Leading Chinese Platform CreditEase Makes First Investment on Avant and Prosper

I first became aware of CreditEase back in June 2013 at the inaugural LendIt conference in New York. We met with some of their management team back then and when they told me their loan origination volume I couldn’t believe it. I really thought they must have got something wrong in the currency conversion. Even back then they were much larger than Lending Club or any other platform I knew.

Today, they are one of the leading lending platforms in China having issued over US$15 billion in loans last year. But they are far more than a lending platform. Wealth management is now a major focus as their clients have sought out their expertise in making investments beyond their P2P lending platform in China – in 2015, approximately 50% of all CreditEase revenue came from non-P2P products.

Which brings us to the focus of today’s article. CreditEase has raised $80 million from their wealth management clients to invest on international marketplace lending platforms. Over the last several months they have conducted a thorough due diligence process where they looked at around 60 different lending platforms from all over the world.

I chatted with Richard Williamson, an Australian who is running corporate strategy for CreditEase, and has been leading this effort. Given the background of their investors in P2P lending the goal was to deploy this capital on similar consumer or small business lending platforms.

They raised an initial $80 million for this fund and have closed down fundraising for now. This month they are deploying $50 million into the loans issued by US consumer lending platforms Avant and Prosper. They chose those two platforms for several reasons. According to Richard they love their great track record of credit underwriting and their transparency around data. Here is what Richard said about their due diligence:

The CreditEase due diligence process involved verifying portfolio metrics via bottom-up datatape analysis, and reproducing portfolio analyses, which required receipt and review of terabytes of loan data.

CreditEase has also developed close personal relationships with executives at both firms, commencing from well before fund conception. Both Ron Suber, president of Prosper, and Al Goldstein, CEO of Avant, have been to China and the management teams of both companies have met with CreditEase CEO Ning Tang and his team at LendIt, as well as at the respective firms offices in the US.

I reached out to Al Goldstein for a comment on the recent investment from the CreditEase Credit Fund:

CreditEase is a clear leader in the Chinese fintech market, and we are excited to begin this partnership, our first involving loan sales to an institutional investor in Asia. We believe this transaction speaks to the significant appeal globally of the U.S. middle income consumer, as well as Avant’s unique position with those customers and our ability to generate attractive risk adjusted yield.  We continue to diversify our sources of capital through this partnership with CreditEase and others like it as we build upon our hybrid funding strategy.

I also reached out to Prosper for a comment but they declined citing a policy of not commenting on the activity of their loan buyers.

The CreditEase team will continue to deploy capital on new platforms in the coming weeks and months. Once they have allocated the remaining $30 million of the fund they will open it back up and will continue to grow this part of the business. CreditEase is working with Orchard to help monitor and manage portfolio performance.

Their wealth management clients are very comfortable with the asset class and they like the international diversity of investing in US platforms. Most of these clients are already investing in CreditEase’s domestic P2P platform. When I asked Richard about what new platforms he was considering he explained he was under NDA and could not share any names. But he did say that’s he is looking at other US platforms, platforms in Europe as well as Australasia (Australia and New Zealand).

It is great timing for the industry here in the US as some institutional investors have pulled back from the space. Chinese companies could end up becoming a major source of capital for US platforms, particularly today given that many are hungry for new capital.

CreditEase was getting ready to pull the trigger on Prosper earlier this month when they heard about the announcement of layoffs. They hit pause for a short time as they did some more due diligence but in the end they were comfortable with their decision and wired the money. Their capital will likely be fully deployed in a matter of days.

For many years now my LendIt partner, Jason Jones, and I have been telling people that China has the potential to be a massive funding source for platforms all over the world. I expect this first investment may well open the floodgates for many more.

Now allow me to do a little blatant self-promotion here. LendIt is going to China in July for a weeklong tour culminating in our LendIt China conference (called Lang Di Fintech) in Shanghai on July 17 – 18. Many of the leading fintech companies in China will be there and they are eager to meet with US companies.

I am actually writing this article in a hotel room in Shanghai during an 8-day trip to China. Once again I am struck by the size and scope of the industry here and how much innovation is happening. And the fact that so many lending platforms are expanding into wealth management.

So, while this is the first significant deal into the US from a Chinese platform it most certainly will not be the last. The US market is still very much a favored place for Chinese capital.

Disclosure: Peter Renton, the founder of Lend Academy, owns shares in Yirendai (NYSE:YRD), a division of CreditEase.