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Podcast 279: Jerry Wang of Haitou Global

The CEO and founder of Haitou Global talks emerging market debt investing and why some of the best investment opportunities today are in far flung places.

December 31, 2020 By Peter Renton Leave a Comment

Views: 87

Most U.S. debt investors pay only scant attention to emerging markets. While some are moving into Latin America most are happy to stay in the comfortable confines of the USA and Europe. But some of the best opportunities are in emerging markets today, those markets that do not yet have much of an institutional investor presence.

Our next guest on the Lend Academy Podcast has embraced this opportunity. Jerry Wang in the CEO and founder of Haitou Global, an asset management firm based in New York but with a global investment mandate. His firm has investments in places like India, Indonesia and Nigeria. He brings a sophisticated and tech-savvy approach to investing in lending platforms in emerging markets.

In this podcast you will learn:

  • Why Jerry decided to start Haitou Global.
  • What they do exactly and their investment thesis.
  • How they evolved to include private credit as part of their investments.
  • What is it about emerging markets that attracted Jerry and his team.
  • The types of loans they are funding in emerging markets.
  • The yields they are looking to earn.
  • How they adjusted their loan terms during the pandemic.
  • What analysis they do before pulling the trigger on one of these deals.
  • The types of lenders they prefer working with.
  • The countries with the best opportunities today.
  • What makes Haitou Global different to other emerging market investors.
  • What Jerry has been doing differently this year because of the pandemic.
  • The kinds of investors they attract today.
  • The key fintech trends they are seeing in emerging markets.
  • Jerry’s plans for 2021.

This episode of the Lend Academy Podcast is sponsored by LendIt Fintech USA, the world’s largest fintech event dedicated to lending and digital banking.

Download a PDF of the transcription of Podcast 279 – Jerry Wang.

Click to Read Podcast Transcription (Full Text Version) Below

PODCAST TRANSCRIPTION SESSION NO. 279-JERRY WANG

Welcome to the Lend Academy Podcast, Episode No. 279, this is your host, Peter Renton, Founder of Lend Academy and Co-Founder of LendIt Fintech.

(music)

Today’s episode is sponsored by Lendit Fintech USA, the world’s largest fintech event dedicated to lending and digital banking. LendIt’s flagship event is happening online this year on April 27th to 29th with the possibility of an exclusive VIP in-person component. The verdict is in on LendIt’s 2020 event that was held online with many people saying it was the best virtual event they’d ever attended. LendIt is setting the bar even higher in 2021 so join the fintech community at LendIt Fintech USA where you will meet the people who matter, learn from the experts and get business done. Sign up today at lendit.com/usa.

Peter Renton: On our last podcast of 2020, we’re going to do something a little different, we’re going to be talking about emerging markets. I am delighted to welcome the CEO and Founder of Haitou Global, Jerry Wang, on to the show. Now, Haitou Global is really interesting because, I think, they have a unique perspective. They’re actually based in New York, from China based in New York, investing in emerging markets, private credit and providing basically credit lines to fintech lenders in emerging markets.

We get into that in some depth and we talk about how they were able to do this, what they look for in investments, the types of companies that they’re working with and it’s super interesting. Jerry also provides his perspective on the region as a whole, particularly Southeast Asia, Africa. He’s got his finger on the pulse as to what’s happening, not just in fintech there, but broader trends in the larger economies. It was a fascinating interview, hope you enjoy the show.

Welcome to the podcast, Jerry!

Jerry Wang: Hi, how are you, Peter? Thank you so much for the invitation.

Peter: Of course, I’m great. So, I’d like to get this thing started by giving the listeners a little bit of background. I know you’re not from this country, just like me, but why don’t you just give the listeners some of the background of your career and how you got to where you are now.

Jerry: Yeah, sure. So, I grew up in China, I went to college in Beijing, I came to the States 20 years ago and studied at Notre Dame, worked at Notre Dame and so I spent half of my life in China and half of my life in the United States. We live in New York, the company’s out in New York so we’ve been in office for seven years now, but still travel extensively back to China, Asia and other continents too.

Peter: Okay. Why did you decide to start Haitou Global, what was the thinking there?

Jerry: Well, we started seven years ago, 2014, here in New York City. The rationale was, you know, I spent a couple of years in offices and allocating capital in emerging markets and I just felt like, you know, the emerging markets and entrepreneur bug you know, I wanted to do something different and I want to serve the other markets, you know, emerging markets, always underserved.

There are investors coming out of China and Asia and they want to allocate capital globally. but they have no experience, no channel, no platform to help them to do so and that’s how I set up the platform on helping Asian investors originate in the US. Gradually, we branched out to other markets, mostly emerging markets, over time.

Peter: Okay. So, maybe why don’t you just describe what you guys do exactly, how you’ve kind of structured your company and where you invest.

Jerry: So, since day one, we are positioned as a global asset location platform and so there are a couple of fundamental principles. For example, we’re technology-enabled, we’re a research-driven platform so we have our apps and we invest in different emerging markets, it’s global and it’s based on technology platforms. Those are, you know, the main principles. Other than that, we are not much different from the much larger investment houses, you know, we allocate capital into different asset classes, stocks, bonds and venture capital, real estate and we invest in different markets like the United States, Southeast Asia, Africa. So, even though we’re a small firm, but we’re as diversified as any other houses.

