Author Topic: Liquidity when investing in P2P loans  (Read 1177 times)

Yieldport

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Liquidity when investing in P2P loans
« on: June 15, 2018, 08:01:34 AM »
Let discuss liquidity when investing in P2P loans.
What are liquid positions? How do we manage it, and what happens without it.

We wrote an article recently about the importance of portfolio liquidity, please read it here:
https://yieldport.com/the-liquidity-paradox/

Very curious about your opinions and solutions.

Fred93

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Re: Liquidity when investing in P2P loans
« Reply #1 on: June 15, 2018, 04:22:19 PM »
P2P loans are not very liquid.  Some people sell them, but the secondary market is very small, so you can't move a bunch of loans quickly.  Some P2P companies don't even have a secondary market.  LC has a small secondary market.  Prosper has none.

However, the basic 3 year loan pay you in constant payments over 36 months.  That means you get half of your money back after 18 months.  That's very quick, so the need for additional liquidity is limited by virtue of the fact that these things self-liquidate in a relatively short time.

Roux

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Re: Liquidity when investing in P2P loans
« Reply #2 on: August 17, 2018, 01:14:53 AM »
If you're concerned about the liquidity challenges of P2P investing, I would suggest you check out LiquidP2P.com.

Liquid P2P is the newest automated software solution for Lending Club Investors. 

Our patent-pending Liquid Match model harnesses the power of the group to fuel our investing and liquidation processes. As we continuously invest your funds, we automatically match Liquid P2P buyers and sellers first in an effort to boost returns and accelerate liquidity.

See how it works. We would love to hear what investors out there think!



« Last Edit: August 17, 2018, 02:06:47 PM by Roux »

lascott

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Re: Liquidity when investing in P2P loans
« Reply #3 on: August 18, 2018, 01:58:10 AM »
If you're concerned about the liquidity challenges of P2P investing, I would suggest you check out LiquidP2P.com.

Liquid P2P is the newest automated software solution for Lending Club Investors. 

Our patent-pending Liquid Match model harnesses the power of the group to fuel our investing and liquidation processes. As we continuously invest your funds, we automatically match Liquid P2P buyers and sellers first in an effort to boost returns and accelerate liquidity.

See how it works. We would love to hear what investors out there think!
I'm a little concerned how this fair price is calculated. Also the 'Learn More' link is bad.



UPDATE: This is what I found in the website FAQ.
Quote
What is fair pricing?
When trading notes directly between users, we want to treat both sides of the transaction fairly. To do so, we calculate a fair price for the note that ensures both the seller and buyer get the same yield.

Although it is common practice to price secondary market notes at par (the outstanding balance), doing so can result in the buyer getting a lower yield than the seller. This is partly due to the negative impact Lending Club's 1% investor fee has on the return of a maturing note.

To determine the fair price for a specific note, we use the standard bond-pricing formula as well as an algorithm knows as Newton's model. We first calculate the yield to maturity (YTM) for a newly originated loan of the same grade on the primary market, then we use this YTM to calculate the transaction price.

The price is fair because it ensures both the seller and the buyer receive a yield equal to the current YTM on the primary market.
« Last Edit: August 18, 2018, 11:47:07 AM by lascott »
Tools I use: (main) BlueVestment: https://www.bluevestment.com/app/pricing + https://www.interestradar.com/ , (others) Lending Robot referral link: https://www.lendingrobot.com/ref/scott473/  & Peercube referral code: DFVA9Y

Roux

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Re: Liquidity when investing in P2P loans
« Reply #4 on: August 20, 2018, 06:55:55 PM »
Calculating the "Fair Price" of a Secondary Market Note for a Liquid Match is a 2 Step Process:

  • Lending Club's fee structure reduces a note's YTM as the note matures (https://forum.lendacademy.com/index.php?topic=3979.0). Therefore Liquid looks to see what the current YTM of a newly issued note of the same Term and Sub-grade on Lending Club would yield. In this way as the note ages and if current interest rates have changed since the note was issued, the Buyer will be made whole as if he bought a newly issued note on Lending Club. Notes with 60-37 months of payments remaining use a 5 year term; and notes with 36-1 months of payments remaining use the 3 year term.
  • Once the "Current YTM" is established, Liquid uses Newton's Method to calculate a "Fair Price"to list the note on the Secondary Market. Newton’s Method is based on a recursive approximation formula and is very much like playing "High/Low" until the "Fair Price" is determined by matching the "Current YTM". The Buyer gets the same YTM as if he had purchased the note from the primary market, but with a seasoned payment history and a much shorter time to maturity. It's a win-win. The Seller is able to accelerate his liquidation; and the Buyer is made whole.

This is a great question and we are working on publishing a "Fair Pricing" page to explain this better. Thanks for your feedback! We'll post a follow up when the page is published.

Other things to Consider (https://liquidp2p.com/investing-and-liquidation#faq11):

Only Liquid Eligible notes are traded with other members. Note Eligibility Requirements:
  • Note was Scored a "Buy" with Liquid's Machine Learning proprietary algorithm.
  • Note is Current.
  • No Late Payments within the last 6 months.
  • Current FICO score is not less than 40 points from when loan was originally issued, as reported by Lending Club.
  • Current Value of the note is $25 or less. Liquid buys notes in maximum $25 increments or less. This "micro unit" allows all members to participate in the liquidation process. Multiple $25 note positions of the same loan may be purchased, however at no time will Liquid invest more than 0.25% of a portfolio's total value in any one loan (applicable to accounts with $10,000 or more).
  • No Payment Date Request Change within the last 6 months. A payment date request change made more than 2 months after a loan is newly issued is considered a red flag within the banking industry.
« Last Edit: August 20, 2018, 07:36:59 PM by Roux »