Starting this so as not to pollute the 2015 Outlook thread with a bunch of off-topic crap (no offense). While we are on the topic of bridging the lending game, what about Apollo Investment Corp? They are a BDC with a juicy 9%+ yield that does this.
I recently started using Lending Club solely because of rawraw… i sure hope gets a commission!
If you aren’t joking, are you using it for your fund? Because you’d be an institutional investor if so and able to get more diverse loan products. I’d be curious what those look like
But I don’t know much about Apollo. Are they one of these guys that borrow and then invest it in debt? I know some are doing that at LC and Prosper. I’d have to read their offering before I could comment
This is a fund I have read a little about: http://www.dirlend.com/
The Fund owns a diversified pool of high-yielding, 6-18 month business notes. The notes are purchased from a number of lenders including IOUCentral.com and QuarterSpot. These lenders make loans to qualified, established businesses that fit our strict filtering criteria.
Our investment objective is to earn consistent cash income net of all expenses and fees that is significantly higher than other short-term, high-yield alternatives.
Our average borrower has been in business for 10 years. We do not consider it appropriate to own ’small business loans’ made to startups. The businesses are a mix of doctors, restaurants, gas stations, convenience stores, and other traditional local businesses whose modest borrowing needs of $10,000-$200,000 put them below the threshold for traditional, bank-originated business loans.
The Direct Lending Income Fund buys and holds these notes, from which it expects to generate high monthly returns, strong portfolio cash flow, and low volatility.
Peer to Peer Lending Platform Achieves “A” Rating from S&P and “A2” from Moody’s
Social Finance or “SoFi”, a leader in P2P or marketplace lending, today closed a $303 million+ securitization of refinanced student loans for graduate borrowers. The senior notes were rated “A” by S&P, “A2” by Moody’s, and “AA (low)“ by DBRS. This is the second S&P-rated securitization that SoFi has completed in the past four months, and its third securitization since December 2013. SoFi is the first and only lending platform to secure investment grade ratings from S&P and Moody’s for senior notes in a securitization. The SoFi securitization is indicative of growing interest in P2P platforms in the potential of securitizing loans transacted via their funding portals.
More headwinds for banks in the consumer space:
With LendingClub poised to raise around $800 million in an initial public offering next week, another online lender is taking advantage of the timing to reel in some serious cheddar of its own.
AvantCredit, a Chicago-based provider of personal loans, said Thursday that it raised $225 million in equity financing and put in place a $300 million credit facility to fuel growth in a rapidly expanding market.
AvantCredit, meanwhile, issues debt itself and assumes the risk that comes with defaults. That’s why it needs to borrow so much money. To date, the company has raised more than $1 billion, with $700 million of it coming in the form of credit. And it’s thus far funded $500 million in loans.
Goldstein said that in the early days, lenders were charging AvantCredit rates in the mid-teens. That’s come down by half, and he expects that as the company continues to adequately price risk and keeps losses in the expected range, borrowing costs will fall by another 50 percent in the next couple years.
For consumers, that all translates into lower rates. Currently, loans start at 19 percent annually, but Goldstein sees those prices being reduced at the same rate as its own costs. So consumers could expect to see sub-10 percent loans.
^ I have a buddy that works at AvantCredit. He says they’ll do consumer loans with rates above 60%. I don’t know who in their right mind wants to borrow such expensive money but their business is booming. I know some people may get hit with unexpected medical expenses which sucks, but so many people are idiots with their money.
Regarding taking market share from banks, I don’t think banks want to touch the stuff some of these lenders are doing.
I think LendingClub is pretty cool. It looks like a nice alternative asset class (consumer credit) for retail investors that otherwise had no opportunity to participate in that market before.
Welcome to the top of the cycle. This reminds me of chattel loans for manufactured housing in the 1990s. It was a great business… until the cycle turned and the all went to zero.
While I don’t disagree about the top of the cycle comment, the 60% is probably not an interest rate as most states usury laws wouldn’t allow that. What I’d assume Tommy means is that they yield 60% , which would be akin to loans structured like payday loans. The one thing that Avant has going for it is the incentives are aligned – defaults impact them. Originators like LC/Prosper are just selling the stuff and the maority of their revenue is origination, not servicing income. That introduces some misaligned economic incentives.
