I read therefore I write

These two pieces of news from The Business Time (Weekend) on 5 Nov made me think and write this blog post eventually.

P2P Investors in a fix as car firm director “disappears “

“ Crowdfunding investors are likely on the hook for roughly $600,000 in loads to parallel importer named TLC Cars that failed to deliver on sold vehicles – and the director is now uncontactable . “ write the paper.

P2P (peer-to-peer ) investment platform and Crowdfunding seems to get popular in Singapore with many platforms being established recently, like “ Capital Match, MoolahSense, Funding Societies, New Union, coasset.com etc “

These platforms may offer a rate of return of up to 15-25% per investment/loan, but of course, this comes with high RISK as well. P2P lending is relatively new investing tools here in Singapore,  investors need to do their own due diligence prior investing in such " alternative investment ", also think carefully if such investment vehicle is suitable for your risk profile.

image credit to The Business Times.com.sg

P2P Lending :  Concept Explained by Wikipedia

Peer-to-peer lending, sometimes abbreviated P2P lending is the practice of lending money to individuals or businesses through online services that match lenders directly with borrowers. Since the peer-to-peer lending companies offering these services operate entirely online, they can run with lower overhead and provide the service more cheaply than traditional financial institutions.

 As a result, lenders often earn higher returns compared to savings and investment products offered by banks, while borrowers can borrow money at lower interest rates, even after the P2P lending company has taken a fee for providing the match-making platform and credit checking the borrower.

Also known as crowdlending, many peer-to-peer loans are unsecured personal loans, though some of the largest amounts are lent to businesses. Secured loans are sometimes offered by using luxury assets such as jewellery, watches, vintage cars, fine art, buildings, aircraft and other business assets as collateral. They are made to an individual, company or charity. Other forms of peer-to-peer lending include student loans, commercial and real estate loans, payday loans, as well as secured business loans, leasing, and factoring.

The interest rates can be set by lenders who compete for the lowest rate on the reverse auction model or fixed by the intermediary company on the basis of an analysis of the borrower's credit. The lender's investment in the loan is not normally protected by any government guarantee. On some services, lenders mitigate the risk of bad debt by choosing which borrowers to lend to and mitigate total risk by diversifying their investments among different borrowers.

Peer-to-peer lending does not fit cleanly into any of the three traditional types of financial institutions—deposit takers, investors, insurers—and is sometimes categorized as an alternative financial service.

P2P Leading also facing the problem of “ Information Asymmetry “

Below is a very good write up on this topic from The Economist :

Asymmetric information problem

Definition of asymmetric information: This is a situation where there is imperfect knowledge. In particular, it occurs where one party has different information to another. A good example is when selling a car, the owner is likely to have full knowledge about its service history and likelihood to break down. The potential buyer, by contrast, will be in the dark and he may not be able to trust the car salesman.

Asymmetric information in financial markets

Asymmetric information is a problem in financial markets such as borrowing and lending. In these markets, the borrower has much better information about his financial state than the lender. The lender has difficulty knowing whether it is likely the borrower will default.

 To some extent, the lender will try to overcome this by looking at past credit history and evidence of salary. However, this only gives limited information. The consequence is that lenders will charge higher rates to compensate for the risk. If there was perfect information, banks wouldn’t need to charge this risk premium.

What is the 'Lemons Problem'

The lemons problem refers to issues that arise due to asymmetric information possessed by the buyer and the seller of an investment or product, regarding its value. The lemons problem was put forward in a 1970 research paper, "The Market for Lemons," written by George Akerlof, an economist and professor at the University of California, Berkeley. 

The tag phrase identifying the problem came from the original example of used cars that Akerlof used to illustrate the concept of asymmetric information, as defective used cars are commonly referred to as "lemons."

The lemons problem is recognized as existing in the marketplace for both consumer and business products, and also in the arena of investing, related to the disparity in the perceived value of investment between buyers and sellers. The lemons problem is also prevalent in financial sector areas, including insurance and credit markets. For example, in the realm of corporate finance, a lender has asymmetrical and less-than-ideal information regarding the actual creditworthiness of a borrower.

Link for further reading: MAS simplifies regulations for securities-based crowdfunding platforms

How about you, do you have any P2P loan in your portfolio ? and do you happen to have "lemons " in your loan portfolio?

 “ What’s New in Pension Portfolios: SEX Shops”

image credit to The Business Times.com.sg

The second piece of news is interesting: ” Three years ago, Amsterdam’s mayor asked a roomful of pension fund managers if they would be willing to invest in the regeneration of his city’s notorious red-light district. Two lonely hands went up. The same question today might have triggered a bidding war.”

In the current world of low-interest rate, any asset that could generate good/decent return will be highly sought after by most of the fund manager.

What do you think about Singapore ? will this happen that Reit manager buying an asset at our Red light district ( Geylang areas ) and package it as a Red Light REIT, this will be the first to be listed in Singapore and the yield may be high and consistent due to its “inelasticity of demand “ regardless of economic cycles for such activities from an economic point of view.

Cheers!

Quote Of The Day :

 "Most of what we know about sales comes from a world of information asymmetry, where for a very long time sellers had more information than buyers. That meant sellers could hoodwink buyers, especially if buyers did not have a lot of choices or a way to talk back."
 Daniel H. Pink , Author of the best-selling book “ Drive” and “To SELL is Human”.