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Two business loan crowdlending platforms, Kuetzal and Envestio, has folded
The last couple of months has been horrible for the Baltic crowdlending and P2P industry. After the shutdown of the platform Kuetzal, investors turned to Envestio and started to withdraw a lot of the funds. Envestio was the same type of crowdlending platform as Kuetzal and had the same buyback model, where investors were offered that the platform will buyback the investments for a 10% penalty fee. When investors all want to exit at once, as it happened in both cases with a bank run scenario, this model does of course not work. Both platforms closed down and the employees disappeared. Investors have reported the two platforms to the local police for suspicion of fraud, police investigation has been started, and investors have united in a common lawsuit against the platforms. Angelo, another blogger made these videos of what happened to Kuetzal and Envestio. I could not have explained it better myself.
I did not invest with Kuetzal, but unfortunately I still had some money left at Envestio, even though I had slowly been moving funds to platforms with lower interest rates, but with loans secured in real estate like Evoestate and especially Estateguru. I had a net loss of 3832 EUR with Envestio. However, on top of that, I also choose to count all the accrued interest earned during my 1½ year on the platform, as I assume the worst case scenario, which is, that it was a full on scam where every single projects were fake, and all interest earn was just a number on the screen instead of actual earnings. However, some money could still be somewhere and recovered by the lawsuit, but I have no hopes about that. That leaves my total loss for the month at 4492 EUR including loss of accrued interest on Fastinvest and Envestio. See the history of my portfolio and the numbers on the My Crowdlending Portfolio page.
I totally deserve this loss. However, if anyone invested with Envestio solely based on my enthusiasm for the platform, I am truly sorry for your loss. I know it does not mean a lot at this stage, but let us learn from this together. I had expected that there would be some losses due to defaulted projects, as they were high paying unsecured business loans. But I seriously underestimated the platform risk! It will take me about six month to recover from this horrible month, but I came out a lot smarter and more careful than before. I will change my strategy a bit because of it.
I am actively participating in both the Kuetzal and Envestio lawsuit by supplying evidence and statements that could help get a positive outcome of either cases. I consider the money lost, but I think that we should still go after the people behind and put them in prison, if in any way possible.
How did bloggers report their income for the devastating month of January?
There is a big difference on how bloggers who invested in Kuetzal and Envestio reported their loss. Some have a big plus for the month, even though they in had huge losses! I am late with this months update because I think it is important to show the full and horrible truth to your followers, so I wrote an article about it. If you did not already read it, you can do it here. Some are cooking the books a bit too creatively!
So now what? Will I leave crowdlending all together?
It has been an emotional month but this has been a very valuable, yet expensive, lesson. There are several types of crowdlending platforms out there. They involve different kinds of risks. There are platforms with high risk, usually unsecured business loans, with very high returns. Keutzal and Envestio were among these. I think we will see more platforms in this category get into difficulties. Other platforms in this category are platforms Monethera, Wisefund, and TFG crowd. They have all had some negative publicity recently, so if you are invested with those I would pay very close attention to the development. The platforms are very popular among investors and bloggers due to high returns, but I will not be investing with any of them. The only platform in this category I will keep in my portfolio is Crowdestor, as I find them very professional. They have also been very open in regards to sharing information and has a buyback fund that actually makes sense. It is only 316800 EUR at the moment, but at least investors can clearly see the size of the fund and where the money is coming from. This is also true for the provision fund at NEO Finance. Crowdestor is also the platform I by far have spend the most time with. I would like to dig deeper into their due diligence process in the future, though.
To get back to my point. Platforms in this category usually have only a few employees, which elevates the platform risk. Every new project also require a different type of due diligence as projects differs a lot. It could be real estate, a restaurant, logistics, a concert, and the list goes on. This means that the people doing the due diligence need to have a variety of skills in different areas or use a number of advisors. As the volume of loans on the platforms are not that high, the minimum investment is usually 50 to 100 EUR per loan, which in turn makes it harder to diversify.
