Author Topic: Funds or DIY  (Read 11522 times)

megamx26

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Funds or DIY
« on: July 30, 2015, 01:42:11 PM »
Hey guys,

I'm trying to figure out if P2P funds are really worth it.  Most charge a 1% annual of assets and 20% of profit and some a 2%/20%.

Do they really provide anything useful or just similar filters to the more popular ones out there already?

Fred93

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Re: Funds or DIY
« Reply #1 on: July 30, 2015, 02:41:48 PM »
The funds charge big fees.  The funds do not disclose their strategy, so you have no idea how much risk they are taking.

When DIY, you can control risk as you like, and you don't pay some guy those big fees. 

The choice is simple for me.

brycemason

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Re: Funds or DIY
« Reply #2 on: August 02, 2015, 11:40:36 AM »
While the fees are an obvious cost, funds can provide benefits. One is that you can wire your money into the fund and you are invested immediately upon the agreed day. No waiting to buy loans. Due to the strong cash flow of this asset, you can also liquidate your position with pretty high likelihood with short notice. With a normal portfolio you'd have to let it run off or go to the secondary market. Some funds use leverage, which could be a benefit depending upon your risk appetite, and might be hard to replicate individually. Some funds also provide diversification across multiple platforms and credit classes (consumer, small business, student loan). There are four examples that could make the fees worthwhile.

rawraw

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Re: Funds or DIY
« Reply #3 on: August 02, 2015, 10:47:24 PM »
Bryce has already been converted!

If you were venturing into forms of lending unfamiliar to you, it may be worthwhile to have someone experienced in that area of lending to do the decision making for you.  May save a lot of money in the long run.  The key is to finding someone who has the actual experience, and not psuedo experience that just sounds good.  That may save you a lot of money, if it is a historically volatile form of lending.  But 2/20 is a high hurdle for any fixed income based platform -- I assume this is why they all seem to use leverage, which may or may not be a good thing.

YellowSeed

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Re: Funds or DIY
« Reply #4 on: August 03, 2015, 12:18:21 AM »
2 and 20.  WOW!  I had no idea this was going on with P2P funds.  Straight up 2 and 20 with no preferred returns/hurdles?  1) I would find one of those PPMs an interesting read and 2) regardless of how well it read I would stay FAR away.  Maybe Accel or Sequoia can have my money on these terms, but in this industry F no.

Fred93

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Re: Funds or DIY
« Reply #5 on: August 03, 2015, 01:29:46 AM »
Haven't yet seen a P2P loan fund that is 2+20.  Not sayin' there isn't one.  I just haven't seen it.

One of 'em is 1% + 20%.
One of 'em is 0.75% + 10%.

None of them talk enough about their approach, so you have no way to judge risk. 

LC's fund is 1% + 0%
LC does explain their fund's approach, so you do have a handle on its risk.

Suppose a fund earns about 10% on its loans, and then charges 1%+20%.  The fee comes out 3%, so the manager gets 3% and you get 7%.  Heck, he's taking nearly 1/3 of the income.  I'd rather keep it all.

rawraw

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Re: Funds or DIY
« Reply #6 on: August 03, 2015, 09:34:23 AM »
^They'd be using leverage, so the 10% would be a higher net return

RazzleDazzle

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Re: Funds or DIY
« Reply #7 on: August 03, 2015, 07:33:48 PM »
Wow! 3%

Ridiculous. For fixed income product that is insane.

Randawl

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Re: Funds or DIY
« Reply #8 on: August 03, 2015, 10:32:23 PM »
Wow! 3%

Ridiculous. For fixed income product that is insane.

Insane only if they are low on the spectrum of leverage.  The returns would be in the double digits at perhaps, 2x leverage.

Fred93

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Re: Funds or DIY
« Reply #9 on: August 03, 2015, 11:50:08 PM »
Insane only if they are low on the spectrum of leverage.  The returns would be in the double digits at perhaps, 2x leverage.

The two funds I spoke about are both unlevered.

I wouldn't want a levered fund.  Plenty of risk here without leverage.

AnilG

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Re: Funds or DIY
« Reply #10 on: August 04, 2015, 12:36:40 AM »
Suppose a fund earns about 10% on its loans, and then charges 1%+20%.  The fee comes out 3%, so the manager gets 3% and you get 7%.  Heck, he's taking nearly 1/3 of the income.  I'd rather keep it all.

Most such funds have a hurdle rate (5+%) so investors only pay performance fees for performance above 5%. 1% + 20% sounds a lot but based on typically smaller size of P2P funds, the fees are not that much. For example, a $50M fund will generate $500,000 (1%) in management fees and with 10% annual performance another $500,000 in performance fees. Most of these $1M revenues will go toward operations and compliance expenses. Unless you manage several hundred million dollar worth of fund, it is not financially viable to manage an active fund with less than 1% fees.

Anyway, most fund customers are UHNW or accredited investors and not DIY. Typically their time is worth more than the money they will save with DIY. When I am asked fund vs DIY question, I suggest you decide based on how much your time is worth and how much time you plan to invest in learning P2P space initially and then regular managing your account.
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Emmanuel

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Re: Funds or DIY
« Reply #11 on: August 04, 2015, 11:51:32 AM »
Obviously I'm biased but I think robo-advisors are the way to go.

A fully-automated investing solution brings the same kind of speedy execution, sophisticated loan selection and time savings than a fund, but at a fraction of the cost, since it doesn't have to maintain custody of the fund.

It's also often more accessible (e.g. not only for accredited, no setup or exit fees) and more flexible (you can let the robot decides entirely for you or define some criteria).

Half Right

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Re: Funds or DIY
« Reply #12 on: August 04, 2015, 11:51:55 AM »
the ability to liquidate your entire balance in a one month period makes it totally worthwhile.

Half Right

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Re: Funds or DIY
« Reply #13 on: August 04, 2015, 12:00:07 PM »
Obviously I'm biased but I think robo-advisors are the way to go.

A fully-automated investing solution brings the same kind of speedy execution, sophisticated loan selection and time savings than a fund, but at a fraction of the cost, since it doesn't have to maintain custody of the fund.

It's also often more accessible (e.g. not only for accredited, no setup or exit fees) and more flexible (you can let the robot decides entirely for you or define some criteria).

Obviously automating the process is the way to go. I had someone code a PHP script for me to run automatically and it is behaving beautifully. It also took the 45 minutes and cost me almost nothing.

However the beauty of a Fund is that if you ever need to get out immediately, the fund is the only one that can possibly accomodate. 

Emmanuel

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Re: Funds or DIY
« Reply #14 on: August 04, 2015, 01:11:03 PM »
However the beauty of a Fund is that if you ever need to get out immediately, the fund is the only one that can possibly accomodate.

http://www.cnbc.com/2015/06/11/investing-on-lendingclub-just-got-easier.html

Untrue, here again automation can help. Managing the sales of loans on the secondary market makes it very east to 'cash out'. As a matter of fact, we had multiple clients selling their entire portfolio in a week when they needed the money.

It's true the secondary market is not very big yet, but one only needs a couple of potential buyers to reach the efficient price.