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PeerStreet Product Manager, Mark Brogowicz, demonstrating the downside of “volatile liquidity” in Manhattan Beach

A recent article from the Wall Street Journal’s Money Beat gave an unsettling description of current investor mentality:

Investors handed out free cash to the U.S. Treasury in exchange for a place to preserve capital. … The result underscores the strong appeal of highly-liquid U.S. government debt, among the safest in the world amid growing anxiety over the global growth outlook and the timing of the Federal Reserve’s first interest-rate increase since 2006.”

With global markets as volatile as they’ve been recently, investors are increasingly concerned about the safety and liquidity of their investments. On one hand, there is concern about extreme value fluctuation and on the other is the issue of whether an investor can easily get in and out of investments. A telling sign of people’s current liquidity fears was last week’s auction of Treasury Bills. There was such high demand for the government-backed securities that they were sold at a yield of zero.

There are a couple of market technical reasons, such as quarter-end rebalancing, that could explain some of the increased demand for these types of securities, but it still seems likely that last week’s results were elevated due to investor skittishness. Last Thursday, yields for some short-term government securities turned negative. Yields on one-month Treasury Bills closed at -0.025% while longer-dated 2-Year Treasury Notes yielded just 0.668%, according to a Morningstar report.

Benefits of Marketplace Lenders

As investors weigh current investment options, PeerStreet thought it would make sense to present the benefits of securities issued by marketplace lenders, and more specifically real estate loans. In many cases, the performance of these securities is not as sensitive to intraday market swings and we believe the risk-adjusted returns can be very attractive. One concern raised by investors centers around liquidity of these investments. Notes issued by marketplace lenders must be held to term because there is currently no secondary market for these securities. Therefore, depending on the duration of the note, an investor’s funds could be tied up for a significant amount of time. Focusing on short-term investments is one way to improve cash management.

PeerStreet provides investors the chance to access short-term real estate loans that still have attractive yield profiles. To date, PeerStreet’s average loan term is 8.5 months and the average net yield to investors has been  7.7%. We’ve also posted zero losses on the all investments closed to date. Investors can easily customize their portfolios and invest across loans of shorter and longer duration as well, while diversifying across property types, geography and risk profile.

Short-Term Investments

The short-term nature of PeerStreet’s investments, in particular, gives investors a unique chance to further boost liquidity by “laddering” their investments. What does this mean? Bond investors will sometimes invest smaller amounts of money across several investments with varying maturities to more effectively recycle capital. Take a look at the diagram below, which show how an investor might use this laddering technique with investments on PeerStreet:


Screen Shot 2015-09-30 at 9.56.08 AM

The ladder above represents a hypothetical $300,000 in capital that is reinvested across several PeerStreet loan portfolios over a 2-year period. It should be more apparent through this illustration how an investor can improve liquidity, manage reinvestment and even smooth out interest-rate risk by better capturing market rates using this laddering strategy.

This is just one of the many portfolio considerations for investors looking for new opportunities in choppy, and even in healthy, market environments and where the potential for yield is also higher than 0%.

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