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Prosper Introduces New Premier Investor Service

by Peter Renton on May 23, 2012

A new kind of service is being launched by Prosper today. Prosper Premier is billed as “having your own Prosper concierge” that basically does all your investing for you.

Unlike most regular readers of this blog some investors don’t like deciding which loans to invest in. They like the idea of p2p lending and the returns that are possible but are not interested in doing any research or analysis themselves. Prosper Premier is targeted at these investors because it gives them a chance to invest in Prosper notes by just filling out a simple form.

In an email that is being sent to investors today this is how Prosper is explaining this new program:

With Prosper Premier, you can personalize your investments according to your investing style, without sinking the time and attention it usually takes. Here’s how Premier works:

  • You select your desired asset allocation based on risk ratings and loan terms.
  • Prosper analysts execute your orders based on your desired portfolio allocation, including reinvestment of payments received (if instructed).
  • And, you get priority access to a dedicated, knowledgeable Investor Services manager.

Prosper’s Answer to Lending Club PRIME

This does sound a lot like the Lending Club PRIME service that allows investors to invest in Lending Club notes in a completely automated way. The only difference is the emphasis on a dedicated “Investor Services manager” at Prosper.

Like Lending Club PRIME, Prosper Premier will have a $25,000 minimum investment and have a 0.8% one-off fee for setting up the account. But this fee is being waived for a limited time so new investors getting in now will pay no fees. Investors can choose a percentage breakdown by loan grade as well as by loan term.

Another Good Move by Prosper

I have heard many times from Lending Club about how popular their PRIME service is and I know several people personally who have taken advantage of this service. Even though Prosper has Automated Quick Invest (AQI) there has been no equivalent service for Prosper investors that allows a completely hands-off approach. Until now every new Prosper investor has had to setup their own investments. Having a completely automated investing option will likely be very popular.

One question that is sure to be on many regular investors minds is how this will work in practice. I have been told this it will function like Automated Quick Invest but it is not clear if Premier investors will get priority over regular investors when the loans first come on the platform. Somehow I doubt it because even though this is a premium service the investors are not interested in any one particular loan or even group of loans.

No one will complain that they missed out on a loan that was snapped up by Worth-blanket2 or other large investor. So, it would make sense to run Premier investors after processing AQI accounts because often these AQI investors are focused on a very small number of available loans. I expect this question will be answered shortly and when I find out for certain I will share it with you here.

In the mutual fund industry index funds have been popular for many years in part because it is an easy way of investing in a broad market. Prosper Premier provides a similar kind of opportunity – investors can just invest in a broad cross section of Prosper loans and gain similar returns to the overall Prosper market. Or investors can target the higher risk or lower risk sections of the market if they want to narrow their focus.

What do you think? Is this is a good idea from Prosper? Let me know in the comments below.

{ 18 comments… read them below or add one }

Dan B May 23, 2012 at 8:32 am

It obviously makes a lot of sense for Prosper to offer this. As Peter pointed out, it’s easy for a lot of us who are actively managing our accounts to forget that the vast majority of potential p2p investors don’t have the desire &/or confidence, skill, patience, knowledge or just can’t be bothered with actively managing. Let’s face it, there is some work involved in actively managing & there is certainly a learning curve. This product removes the necessity of all that, making investing much more “passive”, which is what most people want.

I would have liked to have seen a somewhat lower entry minimum (at least initially), perhaps $10k or $15k……………… but regardless of that I have no doubt that this Premier option will, over time, prove to be real popular.

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Thomas DeLong May 23, 2012 at 10:42 am

Thanks Peter. I’ll be curious to see the index fund returns vs. the overall asset class, because active investors quickly fund the high yielding loans which would leave index funds with lower yielding loans (unlike stock index funds, where everyone can own the good stocks, with P2P index funds not everyone can own the high yielding loans).

This may be more of a problem on Prosper, where there are more active investors and more people using special criteria APIs/AQIs to cherry pick the best loans. I suspect it’ll only be a moderate problem overall, but an important distinction to understand and watch.

Thanks again

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CA-Lender May 23, 2012 at 11:27 pm

Peter,

Can you provide a link on where Prosper has this new feature?

I searched their website, including the blog, but couldn’t find any info on this “Premier Service.”