Now compare this to another big category of crowdlending, usually referred to as P2P or peer-2-peer. These are usually still mainly unsecured loans, mostly direct to consumer loan. So why is this different? Every loan is scored using a well proven model and the volume of loans are much bigger than on a SME loan platform. The model used is always the same. Usually these companies have a larger number of employees, sometimes 30-100+ employees for the bigger platforms. Some of the bigger platforms are VIAINVEST, Mintos, Grupeer, and Swaper. I consider them a safer choice than SME loan platforms, although there are risks here as well. I also see it as less likely that we will see a scam platform in this category, as it would be a lot harder to make a scam including 50 people than 3 people. On the P2P platforms the minimum investment is usually 10 EUR, but can be as low as 1 EUR per loan. This leaves room for diversification, even for small investors.
The button line is, that I will not leave crowdlending, but I have been rearranging my portfolio and will continue to do so over the next year. I have left the platform Fastinvest and will lower my stake a bit in some of my bigger platforms like Crowdestor, Peerberry, Grupeer, and Swaper. The funds will be moved to mainly Mintos to get exposure to more loan originators and to Estateguru to get a lot more loans secured in real estate with a first rank mortgage. This will give me a much better spread across my main platforms, with the knowledge I have of them today. My focus has changed a bit in trying to secure my principal more and worry less about the returns. There are no easy money floating around in the Baltics. The risks are very real. Below is how I aim for my portfolio to look within a year. It may change a bit along the way. I will most likely put more towards Bondora Go & Grow, than you see on the below chart. Depending on how things develop over the next year, I may also reduce my stake in Crowdestor a bit more and put the funds towards more real estate at Evoestate and Estateguru. Time will tell. For now, the below is my goal.
Crowdlending investors - be aware!
The worst thing happened. Two platforms folded and it looks like they both defrauded investors. I was expecting some high risk projects to default, but not this. Envestio tricked more than 10.000 investors and my loss was just a small drop in the ocean. I have seen some investors lose more than 100000 EUR and some has lost more than 50% of their portfolio. It is good to diversify, but if you diversify over a lot of high risk platforms with high risk projects, then it does not matter. You may as well play the lottery. There has been a lot of blind investing. I myself has for sure been guilty of that when it comes to Envestio. I think we have also established by now, that crowdlending is not passive investing. You need to stay updated and you need to dig into platforms, loan providers, projects, call or write borrowers in projects, check financials of borrowers, maybe setup google alerts for the names of management and owners of the platforms. Don’t just trust the platforms or bloggers blindly. Check everything for yourself. Dig into a few of the projects on a platform and see what you find before you start investing there.
Another thing I really hate to see is the frase “unbiased review” in a blog post about a platform. Bloggers sometimes include the affiliate link in the same sentence. My advice to new investors who cannot see that they are now being manipulated, is this: Do not believe anything these bloggers write! It reminds me of when I want to save money and go for a cheap mainstream supermarket whiskey. A very common writing on the label is something like “Finest Scotch Whiskey”. If you really need to write that you are unbiased, you are most likely exactly NOT that.
If you are not really sure where to start finding good resources, here is a few I follow. The whistleblower “Roasted PeerDuck” on Twitter warned about especially Kuetzal, but also Envestio, some time before the platforms folded. He has recently warned about other platforms in the same category. He has also received death threats. If you are not already following him, it would be good for you as an investor or potential investor to spend a little time reading his tweets. All the way from the beginning. Then try to follow some of his leads. Some people are mad at him because he usually only drops a comment or a clue. I like the way he operates. He is not just handing the investors a fish. It looks like he is trying to teach investors how to fish and how to dig up dirt on sketchy platforms or projects. He is using resources readily available on the Internet.
A blog and crowdlending platform comparison site I like is P2Pexplore. There are quite a few of these crowdlending comparison sites out there, but this one stands out. If you take a closer look, you will see that far from all platforms are present in their listings. I like this a lot more than the comparison sites that list all platforms available. Some of them are clearly made only to earn as much affiliate income as possible. I feel P2Pexplore takes a social responsibility and delivers a more trustworthy rating. They don’t just put whatever new platform pops up on their website. What platforms are mostly missing? Very new platforms that offer interest rates of up to 20+ percent interest rate in unsecured business loans.
