The last week has seen incredible volatility in the world’s stock markets with trillions wiped off the value of public companies globally. The slowdown in China’s growth has exposed the fragility of markets around the world and shown that the cracks of the global credit crisis in 2008 are still just below the surface.
A consequence of the credit crisis in 2008 was that central banks had to reduce interest rates in order to stimulate growth in their economies. Rates dropped to historic lows and have stayed there, great for borrowers but not so great for savers relying on cash deposits to grow wealth or generate income.
Replacing this lost growth/income from their portfolio meant diversifying assets and for many investors taking on more risk in the form of stocks and shares. The huge losses on the world’s stock markets has in turn led to personal capital losses for these investors and a likelihood that we will remain in a low interest rate environment for longer than we expected. Economists at Barclays have pushed their expectation of a Fed rate rise out to March next year; their counterparts at Citigroup now believe that the Bank of England will sit on its hands until 2017.
Secured Peer-to-Peer Lending is one way in which investors have more recently looked to diversify their portfolios and replace the lost growth or income. The evolution of online P2P platforms has meant that individual private investors now have access to asset classes not previously open to them, for example, commercial property debt.
Commercial property debt is true diversification from most investors’ portfolios given its low correlation to other asset classes. It offers a fixed income return, over a fixed period and investors sit lower down the capital structure, meaning their capital is paid back first if the company goes into default.