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SMSFs flock to P2P lending

SMSFs were seeing the opportunity to invest in Australia’s only peer-to-peer (P2P) lending platform, RateSetter, with more than 25 per cent of its loans sourced from SMSFs.

“SMSFs are looking at cash and shares, where there’s volatility, but looking for reasonably high-yielding alternatives and I think P2P lending fits into that category,” RateSetter chief executive Daniel Foggo told selfmanagedsuper.

“Attached to that, certainly in the United Kingdom and United States, there is lots of data to suggest investors have done very well investing via these platforms as the industry has been around for 10 years and the returns have been really attractive, so I think people are responding to that.

“Basically loans are something that banks used to invest in and deploy, and we’re really investing in the same credit class – the people we lend to are those who would otherwise go to banks; they’re not people who can’t get loans from banks.

“If you think of how an SMSF invests currently, they invest in cash and bank shares, so really we’re providing them with access to the same pool of credit but in a more direct way, so over time I think we’ll see people reducing their cash and bank share holdings and get exposure to the same credit class, but in a way that gives them a better return.”

Foggo said it made sense in terms of diversification for SMSFs to be attracted to the lending platform’s risk-adjusted return.

Annual returns were 9.5 per cent to 10 per cent over a five-year lending market and about 8 per cent over three years, he said.

“That’s after all fees and with a layer of protection,” he said.

“Every borrower that takes out a loan with RateSetter pays money into our Provision Fund, which is held by Perpetual as a separate trustee. That money is held exclusively to compensate any investors from any late payment or default.

“That provision fund holds about 6 per cent of our loan book.”

He also revealed RateSetter was in discussions with Class Super to be added to its system.

Among its SMSF lenders, high engagement and monitoring levels were evident, he said.

“We’ve got some early adopters and once they try it, they like it, so word-of-mouth tends to go from there,” he said.

“We don’t set our rates, it’s [based on] the supply and demand of money from our lenders borrowers, so what we’ve found is that our SMSF investors, more than any of our investors, are quite engaged, they quite like that control and are looking for the best long-term return.”

The primary purpose for borrowing from RateSetter had been automotive finance, he said.

“That’s been the most common reason and we see it as a very attractive credit class for P2P lending to play a meaningful role, so we feel automotive finance will always be the main reason,” he said.

“We tend to focus less on credit card consolidation and so on as that can be slightly risky.”

Last week, the company announced it had passed $10 million in loans facilitated since its official launch to Australian consumers in November 2014.

RateSetter was launched in 2010.

Its Australian operation was established in 2012.

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