Peter: Right. We’re going to be focusing here on the fintech space and in particular, I know you do a lot of private credit-type investments. Why include that…..it’s, obviously… not every investor has a private credit/debt that’s in their portfolio, what was your thinking there in making that a big part of what you do.

Jerry: Well, it’s just a natural evolution. When we started the company seven years ago, we worked more like a cross border LendingClub type of platform and we wanted to use, you know, global payments, cross border transaction platforms help the local Chinese and the Asian investors invest in the US and that’s our original thesis and credit is just a natural set. You know, it affects income, it’s stable and it’s liquid so that’s how we like the asset classes. It’s just like public credit, you know, it’s volatile, you had a market and the yield real low under current environment and that’s why we picked the private credit sector.

We know the sector well and that the investment has strong demand for uncorrelated and high yield that’s why we picked the sector. It’s difficult because, you know, in terms of private you had to choose your own field, you had to structure it and you had to manage your services. There is a high bar and it’s not like you can just open a Charles Schwab account and start trading it. So, like you mentioned, this is kind of an investment we really like, you have a high hurdle and you have a high demand and we have the team, the investors, the technology to manage it, to mitigate the risk so it’s a strong portfolio for the whole asset class diversification.

Peter: And then what about emerging markets, you’re focusing a lot on those countries that are less developed, what’s the thinking there? Why invest in emerging markets?

Jerry: So, we have key teams, one in New York, mostly the Investment Team, another in Beijing, Research Team, Operation Team, Technology Team and so we get to know both markets really well. You know, we started our office five years ago in Beijing so we can cover Southeast Asia and South Asia easily, not too distant, but it’s much easier than from New York and that’s how we can cover that region and cover that by investment class and also, because it’s what I have seen in the past years. So, we know China really well and has been growing fast, particularly in the fintech sector so we surpassed the US and we can get to know the biggest fintech market in the past couple of years.

We’ve seen that fact, you know, the China teams and the business models and the technologies were adapted by the Southeast Asia and South Asia markets quickly that’s why we naturally branched out to Indonesia, India. Those are, you know, big markets as big as China and they’re more open and they have a low starting point that you can grow much faster, even faster then China because, you know, China has certain size already and is tightly regulated that’s why we got interested in the Southeast Asia market. From there, we now branch out to Africa, to LatAm, it’s just a natural evolution and we’ve done our investment and research and we discovered local teams at the corners and we intentionally wanted to diversify our investment.

Peter: Right. So, what do you look for then in an investment in these emerging markets? Firstly, I presume, you’re doing mainly debt investment, correct, and you can correct me if I’m wrong, but what are you looking for, what makes a good investment in these places.

Jerry: First of all, we are looking for growth, right, and with growth comes returns and yield. Now, we’re looking for, you know, regulations and the teams, talents so a lot of things they have to come together to form a solid investment thesis but, at the end of the day, we’re looking for returns so what we can get out of those markets, can we mitigate that risk. So, for example, Southeast Asia, we have different investments…. for example, we buy technology stocks so, for example, EAC (?), they are e-commerce application and also payments, they have gaming too.

Those are still stocks, but our biggest investment has been through credit, we also have venture arm and we heavily invested in India companies, Indonesia companies, Singapore companies, mostly fintech, but our big investment has been through private credit so we lend to the local platform. For example, the e-commerce, they sell cell phones in the Indonesia market, we provide installment payments to the local consumers and also we have agriculture, loans to the local farmers. They borrow from the traders and, you know, buy the seeds and the produce, the goods they sell them and pay us back.

So, we are more like a platform, but we don’t do direct lending, we lend to the local platforms and then they work with, you know, local producers, borrowers and structure the loans so we’re more like a fund manager.

Peter: Right. The listeners will be well aware of that model. So, what kind of yields are you looking for because, I imagine, some of these things are pretty high risk, what sort of yields makes it interesting for you?

Jerry: So, we’re looking for, you know, risk-adjusted yield and he has to keep paying like a risk premium and for some of the stocks that we’re looking for like over 15%. In terms of credit, we’re looking around 15% so we can take 12%, we can take 18% and the rules are more structured product. So, we are working with local platforms, they provide, you know, proper guarantee for principal and interest and we want securitization of that underlying asset, you know, cell phone loan portfolio and, you know, collateralized by the phones itself, if you can’t pay then they can get your phone back, something like that.

We also have, you know, supply chain finance secured by the underlying goods and so that is why we have been…our performance has been stable in the past five/six years and has not been impacted much during the pandemic because we have structures in place and guaranteed, it’s also shorter term. So, our average duration has been, historically, four/five months and during the pandemic that was lowered to like two months so we can get our money back in a quarter even though we didn’t do so. We need to have some redemptions during the pandemic and we handled the liquidity well just because the underlying liquidity is there. So, it’s not as if we’re locking up the capital for five years like the private credit funds that we offer the most liquidity.

Peter: Right, right, that’s really interesting. So then, when you look across these companies, when you said you’ve got a team in Beijing that particularly works on the Southeast Asian market, I mean, what of verification, what kind of analysis do you do before you pull the trigger on one of these deals?

Jerry: First of all, we do kind of like a top-down approach, you know, we look at the macro data, we’re looking for a big population, over 100 million people, GDP growth over 5%, stable political structure and reasonable type of regulations, we look at all the macro. Well, if it was right, we would just start out there, look for local partners and we find the local platform to partner with. So, those are more like a top-down approach. Bottom line is we find the right team, they have the local expertise, they know the market, they speak the language, they can deal with the local consumers directly and also, we have the long term approach, we are talking like 10/15/20 years and its not like short term five months or ten months and we get our money back and then we are gone.

