Yesterday, Lending Club announced the closure of several funds. The funds were part of what was previously known as LC Advisors, an investment management company dedicated to investing in notes originated by the platform. It caters to institutional and high net worth investors who are looking for access to the consumer credit market. We spoke to Raman Suri, Senior Vice President at Lending Club and President of LendingClub Asset Management to learn more about the news.
The precursor to this news were events of last year, coming around the same time as the departure of then CEO and Co-Founder Renaud Laplanche. The funds received a significant amount of redemption requests starting in May, 2016. Due to the amount of requests Lending Club was unable to fulfill them immediately. LC Advisors did not want to sell the loans at the time in a distressed matter as they felt the assets were performing well.
About 4 to 5 months ago Suri explained that the environment to be able to sell the loans firmed up with the first indication being Lending Club’s first securitization. Fast forward to present day and Lending Club has been able to secure several different buyers by holding an auction of the underlying consumer loans. Since each fund is a separate legal entity there were many different buyers that participated. While we don’t know the terms of the deals or who purchased these loans, Suri did share with us that there were over 40 bids for the assets and 5 of the 6 funds have been sold at fair value or a slight premium. Lending Club felt this was a great result for their investors.
What happens next?
Lending Club is rebranding its asset management business. Now called LendingClub Asset Management or LCAM for short. According to the press release, LCAM has deepened its leadership bench, established a majority-independent governing board, and launched new strategies. Suri noted that coming out of last year there were still investors who wanted an allocation to consumer credit. Suri stated in the press release:
We spent the past year listening to our investors as we evolve into a solutions-oriented asset management business. As the market has grown, investors are asking for more than just access. We’re responding to our clients’ increased demand for the asset class by building a more complete range of fund or fund-like structures delivered in ways that make the investing process simple. We’re committed to growing this business and creating value for investors.
The new funds will operate in a similar manner to the previous LC Advisor funds. Two strategies were launched last month and one was created earlier in the year. Suri teased that new initiatives are in the works as Lending Club aims to expand their offerings. One example could be a custom solution where an RIA wants a private fund for their own clients with tailored strategies.
The elephant in the room is the performance of the various funds as of late. When we asked Suri about positioning the new offerings to investors he stated that their biggest flagship fund under LC Advisors had delivered slightly over 6% annualized since 2011. Lending Club feels they have the history to present to new investors coming in and sell them on consumer credit being a portion of a fixed income portfolio.
Speaking about the lower returns recently, Suri explained that every asset class will have its ups and downs. Lending Club is constantly evolving and improving their credit models and how they price risk. A lot of changes have been made in the last year and with the nature of this asset class it will take time for portfolios to digest a decrease of performance.
Given the circumstances Lending Club found themselves in, the result for investors in the LC Advisors’ funds could have been a lot worse. Investors were made whole despite it taking over a year to sell the various funds. It will be interesting to follow the new asset management business given that LC Advisors once had over $1 billion in assets under management. Many institutions and high net worth investors will still want access to consumer credit in a passive manner and investing through Lending Club is one of the best ways to do just that.