I think Prosper is doing some interesting things lately and Portfolio Plans are no exception…
A portfolio plan is a series of slices of data that when combined make getting into a diversified investment of Prosper loans extremely simple. There are 4 risk levels for the current plans.
- Conservative (estimated ROI 8.37%)
- Balanced (estimated ROI 9.14%)
- Moderate (estimated ROI 10.39%)
- Aggressive (estimated ROI 11.48%)
These portfolio plans are based on the slices of data… Which brings me to the ugly. There are almost certainly thin data issues. Readjustments can help, but Heisenberg rules this arena.
With the ugly out of the way on to the 1st good. Newbie small lenders. Over and over again I have watched newbie lenders come and go. They come in bid on 29% HR, get killed in defaults and leave. I would imagine that newbies will now come in and signup up for a portfolio plan. Viola! No more instant HR burnout. I think this will be very good for Prosper’s long term growth. Pennies add to dollars. The small inexperienced lender will no longer get slaughtered. If you are new to Prosper you should strongly consider Portfolio Plans. Watch the listings you bid on. Don’t bid the loan further down if you are outbid. Learn what makes a good loan.
Now the bad. Many experienced lenders will tell you that their strategy lies within many of the slices currently employed by portfolio plans. These experienced lenders thought they had an edge and now Prosper has taken away that edge. Many will consider portfolio plans the reason they now have to look elsewhere. Large lenders will have even more issues if they stick to the portfolio plan slices.
Which brings me to the final good (so good it might be great). With the newbies locked into slices in the portfolio plans and the experienced but unwilling to adjust lenders sitting out or playing in the sandbox with the kiddies, the opportunity for large lenders and experienced nimble lenders is better than ever. Portfolio plans changed the game. In many ways they define the game. A more defined game has sharper edges. More opportunity outside of the portfolio plan slices as there is less competition. Less competition means high rates. Higher rates = higher potential ROI.
High rates can make up for a lot of sin. Perhaps a perverse example, but the former #1 lender by size (pensioner) believed almost solely in high rates. While his portfolio has taken some astronomical lates, even the notoriously fickle lending stats has him at a positive ROI (currently 2.25%).
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6 comments ↓
Prosper does not offer any method for lenders to liquidate and leave, other than to stop lending and wait for their existing notes to mature or default. They need to create a process for other lenders to buy other lenders notes that are not in default.
For Prosper to succeed they need to provide lenders with outside audits of the their accounts and a method for lenders to leave.
Sam — With all due respect and without disagreeing with your sentiment. Success is relative. P2P Lending is a brand new paradigm. Providing a secondary market is not easy.
Prosper has filed an S1 with the SEC in order to facilitate the secondary market: http://www.rateladder.com/2007/10/30/prosper-files-s1-with-sec/
As for outside audits? I am not sure I understand. I receive data from prosper daily. The data is everything available to the public. Sites such as Eric’s CC, Lending Stats, and my own ProProsper open this data up to the public. What do you mean outside audits?
Two things to note:
1) I don’t believe some of the slices of the portfolio plans won’t hit on enough or any loans
2) Diversification - Portfolio plans don’t do anything to help diversification. I believe that’s a large problem for prosper now. A $1000 loan portfolio (20-25 loans @ $50 per loan) has each loan representing 4-5% of the portfolio, and the RIO is will vary wildly.
True a $1000 portfolio can’t be diversivied enough. I think that a portfolio should have no more than 2% of the portfolio in a single loan. That requires a $2500 portfolio at the $50 minimum bid.
I am not sure I agree with #1, but time will tell.
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