So, we spend a lot of time getting to know the market, getting to know the team, we also develop the API system, connecting their lending platform to our operation, our risk management platform so we can get the data on a daily basis then we consolidate all the risk factors, we can act fast. For example, during the depths of the pandemic we shut down the lending starting end of March for like a month just because the country shut down, right. They locked down part of India, the whole Jakarta area and we launched that program during the month so we’re pretty flexible and the team has to be flexible.

Most of the teams we partner with, they have the local expertise, they have the technology background so just like we spent a lot of time….I used to travel there like four times a year, every quarter and make the team conduct due diligence, we actually manage the process. It’s not like a traditional fund manager, you give the money, you just wait or hope that you will get the money back. We constantly manage the exposure.

Peter: Right. So, these lenders that you’re working with, it sounds like they’re building APIs so you’ve got APIs connected to your systems, I mean, these are all tech-enabled lenders, it sounds like. Is that true?

Jerry: Exactly. So, many of them work in traditional sectors, although not tech-enabled. For example, the commerce that we’re working with, the e-commerce website and e-commerce apps and for logistics, they all have their own system in place, you know, we know where the goods are we also have the rate sheet and we know if it’s onboard a boat or a ship and it’s on it’s way to Vietnam so we have all the information. We ask them to provide to us, it has to be managed by technology, otherwise, we just can’t keep track of every single investment on a daily basis.

Peter: Right, that makes perfect sense. You’ve talked about a few countries already, but like where do you think are the most promising opportunities today globally, what countries do you think have the best potential?

Jerry: Like I mentioned, we like the large populations and right now, you know, we’re pretty optimistic about the India market, Indonesia, Mexico and we like India just because those countries are going to come out of the pandemic and strong. Also, they’re going to continue their growth trajectory even though they’ve been down during the pandemic, they bounce back quickly coupled with the global trade and re-shaping of the global supply chain.

A lot of businesses are going to shift from China to India, to Indonesia, to Vietnam and also, you know, there are frictions between countries, but, mostly globalization is back on track, China signed the RCEP [Regional Comprehensive Economic Partnership] agreement with the ASEAN countries and also, I think, the US is going to be back on track with the TPP agreement. So, we’re betting on globalization affecting the trading and betting on the financial technology, global payment, how the global payment movement is going to help global trade. A lot of our businesses are cross border so those technology trends and demographic trends is going to help us a lot.

Peter: Right, right, okay, that makes sense. So, you’ve got a very curious, very interesting thesis, do you think it’s the technology then that differentiates you from other investors getting on the ground? I mean, what do you think differentiates your company from others trying to do a similar thing?

Jerry: I guess we are emerging markets-oriented, we have always been in Asia and we are just getting to know Africa and LatAm better so this is in our blood, right, we’re focused on emerging markets. Also, my background, you know, I started in my first job as a software engineer and so I have software engineering-type genes also because I worked for endowments before I went global, it’s more the institution mindset, you know, just now like a fintech entrepreneur, you start an app and you start working on peer-to-peer lending.

Eventually, it’s going to come back to me, you know, my Asian background, my institutional investing background so that’s why we shaped the financial, you know, had a global platform serving both individuals and institutional investors through technology, through emerging markets investment opportunities. I mean, a lot of institutional investors, they want to get into this market, but they don’t know how, right.

So, we provide the beta, we provide the technology platform and then we also, just like every now and then, we travel there. We have to go on the ground and just get to know the market, get to know the people better over time and it takes time. So, we spent the past six and a half year building the platform, setting up the infrastructure and now is the time to catalyze it.

Peter: Right. So, you talk about your travels, you’re on the ground in these markets, but this year that’ll be really difficult since March, I imagine, so how have you adapted your company this year without being able to travel. Are you doing exactly the same thing, you’re just doing it on Zoom, what are you doing?

Jerry: Well, yeah, that’s a good question. I canceled all my trips, my trip to India, to Nigeria, to Mexico so I stayed in New York for the whole year. I was in California early this year, that’s about it. So, a couple of things, one thing is that we have always been digital, you know, we have the technology platform, we do the Zoom calls way before the pandemic hit us so we continue to do the video conferencing and talking to different time zones, different continents, maybe more frequently as before, but always in that case.

Other than that, we are working with markets and teams we have always been working with. You know, we don’t get into jumping into something suddenly. For example, we’re attacking the Mexican market, working with a US team, the former CapitalOne team out of DC, we know the team for three years so we’ve been working with them in other markets. Now, we’re working together in Mexico and now we’re working with the local team we have known for five years.

So, either we’re working with the same team to go into different markets or same markets with different teams, it always has been something that we’ve been cooking for a long time and now we are fairly comfortable with. It’s not like we are jumping into new things right now. It’s just a natural branching out based on our past experience or based on our network, just like accumulation of knowledge and resources.

Peter: So, you haven’t met any new investors with people this year that you haven’t met face-to-face or have you?

Jerry: We have. We made one investment in Nigeria working with the team who work with local carriers and we never met the team, but we know the team fairly well, it comes through our network and the back office is in Shenzhen, the front office is in Nigeria. We know the team and the environment really well, I was there last year, October, I know the carrier, I know the cell phone manufacturer so that’s how it can help the business and it’s a trial.

