How P2P fits into your investment portfolio

Recent global macro-economic volatility has underscored the importance of diversified investment portfolios for both institutional and retail investors alike, sending many investors searching for alternatives to the mainstream markets.

Immediately after Trump’s tariff war began on 2 April 2025, stock markets around the world began to freefall, effectively devaluing many retirement and investment portfolios overnight. This recent chaos has highlighted the risk of being over-allocated to equities and bonds and overlooking the benefits of alternative investing.

While no investment has a guarantee of success, spreading your money across a variety of different asset classes can help to offset some of the impact of any big losses elsewhere in your portfolio; and alternative investments such as peer-to-peer lending can offer a compelling way to diversify beyond traditional asset classes like stocks and shares.

Read more: Kuflink: Proven IFISA performance

Unlike equity or fixed-income investments, P2P loans operate independently of the main financial markets, providing an attractive source of uncorrelated returns. This market is also well established and well regulated, with leading platforms such as Kuflink able to demonstrate a long track record of delivering competitive returns to investors, while managing risk to protect investor capital.

Kuflink has been in business since 2011 and has been operating as a fully regulated P2P lending platform and Innovative Finance ISA (IFISA) manager since 2017. Over the past few years, the platform has witnessed an influx of new investors, as more and more people discover the benefits of maintaining a P2P allocation in their portfolios. These new investors have told Kuflink that they are interested in diversifying their asset allocation by including P2P investments within the alternatives segment of their portfolios. They are attracted to P2P loans for a variety of reasons, including their long track record of performance and the possibility of earning fixed returns that can outpace the equity markets over time.

According to the most recent data from the 4thWay P2P And Direct Lending (PADL) Index, P2P and direct lending investors earned an average annual return of 7.61 per cent last year. In the 10 years since the index began correlating this data, annualised returns after costs have been 7.31 per cent per annum. Meanwhile, across the same period, the stock market has returned an average 4.77 per cent per annum, after reinvesting dividends and after costs.

Kuflink is currently targeting annual returns of up to 10.26 per cent for its investor base, by investing in British properties at low loan-to-values (maximum 75 per cent) and taking a first and second legal charge on all loan collateral. Before onboarding any new borrowers, Kuflink carries out intensive due diligence to ensure that the would-be borrower is creditworthy and likely to be able to maintain repayments, even in the event of a property market slowdown or destabilising macro-economic event. This conservative lending approach has already paid off. Kuflink was founded in 2011 and has already survived two recessions and a global pandemic, with zero investor losses to date.

“We are very proud of our track record of delivering for both investors and borrowers,” says Molly Hepburn (pictured), director at Kuflink.

“We are in constant communication with new and existing investors and the feedback we get is that they are appreciative of our long track record of preserving investor capital during tumultuous periods.

“This offers peace of mind to those investors who are now seeking to diversify certain areas of their portfolios, and it is encouraging to see so many savvy investors choosing P2P lending.”

While Kuflink’s track record speaks for itself, it is important to note that P2P lending is not risk free. The key risk is that the borrower cannot make a repayment, leading to a loan going into default. Across the P2P sector, it is believed that the average annual default rate is around four per cent, although this will vary from platform to platform. Kuflink prioritises transparency and publishes all of its lending statistics on its website, with monthly updates. This includes information on late paying loans, forbearance activity and projected defaults. All investors should ensure that they are making use of these resources to better understand the risk associated with their P2P loan portfolio, and how Kuflink works to minimise defaults.

Read more: P2P investors doubled their money over last 10 years

The risk of default can also be minimised by diversifying your P2P investments across multiple loans, rather than backing just one or two different projects.

Kuflink gives its investors the choice of investing in either an auto-lending account or a select lending account – or both. The auto investing account automatically spreads any investment across a multitude of similarly rated loans, creating instant diversification. Kuflink’s select lending account allows investors to pick and choose the loans that they wish to add to their portfolios. Both accounts offer IFISA access, which protects any earnings from taxation and allows investors to build up their investment pot a little more quickly.

Kuflink is one of the largest and longest-standing P2P lending platforms in the UK today, with more than £400m invested to date, and almost £300m repaid to investors so far. It has been regulated by the Financial Conduct Authority (FCA) since 2017 and works closely with the regulator on issues relating to the sustainable growth of the P2P sector.

In recent years, the FCA has taken a more hands-on approach towards P2P lending platforms, in recognition of their growing popularity among retail investors. The FCA has recommended that no more than 10 per cent of any investor’s portfolio is invested in higher-risk investment options such as P2P loans, to protect against the risk of defaults. However, this 10 per cent can act as a useful shelter from the storm clouds of the tariff fallout, and other macro-economic crises. P2P returns are fairly stable, and do not react in real time when the markets take a hit.

Read more: Navigating the lending landscape and how Kuflink stands out in a crowded market

As with any investment, P2P lending rewards those investors who do their own due diligence and maintain a well-balanced portfolio, and make use of all of the resources available to them. Kuflink has a highly proactive investor relations department who can answer any questions via live chat, email or over the phone, and investors are encouraged to reach out if they have any queries – no matter how small.

As more and more investors start to look beyond equities and bonds, P2P lending is increasingly emerging as an attractive diversification tool for investors seeking to balance their portfolios and seek steady returns in a well regulated investment environment.

Almost 20 years on from the launch of Zopa – the world’s first P2P platform – this asset class has evolved into a dynamic and well managed segment of the financial services sector with a good reputation for delivering returns. While P2P lending does carry risks, it remains a valuable tool for investors looking to add a new, potentially lucrative asset class to their portfolio.