[megamx26]

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]

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]

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]

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]

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.

[TravelingPennies]

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.

[TravelingPennies]

^They'd be using leverage, so the 10% would be a higher net return

[RazzleDazzle]

Wow! 3%

Ridiculous. For fixed income product that is insane.

[Randawl]

from: RazzleDazzle on August 03, 2015, 07:33:48 PM

[TravelingPennies]

from: Randawl on August 03, 2015, 10:32:23 PM

[AnilG]

from: Fred93 on August 03, 2015, 01:29:46 AM

[Emmanuel]

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]

the ability to liquidate your entire balance in a one month period makes it totally worthwhile.

[TravelingPennies]

from: Emmanuel on August 04, 2015, 11:51:32 AM

[TravelingPennies]

from: Half Right on August 04, 2015, 12:00:07 PM