We start small and get over frictions, how to smooth it out. I mean, our Beijing team flew to Shenzhen to visit the team, I haven’t seen them, we talk on Zoom from New York. You know, it’s like I said, we have always been working this way and I can’t spend half my year in Africa so we do go there at least once a year, twice a year in normal times.

Peter: So, Mexico, have you made a first investment in Mexico yet or are you still looking?

Jerry: It’s not launched so we work with the DC team and their back office is in Chengdu, China, you know that they have the engineer and reasonable cost. So, we actually committed three months ago and we’ve done all the market research in terms of product and we set up a registered company, it just registered like last week. So, I think we’re committed, but we haven’t launched the business yet.

Peter: Right, right.

Jerry: …so called US and the China partners, it’s a joint venture.

Peter: Right, I got it. So, do most of your investments have some kind of Chinese connection or it is not necessary?

Jerry: It is not necessary, but we try to add the Chinese component and that’s our value add. For example, we invested in a fintech company here in the US, in Texas, they do a kind of natural gas engine, we try to bring them to the China market and we offer them a leasing program so some try to buy the equipment, we just provide the lease about $15,000 for the equipment. So, there’s always been financial technology component in it and that we help them to expand into other emerging markets, not just China. We help them to get into the Philippines…..so that’s a new initiative you know, right, so protect the environment based on our agenda. We want to make money and also doing something good.

Peter: Right, right, for sure. So then, are your investors Chinese individuals, I mean, who are the LPs for your company?

Jerry: So, I’d like to mention, when we started if was more like a cross border LendingClub with many smaller investors and over time, we are consolidating so most of our investors right now are like family offices, high net worth individuals. We are trying to, you know, tap into the institutional world just at the beginning of this year. We set up the credit fund last year so it’s only 14 months check record, but it’s short.

Before that, we offered platform notes in the realty project, those are tailored for the middle class investors, but we have gradually evolved into more institutionalized investment platform partly because of my background and partly because this is a trend, right. For example, in LendingClub there are mostly ABS or institutional funding other than individuals and I think they’re going to completely shut it down to individual investors. It’s the same trend, this is a more efficient, this is how it worked, used to work.

Peter: Right, right. So, do you plan… all of the credit that you’re providing to these platforms, do you hold the loans all the way through? I guess these are short-term loans, aren’t they, so you hold them through the maturity, right?

Jerry: Yes. The way, you know, we source a loan, we structure loans, we invest in loans, we hold them through maturity then we recycle, we rotate, we reinvest in those same loans. The longest platform we’ve been working with is like four and a half years now unless there are some shifts in the market or on the platform, otherwise, we’re committed for the long term. Even though the loans are short, but our investment horizon is long.

Peter: Right, I get it, I get it, okay. So, I’m curious to get your perspectives on the trends in the fintech-enabled lending space specifically. I mean, you’ve got a very interesting viewpoint doing it. You obviously have the US market, but you’ve got a viewpoint on to the emerging markets, what are the trends you’re seeing there? Is there a similar kind of things going….obviously, we’ve talked about cell phones and mobile, but maybe you just talk about ….tell us some of the trends you’re seeing in these emerging markets.

Jerry: Well, I think the biggest tailwind is like the 5G, the smart phone penetration and the mobile payments. Surprisingly, in some of the emerging markets’ penetration rates are higher than the US so it’s easier adaption for them getting into online lending or installment loans. So, that’s why we like the emerging markets, they have the structure ready and they have the (inaudible) so people are…..you know, they’re making a few thousand dollars a year now and the average phone is $500, they have the money to spend, they want to borrow and, again, their earning power.

So, those are the trends that we’re seeing and also, many of the platforms we’ve been working with are like immersed with the Chinese component. Some platforms, they sell Oppo/Vivo phones, Huawei, Xiaomi phones, some are buying from Africa. For example, one producer they sell cashews to the Chinese market, we’re providing supply chain financing for them. In the China market, it’s incrementally becoming a consumption market, right, so they are upgrading what they’re buying globally, not just like exporter anymore, it’s a big importer.

So, those are the trends we’re seeing and there are a couple of different US models in the emerging markets too, for example the Affirm model, buy now pay later. It’s getting popular in the US and Australia, but they’re also popular in China and India. And the consumer, they want to buy but they want a fair treatment, they don’t want to pay for the, you know, high interest rate, not like a virtual credit card, a different model applying in any virtual market quickly so I see the adaption rate is really high, really fast and those markets have scale.

Also, the fintech model….winner takes all, right, so once you dominate the market then you can start making money and the investment period is short, it’s fast so you can….one business model it can maybe take you 10 years to get to a million users in the US. It will take you probably just two or three years in China or India. The younger generation are very, very, you know, interested in financial technology, they feel we can help them, they are tech savvy.

Peter: Okay. We’re recoding this on December 16th, but this is going to be published on the 31st of December, the last day of the year so I’d love to kind of get your perspective on 2021 as we turn the corner on 2020. What are your plans for the year and what do you think are some of the things you are looking for out of 2021?

Jerry: First of all, I want to go back to the emerging markets, I want to be able to travel again, go back and see our partners, see how they’re doing and also, continue to expand. You know, we have built the infrastructure to invest globally and we can attack (inaudible) again. I guess, we haven’t changed a thing, in terms of the investment thesis or our investment structure because our model was tested during the pandemic.

