From “P2P Lending” to “Lending Marketplaces”: the graceful dance has started
In my recent Linkedin post, I reviewed my DailyFintech posts (from Easter to beginning of Summer) and promised that I will share my thoughts and insights on the Fintech crowdfunding space and on innovations in the private markets. Crowdfunding is broad and includes, lending, equity funding, and donating.
The Lending subspace of crowdfunding is relatively mature in Fintech time terms. Within it, there are Fintechs focusing on consumer loans, student loans, small business loans, real estate, and payday loans. The need for financing is clearly there and real and at the same time the appetite for yield is also real in this prolonged low interest rate environment. Exacerbated by ample liquidity from quantitative easing in the Americas, now followed by Japan and Europe; this yield hunger, has also helped in
the recent phenomenon of grabbing loan portfolios from lending Fintechs
Hedge funds and private equity firms, have been just putting up 15% of capital needed to buy a loan portfolio, borrowing the rest from some Broker Dealer; and creating a leveraged fund backed by pooled P2P loans from the marketplaces and arriving at returns in the order of 8% to 12%!
An example is Marshall Wace, one of London’s oldest hedge funds managing $18bn of assets, launched a £200m closed ended fund that invests in loans sourced by various peer-to-peer platforms. Accodring to Bloomberg, Ranger Capital Group is similarly involved.
Prime Meridian, a US based new invetsment management firm, offers two types of funds that solely invest in P2P loans; The Prime Meridian Income fund that offers low cost access to short-duration high yield consumer loan portfolios from creditworthy borrowers; and the P2P Lendign fundwhich provides investors direct low cost access to short-duration high yield, collateralized loan portfolios from creditworthy small business owners.
CommonBond announced in June the securitization of $100mil of online marketplace student loans.
Earlier this year, BlackRock purchased about $330 million of the consumer loans that Prosper had made since November 2013, with plans to slice the debt up into tranches and sell it off to other investors, the old fashioned securitization process.
Goldman Sachs, created a publicly traded non-bank lending vehicle in March, named Goldman Sachs BDC (NYSE: GSBD) that will serve middle market companies financing needs. They also announced that they are designing a digital platform to offer consumer loans in the range of 15k-20k.
The first closed-end ETF that invests in P2P loans has been structured and has been filed with SEC by RiverNorth Capital Management. The firm seeks to register 1,000 shares at a proposed maximum price of $25 per share.
Prosper’s president, Ron Suber, stated in a recent interview that 2/3 of their loans are provided by institutions and only 1/3 is retail. Prosper recently announced their intent to charge some fee to those that bundle their loans into bonds because they need to recoup some of the legal costs involved in this activity that on the one hand, removes loans from their books and frees up capacity and facilitates turnover but on the other hand, involves additional legal and personnel costs.
Institutions are fueling the growth in the crowdfunding lending space.
This business ecosystem has not accidently been renamed “Lending marketplaces” rather than “P2P lending”.
The business model is changing and the dance with the incumbents is gracefully starting. Separate non-banking vehicles, specialized credit focused asset mgt firms, funds, ETFs, securitization and even derivatives for the space are in the talks.