For those interested, both OnDeck and LendingClub have their Road Show’s available now: http://www.retailroadshow.com
rawraw - what do you think of OnDeck?
After watching their road show, I would never invest in their debt. There were some red flags when they described their underwriting that made me think they are going to be surprised during the next down turn. And may get royally burned.
are you guys still in this field?
what is it looking like with rising rates?
I’m still involved, but not as large. I’ve never been comfortable with investing retirement dollars in Lending Club and the rise of defaults last year meant I had to optimize the tax situation (there is that weird deductibility rule since it’s OID). The people chasing yield have gotten crushed. Luckily my portfolio was more conservative, so it broke even. Another portfolio I manage for a family member is even more conservative and their portfolio has been fine. The rate differentials aren’t as attractive as they used to be. But it’s still pretty good (ignoring tax quirks) I haven’t found any other platforms that I trust. The real estate guys seem like the wild west
I’ve heard of those real estate ones. Thought they were interesting. But have not seen stats. I actually think it’s ripe for charlatans though but like the idea of small scale iPos! Lol. Real estate requires huge downs and has a lot of barrier to entry! So this is a way to get people to lever more!
cfa dude who commented on both. Apparently the returns are high (some at 19 percent) but keep in mind this is fairly new and real estate prices have been rising. Anyways enjoy!
I checked LendingClub’s statistics again recently, and they are now claiming median returns in the 5% range. The fact that their claimed returns dropped from around 9%, to 7%, and then to 5% as the age of their notes increase is highly alarming. Furthermore, come of LendingClub’s past operational misconducts should make investors wary of any other undisclosed risks.
Add this to the fact that LendingClub is the issuer of the notes (investors are subject to LendingClub’s credit risk), and that interest income is taxed at your normal marginal tax rate. This makes the platform highly unappealing, and it is likely dominated by other investment choices for many people. I wish LendingClub would have worked for me, but that does not seem to be the case at the moment.
The real estate investing platforms are pretty interesting, as they seem to offer two compelling advantages over normal real estate investing: 1) Alleged lower fees than normal real estate, and 2) Geographical diversification (rich NY or CA people can buy houses in cheap places with higher yields).
However, you’d probably want to do some extensive due diligence before investing any significant money. The debt yields are suspiciously high: any good credit borrower should be able to borrow at much lower rates than what those platforms offer, so there is likely an adverse selection problem. The equity versions are opaque and market returns for a couple I looked at were based on sketchy internal indexes. Furthermore, all their return data is based on the past few years, in a rate dropping environment, which is no longer the case now.
Side note: it’s crazy how these real estate platforms can claim something like 10% projected returns from *price appreciation*. No mutual fund, for instance, claims future projected returns like this, nor are they probably allowed to.
My feeling so far is that mature investment vehicles, like some combination of stocks and maybe high yield bonds, are still the most efficient at the moment. However, I’m still hoping that some of these peer to peer platforms will become attractive at some point.
ohai. which p2p platforms are the best for real estate crowdfunding? which have largest market share? which is oldest?
not answer previous questions, the ones that seem great are real crowd and crowd street. lol.
I think RealtyShares is the leader at the moment, and is certainly the one that I noticed the most while doing research. I don’t remember any specifics about the advantages or disadvantages compared to other platforms.
which real estate guys?
fees is a big thing (ones i mentioned have no investor fees, sponsor pays it). verification is another. i think the ones i mentioned are higher quality where you coninvest with institutions with a track record.
All the ones I’ve seen are shady and don’t seem particularly well run. Lending money gets extremely more complex with collateral and construction elements. There is a reason why banks rarely fail due to consumer loans but frequently fail due to real estate lending.
Part of LCs fall in returns is they now define the universe differently. They discontinued the higher grade notes that were the riskiest. The other change is that the market is getting more competitive. The rates when LC first started where likely not efficient. Now everyone is offering LendingClub like products, making competition for pricing much harder. But yes, 9 percent is much better than 5.
While they have operational challenges, the fact the board got rid of the CEO so quickly was a great sign to me. Looked like the organizational structure is working as it should, which isn’t the case for many of the California fast growth companies.