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The real returns for Prosper Marketplace investors

AltFi Data weighs in on Prosper’s performance after firm admits to misstating investor returns.

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AltFi Data weighs in on Prosper’s performance after firms admits to misstating investor returns.

Yesterday we learnt that leading US marketplace lender Prosper has been misstating investor returns, due to a system error. That error has now been resolved, according to spokesperson Sarah Cain. Bloomberg broke the news, reporting that the issue has been going on for several quarters.

Prosper has been forced to notify the majority of its investors of the issue. Some investors have seen their actual annual returns halved as a result of the glitch being fixed, while in most cases returns fell by less than two percentage points. In a small number of cases, returns had in fact been understated.

The system error did not affect the money received by investors, only the calculation of their annual return.

Prosper has recently been equipping itself to represent its performance more accurately. The firm signed a deal with analytics firm AltFi Data in March, thus opening itself up to third-party scrutiny.

As a result of this partnership, Prosper’s performance may now be viewed on a like-for-like basis against other marketplace lenders in the UK and Europe. The chart below shows Prosper’s one year trailing net return over the past five years, versus the LARI benchmark.

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AltFi Data’s returns methodology gives Prosper a net return of 48.8 per cent over 5 years (up to 28 February 2017), equivalent to an annualised compound rate of 8.3 per cent.

The misstated returns incident will doubtless dampen the confidence of some Prosper investors. But the arrival of third-parties like AltFi Data, which independently verify the track record of lenders, may help to restore the faith.

Unfortunately, access to the insights of AltFi Data and other firms like it doesn’t come cheap. These products are at present being pitched at institutional investors, while individual investors may at least take confidence that third-party scrutiny exists.

What would be truly transformative is if AltFi Data and others like it were able to make certain high-level insights available to individual investors at a sensible price point, or indeed for free.

One for the future, perhaps. 

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