Author Topic: a view of LC's deteriorating investor returns  (Read 24026 times)

apc3161

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Re: a view of LC's deteriorating investor returns
« Reply #30 on: February 22, 2017, 11:21:08 AM »
Quote
Aside: LC's Broad Based Credit fund, which is essentially filterless, ie "broad based", is now earning 0%.  They have fallen more than I have.

Where do you find this data?

Fred93

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Re: a view of LC's deteriorating investor returns
« Reply #31 on: February 22, 2017, 01:12:18 PM »
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Aside: LC's Broad Based Credit fund, which is essentially filterless, ie "broad based", is now earning 0%.  They have fallen more than I have.

Where do you find this data?

LC's subsidiary "LC Advisors" publishes a 2 page performance tear sheet monthly.  Each contains historical performance data.  You can call LC and ask for it.  It is sent to a mailing list, but is not published on their web site.

Rob L

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Re: a view of LC's deteriorating investor returns
« Reply #32 on: February 22, 2017, 01:52:41 PM »
Quote
Aside: LC's Broad Based Credit fund, which is essentially filterless, ie "broad based", is now earning 0%.  They have fallen more than I have.

Where do you find this data?

LC's subsidiary "LC Advisors" publishes a 2 page performance tear sheet monthly.  Each contains historical performance data.  You can call LC and ask for it.  It is sent to a mailing list, but is not published on their web site.

Not sure this is correct, but think "LC Advisors" is the "Managed Accounts" shown in the chart below from LC's recent 2016 Q4 presentation.
Maybe "Managed Accounts" is more than just "LC Advisors"; I dunno ...
Either way "Managed Accounts" provided 43% of the funding for loans last quarter. Way more than any other funding source.
Meanwhile self managed individuals has slipped to a two year low both in relative % and absolute $.


« Last Edit: February 22, 2017, 01:55:33 PM by Rob L »

Fred93

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Re: a view of LC's deteriorating investor returns
« Reply #33 on: February 22, 2017, 01:54:33 PM »
Not sure this is correct, but think "LC Advisors" is the "Managed Accounts" shown in the chart below from LC's recent 2016 Q4 presentation.
Maybe "Managed Accounts" is more than just "LC Advisors"; I dunno ...
Either way "Managed Accounts" provided 43% of the funding for loans last quarter. Way more than any other funding source.

LC Advisors is one manager among many.  There are a lot of 3rd party money managers who manage money for others by investing it in LC loans.  This category includes all of them. 

Fred93

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Re: a view of LC's deteriorating investor returns
« Reply #34 on: February 22, 2017, 01:56:58 PM »
It's easy to be a Monday morning quarterback but the reasons could just be this simple. ...Fast forward over the next couple of years and chargeoffs began to rise back to more normal levels while interest rates were ratcheted down. This double whammy is what we are living through now.

Except that the above theory doesn't match the data.  Federal reserve and others still show consumer lending still at near all time best performance.  Delinquency and charge-off at LC however, have gone up significantly.

Rob L

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Re: a view of LC's deteriorating investor returns
« Reply #35 on: February 22, 2017, 02:02:08 PM »
Not sure this is correct, but think "LC Advisors" is the "Managed Accounts" shown in the chart below from LC's recent 2016 Q4 presentation.
Maybe "Managed Accounts" is more than just "LC Advisors"; I dunno ...
Either way "Managed Accounts" provided 43% of the funding for loans last quarter. Way more than any other funding source.

LC Advisors is one manager among many.  There are a lot of 3rd party money managers who manage money for others by investing it in LC loans.  This category includes all of them.

Including for example Peer Cube, Lending Robot, BlueVestment, etc. and all the financial planning firms that manage accounts for individual clients?

apc3161

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Re: a view of LC's deteriorating investor returns
« Reply #36 on: February 22, 2017, 02:52:04 PM »
Not sure this is correct, but think "LC Advisors" is the "Managed Accounts" shown in the chart below from LC's recent 2016 Q4 presentation.
Maybe "Managed Accounts" is more than just "LC Advisors"; I dunno ...
Either way "Managed Accounts" provided 43% of the funding for loans last quarter. Way more than any other funding source.

LC Advisors is one manager among many.  There are a lot of 3rd party money managers who manage money for others by investing it in LC loans.  This category includes all of them.

Including for example Peer Cube, Lending Robot, BlueVestment, etc. and all the financial planning firms that manage accounts for individual clients?

I don't think so. Those services simply login and manipulate your account (you give them permission to do this).

rawraw

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Re: a view of LC's deteriorating investor returns
« Reply #37 on: February 23, 2017, 09:46:30 AM »
It's easy to be a Monday morning quarterback but the reasons could just be this simple. ...Fast forward over the next couple of years and chargeoffs began to rise back to more normal levels while interest rates were ratcheted down. This double whammy is what we are living through now.

Except that the above theory doesn't match the data.  Federal reserve and others still show consumer lending still at near all time best performance.  Delinquency and charge-off at LC however, have gone up significantly.
OK, while it seems you keep ignoring anything I post, I am getting increasingly aggravated at you clinging to the Federal Reserve Data.