Also, I feel the emerging market is going to come back strong in a couple of countries like for example, China is going to have a positive GDP this year; Vietnam is going to be positive; India and Indonesia are going to bounce back next year. It’s going to be faster than, you know, the OECD countries so we see those will continue to be strong, promising markets. We just want to go back there, do what we have been doing the past years.

Peter: Right, right, okay, We’ll have to leave it there, Jerry, it’s been fascinating talking with you and we wish you all the best for the new year. Happy Holidays and have a great 2021.

Jerry: Thanks, Peter, let’s catch up again next year.

Peter: Sounds good, okay, see you.

Jerry: Okay, bye.

Peter: Bye.

You know, one of the reasons I wanted to get Jerry on was because the emerging markets really have….that’s where some of the outsized opportunities are going to be over the next few years and Haitou Global has got a really unique perspective and a unique approach to those markets.

We saw this in our Latin American event that we held early this month and there are huge opportunities. Part of the reason for that is it’s a pretty tech savvy population, a lot of the particularly….they skew younger, smart phone penetration is increasing and they don’t have traditional financial services in a lot of these economies, but they have demand for financing and that’s what, obviously, Haitou Global’s taking advantage of. It’s providing the funding for a lot of this demand and I think it’s going to be a big opportunity that more and more companies should be paying attention to, I think.

Anyway, before I sign off, this is the last episode of 2020, I am very happy to be turning the page on this year, looking forward to 2021. We’ve got a lot of great guests lined up and I want to thank everybody who has listened to the show this year, we really appreciate it and I’m looking forward to an exciting 2021. So on that note, I will sign off, thank you very much for listening and I’ll catch you next year. Bye.

Today’s episode was sponsored by LendIt Fintech USA, the world’s largest fintech event dedicated to lending and digital banking. LendIt’s flagship event is happening online this year on April 27 to 29 with the possibility of an exclusive VIP in-person component. The verdict is in on LendIt’s 2020 event that was held online with many people saying it was the best virtual event they’ve ever attended. LendIt is setting the bar even higher in 2021. So join the fintech community at LendIt Fintech USA where you will meet the people who matter, learn from the experts and get business done. Sign up today at lendit.com/usa.

You can subscribe to the Lend Academy Podcast via iTunes or Stitcher. To listen to this podcast episode there is an audio player directly below or you can download the MP3 file here.

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Filed Under: Lending and Fintech Podcast Tagged With: asset allocators, emerging markets, Haitou Global, institutional investing

Views: 87

Podcast 248: Jon Barlow of Finitive

The founder and CEO of Finitive talks about the challenges non-bank lenders have in raising capital and how to make this process more efficient

May 22, 2020 By Peter Renton 1 Comment

Views: 398

Raising capital for non-bank lenders is a time-intensive endeavor and the same could be said for investors deploying capital on these platforms. It would be better if there was an intermediary between these two parties that could make this whole process more efficient. Our next guest on the Lend Academy Podcast recognized this problem and did something about it.

Jon Barlow is the Co-Founder and CEO of Finitive, a fintech platform providing institutional investors direct access to non-bank lenders. He is a pioneer in online lending, having founded and sold one of the first investment firms in the space, Eaglewood Capital (you can listen to my previous podcast with Jon here from back in 2016). He recognized the inefficiencies in the non-bank lender funding process and decided to launch Finitive.

In this podcast you will learn:

  • The problem he is trying to solve with Finitive.
  • How their platform works.
  • The kinds of non-bank lenders they are working with today.
  • Why a lender works with Finitive rather than running the process themselves.
  • The number of institutional investors they have on their platform.
  • The typical size of the deals they have done to date.
  • How the current crisis is impacting investor and lender behavior.
  • How investors are adjusting their interest across different asset classes.
  • The impact this crisis is going to have on non-banker lenders.
  • The amount of capital they have raised to date.
  • The money they have raised for Finitive’s operations.
  • What non-bank lenders can do to increase their likelihood of being funded today.
  • What the rest of year will look like for Finitive.

This episode of the Lend Academy Podcast is sponsored by LendIt Fintech Digital, the new online community for financial services innovators.

Download a PDF of the transcription of Podcast 248 – Jon Barlow.

Click to Read Podcast Transcription (Full Text Version) Below

PODCAST TRANSCRIPTION SESSION NO. 248-JON BARLOW

Welcome to the Lend Academy Podcast, Episode No. 248, this is your host, Peter Renton, Founder of Lend Academy and Co-Founder of the LendIt Fintech Conference.

(music)

Today’s episode is sponsored by LendIt Fintech Digital, the new online community for financial services innovators. Today’s challenges are extraordinary with the upheaval affecting all areas of finance. More than ever before, we need to come together as an industry to learn from each other and make sense of this new world. Join LendIt Fintech Digital to connect and learn all year long from your peers and from the fintech experts. Sign up today at digital.lendit.com

Peter Renton: Today on the show, I am delighted to welcome back Jon Barlow, he is the CEO and Founder of Finitive. Now, many people would know him as the CEO and Founder of Eaglewood Capital, a company he sold several years ago. They were a real pioneer in the online lending space, but his new venture was not that new anymore, it’s two and a half years old, but his new venture is all about connecting institutional investors of which he was one, obviously, with non-bank lenders and so, he’s done this.

