If you go into any major hedge fund or Wall Street firm today you will likely find graduates of Baruch College’s Masters of Financial Engineering (MFE) program working at the trading desk. The MFE program at Baruch is where many algorithmic traders learn their craft. But not everyone coming out of that program goes to work on Wall Street. Some choose a very different course.
Simon Hermiz, Kenneth Chan and Richard Postelnik all had an entrepreneurial yearning. Sure they could have made great money working at a big bank or hedge fund but they wanted to do something different. They started NoteX360 before they graduated from Baruch because they feel that p2p lending and the broader alternative lending market could benefit from efficient aggregation and execution technology that is available in other asset classes.
Hermiz, Chan and Postelnik have spent most of their careers in finance with backgrounds in lending, trading, and technology. They have a combined 20-years of financial industry experience working at companies like Bank of America Merrill Lynch, BNY Mellon, Fifth Third Bank, Houlihan Lokey, and Pico Quantitative Trading.
After hearing about p2p lending, Hermiz attended the LendIt Conference last year in New York to learn more. He saw there was a huge opportunity to bring equity style execution technology to this new asset class. And he realized he could help build the technology that would help p2p lending become a serious asset class.
So, the three partners went about building the NoteX360 software while continuing with their classes at Baruch. They attracted some angel funding although they would not disclose how much. Regardless, they had a very low cost structure because they did all the development themselves.
Order Management and Execution for Institutional Investors
What does NoteX360 do exactly? They help institutional investors access p2p lending by executing and managing orders for them. They offer both a semi-automated and fully automated service.
In the semi-automated service NoteX360 will provide normalized market data, order management, routing, and reporting. Here they will provide their own APIs to accommodate clients who have their own systems that have been developed to invest across multiple asset classes.
In the fully automated service NoteX360 will send orders from their own algorithms. The client decides on the mix of investments and NoteX360 does all the order execution and account rebalancing with no need for the NoteX360 APIs. Of course, in both services NoteX360 will use the APIs of the platforms to execute all their orders.
Right now, NoteX360 is available for investors in both Lending Club and Prosper. They are focused on the US market first but they see their future as a global player. Their first international platform that will come online will be Funding Circle UK later this summer. NoteX360 also seeks to tap into the broader alternative lending market and start aggregating auto, middle market, commercial real estate, and private equity debt.
Bringing Trading Technology to P2P Lending
During our conversation Hermiz mentioned speed of execution several times. In previous jobs Hermiz and his team have worked on low-latency trading platforms where speed is critical. This is the technology that Hermiz and his team are looking to bring to p2p lending.
Speed of execution is important because as the platforms scale they will be processing many thousands of orders simultaneously. These orders will need to be executed in a timely fashion. Hermiz believes that with Notex360 investors will get superior performance and scalability.
Clients have been using the NoteX360 software on a trial basis and will continue to do so until the end of May. The NoteX360 team will be demoing their software at LendIt 2014 next week and investors will be able to stop by their booth for a 1-on-1 discussion. They have also just launched their blog, called Quant Blog, that will focus on the quantitative side of the industry.
Building out the Infrastructure
It seems that 2014 is the year where the p2p lending ecosystem is getting established. We have a long way to go but we are clearly getting started and it is great that institutional investors have a choice in execution platforms.
These are good times for both retail and institutional investors alike. There are still opportunities for retail investors to browse through loans and handpick which loans to invest in. At the same time, through companies like NoteX360, institutional investors can get very fast order execution in a fully automated environment.
Peer to peer lending is starting to come of age.