Asset management giant warns on ‘exotic’ peer-to-peer lending pension investing

By Daniel Lanyon on 20th June 2018

Alternative Credit

Royal London Asset Management, a large UK asset manager, has released research claiming investors aiming to generate retirement income should avoid high yielding assets such as P2P.

Asset management giant warns on ‘exotic’ peer-to-peer lending pension investing
Image source: https://goo.gl/3cvMuS

Pension investors should avoid high yielding assets such as peer-to-peer loans, according to new research by UK-based Royal London Asset Management.

The firm, which manages £114bn of assets, says investors looking generate income in retirement should beware for high risk, higher yielding investments.

Its report highlights that in the recent past investors could live in retirement “purely off the ‘natural’ yield” from dividends from shares, coupons on bonds and interest payments on savings.

It said: “In an era of low interest rates, very few types of investment now generate enough ‘natural’ yield to support the need for income in retirement”. 

The research's authors went on to say that looking for high natural yields in a low return environment almost inevitably involves taking a large risk with capital.

“It also leaves investors with a poorly diversified portfolio which exposes them to considerable volatility during periods of market stress. Those seeking an adequate level of natural yield are now driven towards ‘exotic high yield’ investments like peer to peer lending and aircraft leasing, whereas a much broader range of traditional investments used to generate a decent regular income,” it said.

Trevor Greetham, head of multi-asset at Royal London Asset Management added that  hoping to generate enough income in retirement from the natural yield on investments may have worked before the financial crisis but is highly risky in today’s low interest rate environment.  

“Savers need to realise that chasing after high yielding investments today can involve investing in an unhealthily narrow range of assets that could suffer large capital losses as interest rates rise,” he said.

“Our research shows that it is possible to have a good standard of living in retirement by investing across a risk-controlled mix of assets, targeting both income and capital growth.  Investment conditions today are a world apart from those before the financial crash, and retirement investment strategies need to change accordingly’," he added.

Comments

IB

23 Jan 2019 10:36am

You have to consider that "subprime" borrowers will default at a much high level during a depression, of course P2P can be a viable part of an overall investment portfolio. But do not make the assumption that returns will survive a crisis.

David

28 Jun 2018 01:59pm

A typical comment from an entrenched and old fashioned business. The real risk is the fees these kind of companies charge for poor performance. Over 30 years, through the greatest property boom in history and through the greatest stock market boom in history my pension provider has returned less than 5% per annum.

Brian Holt

22 Jun 2018 11:12am

Mr Greetham and his researchers appear not to have grasped what P2P is about. As a pensioner needing a good ROI, I've used P2P lending over a 6+ year period and have consistently generated better than 7.5% interest on my investments. Not sure how he sees the ability to loan sums as small as £20 to small businesses across a wide range of industries as not spreading risk! And who better than pensioners, with time on their hands, to choose where they invest. In short, his argument is a nonsense.

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