He’s the first one to really bring a sophisticated intermediary tech-enabled platform to make it much easier for the platforms to raise money and make it much easier for institutional investors to deploy capital. Now, we go into some detail about how all these works and we talk about the impact of COVID-19 on his operations and on the non-bank lending sector, in general. He talks about the scale they’re at and gives his thoughts on what the future might hold for the non-bank lending sector. It was a fascinating interview, I hope you enjoy the show.

Welcome back to the podcast, Jon!

Jon Barlow: Thanks, Peter and it’s always great to speak with you.

Peter: Likewise. So, it’s been quite a few years since we last chatted here on the podcast and you were still at Eaglewood at that stage. Maybe you can just give the listeners a little bit of an update about what you’ve been doing since you left Eaglewood.

Jon: Sure. So, I sold Eaglewood in the summer of 2015, and after that I was an angel investor and was mostly providing early stage capital back into the fintech sector. I ended up joining eight fintech boards and all of the companies were either lending companies, or technology providers to lending companies.

A majority of the work that I did during that time centered around helping these companies build and improve their capital markets programs. I really enjoyed the time actually, I found it’s a lot easier to tell other people, you know, how to run their business than it is to actually run a business. So, I had a great time doing that, but eventually, I got a little bored watching the game from the sidelines and so, I decided to start my new company, Finitive.

Peter: Okay. So, what was sort of the impetus there, I mean, apart from being bored, what were you really trying to accomplish?

Jon: Just given my background, I’m very well acquainted with pain points and challenges that institutional investors and non-bank lenders alike face in closing credit facilities, institutional credit transactions and I just saw a systematic need for yield from the investment community and a systematic need for capital from the non-bank lending community. And yet, both sides were complaining that they weren’t getting enough transactions done and the problem, in my view, is really transaction costs.

It’s expensive closing transactions in this sector, certainly, in terms of money, but even more so when you consider the time involved, and I think time is actually the biggest transaction cost. These non-bank lenders and the investors who fund them have them in our standing converts, or even thousands of man hours from start to finish closing a single transaction and I don’t think it should take that long so I started Finitive to solve this problem.

Peter: Okay. Then why don’t you take us through how your platform works exactly and how you’ve been able to sort of take some of the time and costs of these still complex transactions?

Jon: Sure. So, our goal is to make institutional credit transactions fast and easy, similar to what the online lenders that we’ve covered for many years have done for consumers and small businesses over the past decade. I think the same can happen in a B2B, or an institutional context, and so, we’ve built a marketplace, Finitive, for institutional credit facilities in the non-bank lending sector. Our platform is free for investors, all of the investors who are on our platform are institutional, you have to have, at least, $50 Million of assets under management to get onto the platform.

Most of the investors are credit bonds, banks, insurance companies and we’ve got a number of other investor types as well. Through the platform, these investors can access highly, that is, data rooms provided by originators who are our clients. We are hired by originators, not by investors and we’ve got teams of people who vet and diligence each of these transactions from a, what we call, a buy-side perspectives so, we’ve got teams of people who use the institutional investors, used to be us, to stay on the buy-side and they build models, they build data rooms, they write investment committee memos, typically 50 to 100 pages in length and replicate what institutional investors are doing internally.

All of that information is easily accessed and downloadable in a very rapid manner by the institutional investor community so, our investors save a tremendous amount of time finding opportunities and then gathering the data that they need to perform due diligence on those opportunities. And so, we tell a lot of our non-bank lending prospective clients that by the time an investor starts talking to them, they will already be fairly well advanced through the due diligence process and it saves both sides a tremendous amount of time.

There’s some similarities between our platform and a crowdfunding platform, in terms of how the mechanics and the technology of the platform work, but we, obviously, serve a completely different audience than a crowdfunding platform, institutional investors on one side and non-bank lending and credit transactions on the other side. In terms of functionalities, there are a lot of similarities.

Peter: Yeah, yeah. So then, you made a name for yourself, obviously, in the online lending space working with the likes of Lending Club, Prosper and others, are those the types of platforms you’re working with? I presume you’re casting a broader net when it comes to originators than just the online consumer lending platforms that you worked with before?

Jon: Sure. So, I’ve believed for many years now that there is a big opportunity in what I call non-bank lending and online lending is a component, it’s an important component of the non-bank lending theme, but it’s the only component, nor is it even a majority. There are literally thousands of non-bank lenders around the world who need to access capital and some of them are visible lending platforms. I won’t name names, but names that are in the press often and names that emanate from Silicon Valley, or from Wall Street, you know, those are not necessarily our best clients.

We get a lot of clients who are more on the path, they have excellent credit, they represent excellent credit, investment potential, but they’re not terribly visible to Wall Street, or Silicon Valley and there are literally thousands of these. They’re in places like Kansas City, Missouri and Tampa, Florida and Detroit, Michigan and Toronto, Canada, etc. So, a lot of our clients are, you know, fairly well established, but less visible, specialty finance companies. Some are tech-enabled, some are not, but they’re around the world and they span a number of different asset classes.

Peter: Okay. So then, let’s talk about these originators, I mean, it’s not like you have a hundred competitors doing the exact same thing as you. I imagine, it’s a binary choice in a lot of ways, they either use you, or they do it themselves so, why do the platforms…..why would they rather work with you than just run the process themselves?

Jon: Yeah, that’s a great question. Every non-bank lender has a different story and they come to us for different reasons. Some simply want far more capital than they currently have available to them and we field these off them. We hear management teams talk about how they see just an amazing number of lending opportunities that they cannot capitalize on for lack of capital, so that’s one reason.