VIAINVEST has several times released the same article about how to pick a good P2P platform. This is a good read about some of the parameters you can choose a good platform on. This was prepared by one of the first P2P bloggers Lars Wrobbel. Lars is blogging in German, but he has some good articles you can do Google translate on.
Last up, attend the P2P conference in Riga this summer! I was amazed of how much I got out of those two days last year. Here you have a chance of talking to a lot of crowdlending platforms in a very short period of time. Meeting the platforms and looking then in the eyes when you ask them questions will tell you a lot about the platforms. If you decide to drop by, I will be in Riga both before, during and after the conference. Send me a PM and we can meet up for a beer and some P2P talk.
How did I rebalance and invest new funds during last month?
For the first time I actually had to withdraw a bit of money from my portfolio. They say that one accident rarely comes alone. My property in Copenhagen had some construction made some years back. It turned out that the construction was done really poorly and the top apartments of the building got some serious water damage. We are currently running a lawsuit against the construction company, to get them to pay to have another company take over. However, the lawsuit takes time and we need to get things fixed now. Otherwise it may get a lot worse and many people cannot live in the top apartments, due to water damage. So I had to withdraw a bit from my portfolio to be able to cover my part of the construction, 12383 €. I had most of the money on my account, but not everything. This means that the times of my big monthly deposits are over. It is a lot of money for the construction that I had planned on investing instead. I of course hope that they will return to me, if the lawsuit ends in favor of us. However, who knows. I might only get some of them back or maybe none at all. But that is of course the worst case scenario. Well, time will tell.
I added to my investments on 6 different platforms. I also lowered the amount of money on 5 other platforms. Two of them are no longer in my portfolio. Here is how I rebalanced and split up the funds on the 11 different platforms during the last month.
Envestio: -2141,71 € (due to insecurity about the platform).
BulkEstate: -1349 € (due to no new projects).
Crowdestate: -41,36 €.
Fastinvest: -997,13 € (total platform exit due to insecurity about the platform).
VIAINVEST: -36,20 €.
Back in Brazil! Carnival, baby.
What was a shitty month for my crowdlending investments, it was a great month for my health. I am really enjoying to go to the gym every morning and pushing myself. If you start the day well, then you usually keep making the right choices and keep doing all the good things you planned for the day.
Another thing. It should not all be about crowdlending. Even though over more than half of my full portfolio is in property, I don’t consider it i bigger risk to buy more property. I am currently looking at small studio apartments here in Brazil, located in the dead center of Sao Paulo, in brand new buildings. The idea is to rent out full time on Airbnb. The big construction companies buy parking lots in the center. Soon there will not be any more parking lots to buy this central in the city. The currency, Brazilian Real, is historically low. All buildings I look at have rooftop pool, outdoor areas, gym, BBQ area, conference room, and a laundry room. I have been looking at these apartments for a few years now. I could make a few posts about these projects, if you guys are interested. Just for fun, you can see one of the projects that I recently visited, located just 100 meters from where i live. Over the years I have seen parking lots turned into skyscrapers. A studio in this new building will cost 46000 EUR and will rent out for about 27-33 EUR per day, cleaning fee excluded. Maybe I will get in. Let me know if you want to know more here on the blog.
My portfolio in the start of February 2020
I currently only have minor funds on NEO Finance, Evoestate, Finbee, Debitum Network, Robo.cash, Iuvo Group, Bondora, Housers, Brickshare, Reinvest24, and DoFinance. These are platforms that I am currently testing, new platforms or just interesting platforms that I may put more money in later. I try to diversify both on loan type and loan provider but also on sector, country and platform. In the pie chart below, you can see my distributions on February 1st 2020. If you are seeing this post later than February 2020, you can find the newest numbers on the My Crowdlending Portfolio page.