As a public service for this forum, I pulled the same data (I work with this data on a daily basis).  I pulled just the numerator for this ratio, the delinquency rates on consumer loans. I wanted to know if this data is flat like the ratio.  This is not seasonally adjusted or manipulated in any way. It's just the total reported data from all banks.

Here is what I found.

Consumers 30-89 past due (year over year change)
2016: 12.7%
2015: 3.5%
2014: -4%
2013: - 6.8%
2012: - 7.9%

Consumers 90 days plus past due
2016: 4.9%
2015: 2.6%
2014: 1.9%
2013: -26.5%
2012:  7.8%

Consumers nonaccrual
2016: 16.2%
2015: - 2.7%
2014: - 16.3%
2013: - 4.7%
2012:  - 23.1%

This data is unambiguous. Consumer loan delinquency has increased for the industry (from very low levels) .

Just like on LendingClub, I can make my delinquency rates look low by growing the balances. That's why vintage analysis is important.

And like I've posted elsewhere,  various credit agency vintage analysis show a similar trend to LC. Does this mean I don't blame or fault LC for anything? No. But the stance on this forum is too far on the other side. 

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AnilG

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Re: a view of LC's deteriorating investor returns
« Reply #38 on: February 23, 2017, 02:25:47 PM »
I believe you are correct. Typically, managed accounts are the ones where clients don't do their own investing instead a representative manages all activity inside the account. Otherwise it will be difficult to attribute account performance/actions to a single entity. At least for PeerCube, we don't prevent our users lending/trading on their own in same account. We are not money managers. I doubt that we are clubbed in managed accounts. Though Lending Club requires us to send a unique token (issued to PeerCube) along with user credentials for any lending/trading so who knows how Lending Club uses and classifies transactions through our platform.
 

LC Advisors is one manager among many.  There are a lot of 3rd party money managers who manage money for others by investing it in LC loans.  This category includes all of them.

Including for example Peer Cube, Lending Robot, BlueVestment, etc. and all the financial planning firms that manage accounts for individual clients?

I don't think so. Those services simply login and manipulate your account (you give them permission to do this).
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Anil Gupta
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Fred93

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Re: a view of LC's deteriorating investor returns
« Reply #39 on: February 23, 2017, 04:08:57 PM »
As a public service for this forum, I pulled the same data (I work with this data on a daily basis).  I pulled just the numerator for this ratio, the delinquency rates on consumer loans.

Whoa.  Slow down a bit.  You've lost me.  Where exactly did you pull this data from? 

You say "just the numerator" ... would that be the number of loans delinquent, or what?

You say "the same data", which makes it sound like federal reserve, but I don't see where they publish "just the numerator", so I'm not following you.

I would like to follow along, but you haven't explained enough to allow me to do so.

Fred93

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Re: a view of LC's deteriorating investor returns
« Reply #40 on: February 23, 2017, 06:54:12 PM »
My position is that LC changed the underwriting, producing a lower quality product.

In terms of underwriting, what do you mean by this term? 

I mean that they have either changed their criteria for either accepting loans (perhaps changing sourcing for example) or changed their rules for categorizing loans into grade, or both.

Quote
If you mean the selection of grade based on credit metrics, it seems like this is an empirical question (since LC discloses the data and the grade assigned).

LC has never said that they disclose to us ALL the data they use to assign loans to grade.  In fact I believe they do not.  Just look at the huge # credit report fields that Prosper discloses.  Obviously one can get a lot of data from the credit bureaus.

In the historical data, grade appears to predict performance of loans much better than other data, so I use it.


Quote
Given that I haven't seen you mention testing it, are you suggesting something LC does that we can't observe has changed?

I have not made this point, but I suspect that it is correct.

Fred93

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Re: a view of LC's deteriorating investor returns
« Reply #41 on: February 23, 2017, 07:26:15 PM »
Here's yet another way to look at the LC loan performance data.  I start with the chargeoff by vintage data that LC publishes.  In the past I've used delinquency data rather than chargeoff, because delinquency comes before chargeoff, so you get an earlier view.  There are difficulties with that choice.  In particular, nobody knows quantitatively what delinquency predicts.  Chargoff on the other hand, is pretty final, so we know its quantitative impact.

We can't wait until loans are "done" to look at chargeoff, because that would be years after we've invested.  I'm going to look at chargeoff during early months of loans.  I start at month 5 because that's when the action begins.  The first payment is due 1 month after origination, and the loan can be 4 months late and therefore eligible for chargeoff at 5 months.  I end at month 10 because I don't want to show too many curves, and also because this is the last age that is available for vintage 16Q1.  I could plot more months, but they would be shorter curves.

I'm going to plot the numbers the "other way".  Ie, instead of the usual way of plotting one curve for every vintage, and making the horizontal axis be months since origination, I'm going to draw one curve for each "months after origination" and make the horizontal axis be the vintage.  Then as you scan from left to right you can see how loan behavior has changed vs date of origination.