Others want to lower their cost of capital by having half a capital provider in place, but they like to lower their borrowing cost, or lower their interest rate, others want more flexible terms. So, we have seen lenders, non-bank lenders who have a capital provider in place, may even be a low cost capital provider, but that capital provider may not allow them to deal with everything that they want to do. In many cases, this relates to loan size so there are often restrictions around size of loans that you can originate.

We also see restrictions around credit quality and also the types of collateral that a capital provider will allow the non-bank lender to post for their credit facility. So, every story is different, but whatever the need is, a non-bank lender can typically benefit from tapping into a network that is far larger than their own network and that’s what Finitive allows them to do. Currently, we have a total of over 500 institutional investors formally signed up on the platform, we have several thousand, actually north of 30,000 institutional investors in our CRM system and several thousands that we have regular communications, or dialogue with who may not necessarily be signed up on the platform yet.

And so, a non-bank lender can instantly, securely, confidentially get in front of a very large universe of investors who specialize in these types of transactions and typically…..you know, when you increase your exposure, the probabilities are you’ll get more term sheets and more financing options and I go back to that list of you want more capital, you want more flexible capital, you want cheaper capital. But, the more capital sources you can connect with quickly, the more likely it is that your capital needs will be satisfied.

Peter: Yeah, that makes sense, that makes sense. So, what you’re doing is…is it all debt, are there any kind of…you know, obviously, some of these deals sometimes have equity kickers, I mean, is it pretty much all debt that you’re doing?

Jon: The majority of our transactions are all debt, we have had a couple of transactions that had debt plus warrants. We are approached frequently by non-bank lenders to help them raise equity capital and so far, we’ve primarily referred those groups to some other partners that we have who specialize in equity capital.

Peter: Okay, okay, that makes sense. So then, what’s the sweet spot for these deals? Are you talking like $50 Million, $100 Million, $200 Million, what are the sizes of the deals that you’re interested in?

Jon: Sure. Most of our transactions start at $50 Million and it works up from there. We had a couple of transactions in the half a billion to billion dollar range and those have been from the war zone and exciting to see close. For smaller deals, we also have a program that we call our Referral Program. So, we have some investors, generally, smaller funds, smaller banks who are interested in looking at smaller transactions off platform so, we have a number of referral partners that we send smaller deals to.

If we see a good transaction, we want to be helpful however we can and even if we don’t sponsor it directly on our platform, we’ll try to make a non-bank lender some sort of an introduction that could be helpful to them.

Peter: Right, okay.

Jon: But our typical size, I think our average deal size is probably in the $100 to 150 Million range, but we sponsor deals smaller than that, we sponsor deals larger than that so, it’s a fairly large range.

Peter: Right, okay. So, we’re recording this on May 12th and so we’re about two months into this economic dislocation caused by the corona virus, and I’m curious about the impact on your business and deal flow, specifically. I mean, have you seen….in recent weeks, has there been a dramatic decrease in the amount of deals that are getting done, or even trying to get done?

Jon: Sure. We’ve certainly seen a number of investors pull back on their activity, there’s no question about that. Investors are taking longer to perform due diligence, some investors are changing deal terms that may have been agreed to pre-COVID. So, we’ve seen some term sheets that were agreed to, prices pre-negotiated with higher interest rates and there again, there’s a pretty wide range that we’re seeing. But, generally speaking, if you look at a credit that’s already….that was negotiated pre-COVID, if I had to guess, an average I would say we see 40 to 50% wider spread than what we saw pre-COVID.

For example, someone had a LIBOR + 200 credit facility negotiated ten weeks ago, that’s probably a LIBOR + 300 credit facility in today’s environment. You know, I’m generalizing, but if I had to guess, on a number of deals, it’s 40 to 50% widening of spreads. So, spreads have widened, investors have slowed down, but they haven’t stopped and I think that’s where this is very different from the last financial crisis. We’ve, actually, continued to see new term sheets post-COVID presented to originators and in fact, we haven’t announced this yet, but last week, we actually closed a fairly sizeable deal and hope to announce that shortly.

This is a deal where client came to us in the middle of March, who engaged us and literally, within six weeks we had a multi hundred million dollar credit facility lined up and it was closed last week. So, we are seeing activity, we are seeing our user base grow on both sides of the platform. So, we had almost no interruption in terms of non-bank lenders and on the other side investors signing up on our site, it’s been fairly steady there.

On the non-bank lender side, an interesting trend that we’ve seen in the last eight weeks is we’ve seen a higher percentage of large well-capitalized non-bank lenders coming to our platform than we’ve ever seen in our history and we were founded about two and a half years ago, but we are seeing a number of very high quality groups coming to us searching for capital. So, even larger, established companies are having some struggles in this environment and companies that perhaps eight, ten, twelve weeks ago would have raised capital on their own, that’s been a very interesting trend that we’ve observed.

Peter: Right, and what about across asset classes? Are you seeing certain asset classes being stronger than others and investors more willing to put in to certain asset classes than others? I mean, how is that changing?

Jon: Sure, so it’s a great question. I think pre-COVID, you have a number of credit funds and other groups that traditionally focused on distressed credit opportunities who really had nothing to do, therefore, there’s very little distress in credit for many years. A number of those pockets of capital had to re-position themselves in order to stay in business and so, a lot of those groups were funding new originations, whether that was through home sale programs, or credit facilities to online lenders, or non-bank lenders, in one way or another, they were providing new capital for the sector and that segment of the investor base has really re-positioned that towards their core which is providing funding to distressed companies which comes at a significant premium, where those companies may have borrowed prior to the downturn and also purchasing secondary portfolios and other distressed assets so, I think distressed and secondary sales are a big theme.

