Millions of dollars are flowing into peer-to-peer lending platforms Lending Club and Prosper. With that comes a variety of investment opportunities built to take advantage of the hot peer-to-peer market. A young hedge fund created just two years ago to invest in Lending Club loans, sold a $53 Million group of those loans in the first ever securitization effort for peer-to-peer loans. And that adds a third layer to the p2p world: the ability for institutional investors who might not be able to participate in Lending Club offerings can now buy into the after-market.
The demand for alternative lending investments is high. Even accredited investors who want in on Lending Club are experiencing difficulties identifying and participating in the best offerings. “There are more people looking to loan than looking to borrow,” said Chad Meyer, Managing Director, ClearVest, LLC (and in full disclosure a Cumulus Funding, LLC Board Member.) Meyer believes the best Lending Club deals go fast and often to the heaviest users of the platform. Nothing wrong with that. However, when jockeying for position for 9% returns, the money that doesn’t find placement with peer-to-peer lending products will logically move into alternatives to these alternative lending products. “Hopefully, that’s where lending solutions like Future Income eXchange come into play for investors looking for good returns–and consumers looking for fair alternatives to Payday loans.”
DealBook reports that the Eaglewood Capital deal was for $53 million and most likely went to a large insurance company. This type of securitization may prove huge for peer-to-peer lenders because it opens up the potential for more buyers, like the presumed insurance company, who may operate under restrictions that don’t allow direct investing in peer-to-peer companies like Lending Club.Jonathan Barlow, CEO of Eaglewood Capital and former Lehman Brothers trader, said that he believes their securitization transaction will be the first of many, as reported by DealBook’s Peter Eaves.
Lending Club is a young company, but Bartow is confident in their loans, pointing to six years of successful data to analyze. Their main borrowers are individuals who fall just short to receive loans from banks, but should be worthy of good credit deals.
Since the financial crisis, investors have been cautious to securitize any sort of non-bank loans, in fear of anything carrying more risk, so this will be a deal to watch. If it proves sound, you can be sure to see more of these deals, as well as big growth for the peer-to-peer lending community.