Update on Retail Investor Sentiment Following the Lending Club Saga

Lending_Club_Retail_Investor_Sentiment

A lot has been written recently about institutional investors interest in Lending Club loans following the Lending Club saga, but around 50% of funding comes from individual investors. This week there was a report from Morgan Stanley highlighting that retail investor confidence may be looking up. We also reached out to retail investor portals NSR Invest and LendingRobot to get their perspective regarding their paying clients.

The Morgan Stanley report consisted of a retail investor survey and while we can’t share the exact report we can talk in general about the results. Most investors were aware of the departure of Lending Club’s CEO Renaud Laplanche, but a majority of respondents were still positive about Lending Club with only a small percentage reporting they would stop investing. This is no surprise but it seems like the confidence of retail investors still remains strong given the results of the survey.

NSR Invest, a p2p investment advisor for financial advisors and individuals, noted material drops for two weeks following the Lending Club news. They also provided the following data points:

  • For the month of May new accounts and existing accounts both had net positive additions at NSR (3% growth in assets).
  • 2%-3% of our clients voiced serious concern.
  • Less than 1% paused their investments.
  • Well less than 1% requested liquidity.

CEO Bo Brustkern stated by early June, new accounts at NSR Invest are back to normal levels. What’s interesting is compared to the study above by Morgan Stanley NSR Invest’s reported numbers were significantly better, showing perhaps that those who use a third party tool such as NSR have more confidence in their investment in the asset class.

Emmanuel Marot, CEO and Co-Founder of p2p lending robo-advisor LendingRobot shared a similar sentiment. Shortly after the news they reported several clients questioning if they should be worried, with a few pausing their investments and no massive exodus.

Emmanuel stated that they are still growing and their assets under management as of June 16 are significantly larger than they were just two weeks ago and new investors are coming in at approximately the same rate as before. He expects that the news will actually help increase investor returns with their most recent Adaptive Portfolio Rebalancing feature due to the increase of notes on the secondary market.

Emmanuel also brought up the fact that some early adopters and tinkerers may have left due to the fact that they felt let down by a company they had an emotional attachment to. In fact, most questions they have received are coming from long time Lending Club investors. Newer investors are coming for the attractive returns offered by p2p lending and look more at note payments and performance than an incident that didn’t have any direct effect to retail investors.

From a personal perspective, the Lend Academy team remains bullish on Lending Club. Peter, the Founder of Lend Academy recently published an in depth article on why he is keeping his money at Lending Club. I personally have continued investing with Lending Club and in light of the recent interest rate increases decided to add a small amount to my Lending Club account. After a long period of decreasing rates, Lending Club has now raised rates 4 times (12/22, 1/28, 4/20, and 6/7) since December 2015 which I believe may result in higher returns going forward.

Conclusion

There has certainly been concern from investors following the Lending Club news, but perspectives from those closest to retail investors seem pretty positive. Regarding loan volume and platform health, while it is certainly down significantly from before May 9, we have seen that loan volume has increased slightly in the last week. But it’s hard to draw any conclusions on trends with loan fluctuations until we have more data. We continue to monitor weekly volumes to the fractional and whole loan pool. Based on what we’ve seen in recent weeks there certainly has been a broader confidence issue in Lending Club, but it seems as though the retail market remains strong.

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William Kelly
William Kelly
Jun. 28, 2016 6:46 am

Can you trust anything this company does:

“On Tuesday, the company said that in December 2009, 32 loans totaling $722,800 were made to Mr. Laplanche and three of his family members in order to inflate reported loan volumes at the time. The vast majority were paid off within months.”

Nope

James Wood
James Wood
Jun. 30, 2016 8:09 am

This report focuses on quantitative retail investor investment behavior. What it does not speak to is how we fell about the shift from peer to peer to industry to peer. Unlike when LC started, there is very little focus on retail investors now. Ironically, many of the “we grew to fast problems” would be addressed if LC continued to focus on a peer to peer model and transparency. I do think the new CEO will help keep the business on the straight and narrow but suspect the retail investors will continue to decline as a percentage of total investors as the shift to large institutional investors continues. Like owning a few big loans instead of many smaller loans, LC might be losing some robustness if a few bigger players take over.