Peer-to-peer lending industry stakeholders have heralded the industry’s high risk-adjusted returns, at a time of low interest rates and volatile equity performance.
Speaking at the P2P Investing Summit, a virtual event hosted by Peer2Peer Finance News and AngelNews, panellists noted that the P2P sector’s adjusted returns have been pretty strong over time, despite often being characterised as a high-risk investment.
“Consistently P2P is churning out returns that are above eight per cent,” said one panellist, John Cronin, analyst at brokerage Goodbody.
“That does strengthen the returns available to investors on their portfolio if they want to add that to the mix but it’s all a question of risk appetite.”
Cronin cited data from P2P platforms showing that Zopa’s default rates are 30 to 40 per cent lower than expected through the pandemic, while Funding Circle started turning a profit in the second half of the year and also reported that 93 per cent of their loans are making repayments and 91 per cent are full repayments.
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“Zopa is in the consumer lending context and Funding Circle the small- and medium-sized enterprise context,” he said.
“So, performance has been pretty good and a lot of the scaremongering around default rates hasn’t materialised yet.”
However, Cronin also highlighted that there can be greater risks associated with P2P, so it depends on the risk appetite of the investor.
“There are isolated problems for one or two operators in the industry but as a whole, risk-adjusted returns are very high so there’s a very strong argument to if you haven’t at all, maybe start investing at the 10 per cent level and see what the returns are and how comfortable you are with it and take it from there,” he added.
“There’s a very powerful argument in favour of adding P2P to drive overall returns higher.”
Panellists suggested that P2P investors should lend across different segments of P2P, such as consumer and property, for a diversified P2P portfolio with less volatility.