You would think that (unless it’s still in Beta testing) Prosper would put this on their home page.

CA-Lender

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Peter Renton May 23, 2012 at 11:40 pm

There is no page on their site yet. They are doing a soft launch with this, just letting existing investors know (although I have not received an email yet) and they allowed me to publish this article. Once they know everything is functioning well I expect there will be more information available.

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Peter Renton May 23, 2012 at 11:36 pm

@Dan, I think Prosper Premier has been created because of investor demand. I know they have wanted to do something like this for some time but wanted to be 100% clear that it is within the SEC guidelines before releasing it.

@Thomas, I disagree that this will only leave lower yielding loans. I just did a check on the platform and right now more than 50% of the loans on the platform are for interest rates of 20% or more. Sure, many high yielding loans are funded quickly particularly the “best” loans that appear to be somewhat mispriced. But Prosper believes that every loan on the platform is a good loan and the Premier service will be investing in a broad cross section of these loans. If nothing else, it should ensure that more loans get funded.

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Dan B May 24, 2012 at 1:55 am

Thomas……..I’m sorry but I disagree with almost all your suggestions/conclusions. I’m not aware of any evidence that suggests that higher yielding notes fund faster on Prosper or at LC. I’m also not sure how you came to the conclusion that Prosper has, as you put it ” more active investors and more people using special criteria APIs/AQIs to cherry pick the best loans”. More than where? More than LC? How did you come to that conclusion?

Finally, I’d disagree with both your suggestions that:
1. This new Premier service will leave non-Premier investors with lower yielding loans.
2 That it will “cherry pick” either the “best” loans or mostly the higher yielding ones.

Setting aside the obvious possibility that higher yielding loans may not necessarily be the “best” loans, …………….for starters this type of service is predicated on its ability to respond to customer input. For example if the majority of the signups make their choices indicating they want a lower risk profile, then the system will skew towards lower risk & lower yielding loans. You seem to believe that a system such as this will function in a vacuum when it simply cannot do so & still abide by customer risk parameters. You may also find it interesting to note that there is little if any evidence to back up the notion that investors will necessarily opt for a higher return/higher risk asset allocation. In fact the opposite behavior may be much more likely, if the LC Prime experience is looked at.

Secondly, even within risk parameters I think you will find an aversion away from cherry picking………….if for no other reason than to stay within SEC regs on this matter. Therefore, in a nutshell I’d expect the long term returns of the Premier service to closely track the returns within each risk/return category.

Peter………..I think your assessment is spot on………….which I’m sure is of tremendous comfort to you but is a bit worrying for me because this is the second time this month that we’ve been in almost complete agreement on something. :)

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Peter Renton May 24, 2012 at 5:03 am

@Dan, I am on a roll….but I am not holding my breath for a third time. :-)

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Dan B May 24, 2012 at 12:41 pm

Wow, you’re so full of wisdom lately! :)

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Thomas DeLong May 24, 2012 at 8:07 am

@Peter and @Dan – I was saying the opposite of what you interpreted. Prosper Premier is not active investing (they do it for you so obviously you are not active).

Prosper has told me over the phone that many active investors (hedge funds, not Prosper Premier) prefer the D or lower rated loans using specific criteria about DTI ratios etc. because they have a higher yield (which makes sense, D-HR loans have the highest seasoned returns currently – http://www.prosper.com/welcome/marketplace.aspx).

Also, Peter you also mention that you are focusing on higher yielding loans with your active strategy titled “No move conservative lending strategies” here:
http://www.sociallending.net/investing-lending/how-i-am-investing-in-lending-club-and-prosper-in-2012/

So if more active investors like hedge funds continue a strategy of funding higher yielding loans there will be more competition for those D-E rated loans and they will be more difficult to get. However, since active investors often do not have a preference for A rated loans (according to Prosper, and in line with Peter’s strategy), there is less competition from hedge funds for A rated loans.

@Dan – Prosper Premier didn’t exist until now, so unless you manually/AQI invested in all loans without any criteria (unlikely), indexing was not as common on Prosper as it is on LendingClub. LendingClub Prime has been around for a while and is a common way to index on their platform without specific filtering criteria such as DTI or inquiries.

