New Hedge Fund Launches Targeting Lending Club Loans

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.

Peter Renton is the chairman and co-founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech.

LendIt Fintech conducts three conferences a year for the leading fintech markets of the USA, Europe, and Latin America. LendIt also provides cutting-edge content all year long via audio, video, and written channels.

Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series.

Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.

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Vulture Guy
Vulture Guy
Jan. 24, 2013 1:10 pm

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

Andrew N
Andrew N
Jan. 24, 2013 2:58 pm

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

NewHorizon
NewHorizon
Jan. 24, 2013 4:03 pm
Reply to  Andrew N

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

Danny S
Danny S
Jan. 24, 2013 4:26 pm
Reply to  NewHorizon

ha!

FrankieC
FrankieC
Jan. 24, 2013 8:59 pm
Reply to  NewHorizon

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

NewHorizon
NewHorizon
Jan. 25, 2013 10:53 am
Reply to  FrankieC

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

Mike
Mike
Jan. 25, 2013 3:35 pm
Reply to  NewHorizon

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

DC
DC
Sep. 13, 2013 7:09 am
Reply to  Andrew N

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

SeanMcD
SeanMcD
Jan. 26, 2013 12:23 pm

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