The first chart is all LC 36 month loans.  Data is from the Feb2017 chargeoff file. 


You can see that as we move from 2012 to 2016 things got worse.  Frankly in this view, it doesn't look all that bad.  Things are still much better than they were back in 2008/9.  You can see tho that the curves jump up a significant fraction of the distance up to where we were in 2008/9.  This is different than say the federal reserve consumer loan data where there is a bump up as we hit 2016, but its very very small relative to the big bump back in 2008/9.

So now lets look at this by grade.  I'm not going to do a separate chart for each grade.  I'm just gonna plot "E" loans.  The data for F&G is very noisy, and I'm not very interested in F&G because I have always avoided them.  So lets let "E" be our proxy for the riskier end of the spectrum at LC...

Well!  That's a horse of a different color.  We can see that performance is getting worse as we move from 2011 thru 2016 vintages, and it is getting worse in a much more dramatic way than the numbers for all loans.   Depending on which curve you like to look at and your starting point, it appears that chargeoffs have doubled or tripled!  That's a pretty damn big change.  And get this... At month 10, the recent vintages are worse than 2008/2009 vintages!

For many years, I used the 2008/2009 crisis as my benchmark for a worst case recession.  We are at present not even in a recession, and yet E grade notes of recent vintage are performing worse than 2008/2009. 

And note that this behavior is strongly associated with vintage.  What would make behavior strongly correlated to vintage?  Well of course the underwriting rules the originator had in place at the time of loan acceptance.  This is the sort of thinking that leads me to believe that a 2015/6 "E" is not the same animal as a 2011/12/13/14 "E".

I am not saying rawraw is wrong about consumer loan performance on the whole getting some worse in 2015/6.  I suspect that many things have contributed, so perhaps we're debating degree of each contribution.

By the way, I suppose some of you have seen Peter Renton's blog this week about performance.  Its a bit of a confusing read, because he headlines all-history performance, but inside the article he mentions several other metrics, including trailing 12 month, and most-recent-quarter.  When thinking about how returns have changed vs time, I the most recent quarter data is most revealing, so I suggest as you read his blog you concentrate on that, and don't get confused by the other numbers. 

At one point he says
Quote
Overall my defaults in Q4 were the highest they have ever been. Several of my Lending Club accounts had negative months where the charge-offs were more than the total interest earned. December seemed to be a little better and January was also decent so I am hoping the worst is behind us. We are all paying for the mistakes made by Lending Club and Prosper in 2015 as they clearly mispriced many of their loans, particularly those in the higher risk loan grades where my portfolio is focused.

Yep.

Quote
They have since increased interest rates and tightened underwriting considerably so we should see better results from 2016 and 2017 vintages

Here I differ a bit with Peter's view.  I don't see any evidence that they have "tightened underwriting considerably".  I know that they've repeatedly said that, but I just don't see the evidence that they've really done it.  In fact, the charts above show that loans have continued to get worse, even after they made that statement the first few times.  Like Peter, I hope things have leveled off.  Maybe they have.  I just don't see evidence yet.
« Last Edit: February 23, 2017, 07:33:04 PM by Fred93 »

jheizer

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Re: a view of LC's deteriorating investor returns
« Reply #42 on: February 23, 2017, 09:23:30 PM »
Thank you all again that really crunch the numbers and provide so much data on this forum.  As someone who joined here and LC January of 2015 with no credit experience or anything I think at this point I'm just happy I've stayed positive, let alone still squeezing out ~6% returns.  I look at your second chart Fred93 and think about all the nights and hours upon hours I spent backtesting what turned into many different strategies all the while not knowing that the data was about to have a huge spike and most of my research would be worthless.  Or at least not nearly as profitable as I had first thought.  As of this moment I'm sitting at around a 6% charge off rate (not counting late lows that were sold).  Hopefully things improve soon.  I took all of Q4 2016 off from funding loans.  I hope Feb 2017 and on are better.
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SLCPaladin

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Re: a view of LC's deteriorating investor returns
« Reply #43 on: February 24, 2017, 11:27:47 AM »
I don't really have much to add here other than I'm sort of perplexed with where to go. My historical returns have dropped now and my recent returns are not good. My portfolio is pretty mature and I'm hesitant to reinvest the new proceeds because I can't seem to get any clarity as to whether the ship is being righted or if there is a second shoe yet to drop. I'd appreciate some comments from other users as to how they are playing this. For instance, what are you all doing in light of what you know? What filters do you see working in this new environment or are you waiting it out altogether.

Rob L

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Re: a view of LC's deteriorating investor returns
« Reply #44 on: February 24, 2017, 11:44:48 AM »
I had changed to B loans only a short while back. Then, in light of the 2016Q4 results, I stopped reinvesting completely. Not doing any Folio selling just letting cash build up. My reading of the 8k was that LC doesn't plan any additional steps in favor of retail lenders so I don't expect things to get better for us any time soon. If they do I'll resume investing; if not I'll cash out in phases. Might look into Folio selling another half the portfolio if I get around to it but I'm in no hurry.