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Peter Renton May 25, 2012 at 5:14 am

@Thomas, That is true I am focusing on only the higher yielding loans now and I agree that many active investors are doing this. I believe there is more competition for D-HR rated loans on Prosper but there are still plenty of these loans that go unfunded. Are these unfunded loans not as “good” as the other loans – many investors think so but Prosper clearly doesn’t. I will agree with you on this point. There is far less competition for the A and B (there are very few AA loans) rated loans on Prosper which is actually the opposite from Lending Club. I think Prosper just attracts a more aggressive investor on average.

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longrun May 25, 2012 at 12:07 pm

Will there be any way to compare Premier’s performance for me versus my other loans? Since Prosper doesn’t have portfolios, what is the best way to track the performance of different sets of criteria in my portfolio? Lendstats has advanced filtering, but I would like track my specific portfolios.

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Peter Renton May 25, 2012 at 5:32 pm

@longrun, You have hit on one of the limitations of Prosper. There is no way to do exactly what you are wanting to do but I can tell you the workaround I use. If you have mutually exclusive “portfolios” you can set up searches on Lendstats with that criteria and your screen-name. If you save the URL for each unique search on Lendstats you can go back and check it regularly. It is not perfect and doesn’t work for “portfolios” with overlapping criteria but I have found it is better than nothing.

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Gary May 28, 2012 at 7:37 am

I invested in Prosper in October 2011 and asked if they had something similar to Lending Club Prime in which I had invested in July 2011. They said they had a similar service and we developed my “risk profile” during a telephone conversation after which they started the ‘automated’ investing for me – so it’s not totally new but it’s working for me (over the past 4 months, my monthly return has ranged between 1.6% and 1.9%).

Regarding your comment that “unlike most regular readers of this blog some investors don’t like deciding which loans to invest in” – it’s not necessarily about ‘liking’, it’s about having the time. Although it’s an empirical question, I think you might be surprised how many regular readers have a similar situation and regularly read your blog because it is well written and offers valuable news and insights into the world of P2P lending, e.g., SoMoLend, another investment and diversification opportunity

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Peter Renton May 28, 2012 at 6:56 pm

@Gary, I know they have had Automated Quick Invest for many months now but I didn’t realize they would set it up for you. That is something they couldn’t publicize. Now, they have Prosper Premier which can openly compete with Lending Club PRIME.

And I take your point about the lack of time. I know time is the one thing that we are all lacking. And if you will allow me this shameless plug, that is one of the motivations behind the development of my video course, the P2P Lending Wealth System. I show everyone how to spend just a few minutes a week on your investments while at the same time choosing the best loans.

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Gerry S July 4, 2012 at 12:39 pm

Credit performance should be assessed by both vintage year and the interest rate level the debt was issued at.

For example, for all the 15% loans you selected in 2007, did those loans as a group outperform or underperform  all the 15% proper loans that were issued that year?   If they outperformed, you either had a good selection criteria or you were lucky.   If not, you would have been better off indexing (if indexing these loans was available).

Unlike the stock market, where the balance of buyers and sellers determine the “interest rate”  or price of stocks, Prosper sets the rates of the loans on their service.  If sophisticated investors can find inefficiencies in any of the quality buckets, they will scoop up those loans quickly.  That means the remaining loans in that bucket will underperform the whole.

Since Prosper’s function is to price loans correctly, they should continuously seek to upgrade their pricing system to neutralize any active strategies that add value.  This way, both investors and borrowers will be assured of transacting at optimal prices.

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Peter Renton July 5, 2012 at 3:36 pm

@Gerry, Thanks for chiming in here. That is one of the keys to outperforming the average – to find the pockets of loans that are mispriced. Prosper is always tweaking with their underwriting models and adjusting rates, as they did quite publicly with repeat borrowers last year. I think detailed analysis of the loan history can find these pockets of mispricing before the adjustments are made.

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Kelley February 6, 2014 at 5:36 am

I would not recommend using their premier service. I started a premier acct. in November asking that no more than 50. be put in any note but they ignore this request many times. Yesterday they invested 300. in a note for a women who is already 48k late on some other type of acct. That’s just my two cents.

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Peter Renton February 6, 2014 at 7:02 am

Hi Kelley, Thanks for the feedback. I know Prosper are struggling to keep enough loans for their investor on their platform right so that might have something to do with it. But still, if you say $50 per note they should honor that request.

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