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New Hedge Fund Launches Targeting Lending Club Loans

by Peter Renton on January 24, 2013

On November 30 last year a new investment firm launched in New York called Eaglewood Capital Management. That is hardly a newsworthy event. But this one was different. Eaglewood is investing in Lending Club loans.

It was reported in Bloomberg and elsewhere that Eaglewood raised $20 million for its launch and is putting that money to work at Lending Club. The founder and CEO is Jonathan Barlow but he declined to comment for this article.

Here is what it says on the Eaglewood website:

Eaglewood Capital Management is a New York based investment firm specializing in peer-to-peer lending strategies. The firm seeks to achieve superior risk-adjusted returns relative to traditional fixed income investments by focusing on strategies that offer a compelling combination of yield, credit quality and duration while minimizing volatility of returns and correlation to other asset classes.

This offering is a private fund so there is very little information about it. But my research dug up an interesting article from Hedge Fund Alert back in November 2011. In that article it was revealed that Barlow was looking to run a fund with leverage. What that means is that he was looking to setup a credit line where he could borrow money based on the assets of the fund.

Sources tell me that Eaglewood has established a credit line with a major bank that will allow them a moderate amount of leverage. This amount is reported to be between 2 to 1 and 3 to 1 on the money they have raised for their fund. Seeing they raised $20 million this means they will be putting $60-$80 million to work at Lending Club. I don’t know their interest rate but let’s assume they are borrowing money at 5%. If that rate is somewhat accurate it would not be difficult to earn a nice spread on their investment in today’s p2p lending environment.

By running a leveraged fund they would hardly invest through LC Advisors. As they describe on their website they are focusing on strategies that “offer a compelling combination of yield, credit quality and duration”. Clearly they have developed a model where they will be choosing their own loans.

Obviously, there is a lot of risk involved here and I need not remind anyone that excess leverage was a major cause of the financial meltdown in 2008. If the economy goes south and returns fall below their cost of capital then Eaglewood could have a mess on their hands.

Now, I don’t condone leverage, it is only for people with a very high tolerance for risk. But it was only a matter of time before some Wall Street types took notice of p2p lending. Eaglewood may be the first to offer an investment product like this but they certainly won’t be the last.

{ 11 comments… read them below or add one }

Vulture Guy January 24, 2013 at 1:10 pm

60-80m? How much in loans does LC originate in a year?

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Peter Renton January 24, 2013 at 1:29 pm

Check out my monthly post with the numbers:
http://www.lendacademy.com/2012-p2p-lenders-871-million/

LC did $94 million in Dec and should cross $100 million this month. But I imagine the $60-$80 million at Eaglewood will be invested over several months.

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Andrew N January 24, 2013 at 2:58 pm

I just hope that Eaglewood does not snatch up all of the high interest loans before I can get to them.

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NewHorizon January 24, 2013 at 4:03 pm

Wouldn’t it be cool if LC allowed you to underbid Eaglewood’s interest rates?? :D

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Danny S January 24, 2013 at 4:26 pm

ha!

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FrankieC January 24, 2013 at 8:59 pm

No… that was the original Prosper model… and it was a failure for investors AFAIK.

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NewHorizon January 25, 2013 at 10:53 am

Alas, the broad grinned smiley face failed in its purpose. :(

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Mike January 25, 2013 at 3:35 pm

Yup, there ought to be an emoticon that just spells out ‘rhetorical question’.

DC September 13, 2013 at 7:09 am

I have a very good one if you are still looking for one to invest in – yield could be 7-10 %

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SeanMcD January 26, 2013 at 12:23 pm

Peter, any idea how the size of this new investment compares to those of existing industrial lenders at LC?

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Peter Renton January 26, 2013 at 12:30 pm

My understanding is that the largest investor on LC is Thomvest with $60 million, so this is going to be close to the largest, if not the largest. Although I have heard of a sovereign wealth fund thinking about investing $250 million but I don’t believe they have pulled the trigger yet.

Reply

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