P2P lending continues to grow
Institutional investors including pension funds, insurers, family offices as well as asset management houses, are continuing to buy into peer-to-peer (P2P) marketplaces.
This comes as Lending Club, the largest company in the space, went public on December 11, 2014. The Initial Public Offering (IPO) closed at $23 a share on day one, up 56 per-cent from its filing price.
“This is a coming out part for our industry and a huge validation for marketplace lending. This event will bring a new level of education, awareness and understanding about what we do and that is very exciting for all involved,” said Aaron Vermut, chief executive officer at Prosper Marketplace, a P2P lender.
Fund managers are certainly taking note. Marshall Wace, the £18 billion UK hedge fund, acquired 90% of Eaglewood Capital Management, a New York-based asset manager that invests in P2P loans earlier this year. Marshall Wace itself entered the P2P market in 2013 when it purchased Exchange Associates from Liberum Capital, an investment bank. Marshall Wace has confirmed it will merge the two businesses to create MW Eaglewood.
“There is a huge amount of interest in P2P lending right now from retail and institutions. All investors are attracted to this new investable asset class because P2P lenders have returned about seven per-cent net return this past year, which is over and above what many pensions need to generate,” said Ron Suber, president at Prosper.
P2P lending has grown in recent years as banks increasingly curb their own lending. Figures show that Lending Club and Prosper, which comprise 98% of the US P2P lending market, issued $2.4 billion in loans in 2013, up from $871 million in 2012. A number of banks are simply uninterested in offering loans under $35,000, which is forcing borrowers to approach P2P lenders.
These web-based platforms connect borrowers with investors, and unlike banks are not burdened by the internal infrastructure, heightened regulation and bureaucracy. This enables them to offer competitive interest rates to borrowers. P2P lending also offers fund managers a diversified portfolio with consistent, monthly return not correlated to the stock market and fixed income markets.