hour, so that small investors will have a chance to take a shot--automated or not.   

Front running implies a market for trading. There's no trading going on here. It's issuances of new securities. Brokerage houses like Sachs gets the rights to new issuances through IPOs all the time, and guess who gets priority access to the offering price? Their customers. That's not front running.

Right now, simply put, you need a tool to help automate your note selection in order to compete with the big guns. There are 300-400 notes hitting the platform every day.
« Last Edit: August 12, 2013, 11:26:08 PM by investforfreedom »

Zach

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Re: P2P Front-running
« Reply #12 on: August 13, 2013, 12:15:01 AM »
Is there any data to support the statement big money wants high interest rate stuff or just your gut feel?

Big money wants high interest rate stuff, which is rare relative to all grades. A select all feature would help a ton! :-P

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Yes..I've used Interest Radar to determine that there is in fact correlation with a lower average number of investors per loan with higher yielding loans.

berniemadeoff

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Re: P2P Front-running
« Reply #13 on: August 13, 2013, 12:53:12 AM »
Is there any data to support the statement big money wants high interest rate stuff or just your gut feel?

Big money wants high interest rate stuff, which is rare relative to all grades. A select all feature would help a ton! :-P

Sent from my SAMSUNG-SGH-I747 using Tapatalk 2

this is obvious by now, isn't it?

AnilG

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Re: P2P Front-running
« Reply #14 on: August 13, 2013, 02:25:48 AM »
Is there any data to support the statement big money wants high interest rate stuff or just your gut feel?

this is obvious by now, isn't it?

Obvious??? How. There are too many speculative and unproven comments are being made and presented as facts on this forum.
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