Another theme that we’re observing, which may not come out as a surprise, is just to focus on highly secured opportunities with major focus on return of principal and safety of principal. So, those are the things we’ve seen, there’s a big move if you look at the banks, our platform….the banks are really focused on well capitalized borrowers. I think a lot of the marginal companies and, unfortunately, I don’t say this in any way of rejoicing, but, unfortunately, a lot of startups are just getting rationalized and, you know, won’t have access to credit for some time to come. There’s a big focus on the bank community on high quality, well-capitalized borrowers, we are also seeing certain asset classes, and I’ll give you one or two examples.

There are certain asset classes that have incredibly short duration, very short maturities and those asset classes are seeing a lot more interest from the investment community because the legacy problem pre covid through those assets and cleaned out portfolios. As an example, we have one group that we have worked with in buy here pay later space, physically buy now pay later. These are 30, 45, 60-day loans that are originated through online merchants to consumers and at this point, the majority of those loan portfolios have been originated with tighter underwriting standards post-COVID, higher FICO scores, better debt to income, whatever the metrics that you’re focused on as related to credit quality.

Credit quality has improved dramatically and so….you know, we are seeing some transactions, asset classes where an originator truly has a portfolio that is entirely underwritten post-COVID and also seeing some success.

Peter: Okay, okay, that’s good to hear. Good to hear that there’s a ….you know, there are deals getting done and there are still some bright spots, but I’d like to get…clearly, there’s going to be some shakeout in the non-bank lending sector and you’ve got obviously a pretty good window on that sector now. I mean, do you see many of these originators just not making it, how do you feel….obviously, you’ve done your due diligence on many of these, but how do you feel about the non-bank lending sector and the impacts that this crisis is going to have over the long term?

Jon: Yeah, that’s a great question. It’s unfortunate that we’re having these conversations right now and, unfortunately, if you think a number of non-bank lenders will close the doors, we’ve seen many groups that we speak with completely shut down their originations in recent weeks. A few have started back-up, others are still on hold and, you know, there’s essentially that chain reaction of defaults that maybe could stop at this point and I caveat that again by saying, I hope I am wrong, they have a number of borrowers, whether those are consumers, whether those are businesses, whether those are real estate owners, whether those are auto owners, or students. A number of borrowers have stopped paying their debts. I don’t think… this has all happened so suddenly, I don’t think we’ve had a chance yet to synthesize and process and quantify if we have this crisis on credit, but, certainly, delinquencies are going to go way up. That means that a number of non-bank lenders will, in turn, have difficulty paying their loans to their institutional investors and thus, this chain reaction unfolds and creates a lot of economic and personal and other types of damage.

So, I think the government has reacted as quickly and as aggressively as they’ve been able to, given the circumstances, but this chain reaction can be very difficult to stop once it’s set in motion. So, I am hopeful that I’m wrong, but certainly we are preparing our business for what I would call an L-shaped economic recovery as opposed to a V-shaped recovery. So, we will see a lot of consolidation on an on-bank lending sector and there will be a transition of asset ownership from well-capitalized groups, sorry from less well capitalized groups, the last well, the well-capitalized groups and this just has been a natural part of the credit cycle and it’s unfolding as we speak.

Peter: Yeah, yeah, it is indeed. Okay, we’re switching gears a little bit, maybe can you give us some sense…..you know, you said you’ve been in business two/two and a half years, but what kind of scale are you at today. Can you give us some sense of maybe total number of deals, amount of capital raised?

Jon: Sure. We have raised north of $2 Billion of committed capital across our clients, we had roughly 15 clients and that number is swelling pretty rapidly. We, actually, have more clients today in our pipeline than we’ve ever had in our history, but we’ve raised over $2 Billion across , call it a dozen plus clients over the past two years and you know, we’re looking at some of these numbers pretty significantly over the next year, or two.

Peter: Okay. So, what about your own capital needs to operate your company, have you gone out and raised money for Finitive?

Jon: We did. So, a little over a year ago, we raised close to $6 Million in a seed round, we’re actually self-funded for the first year, or so of our history, self-funded and funded with revenue. We were revenue positive from day one, but, last year, we did raise a round of venture capital from Atomic Labs. I’ve known the Founder of Atomic Labs, Jack Abraham, for many years, he was an investor in my first company and we’ve really enjoyed the relationship with Atomic.

And then last fall, we raised a round of venture debt from Silicon Valley Bank and that was a $2 Million credit line and they sent that past the partners as well. It is possible that we will go out at some point in the future and raise additional venture capital, but for now, that’s what we’ve put in place.

Peter: Right, right. Okay, we’re running out of a time, but a couple more things I really want to get to. One is, when you look at these non-bank originators and you said some of them are tech-enabled, some of them are not really, I mean, what should they do to improve….I’m thinking, operationally, what can they do to improve operationally that will increase their chances of obtaining funding.

Jon: Yeah, that’s a great question. One thing that we recommend to all of our non-bank lending clients as soon as we hire them is that they have a Field Exam performed. A Field Exam is sometimes described as a forensic audit and you can get a field examiner who will come and visit your office, that’s a little bit difficult these days, but they will perform a review of all your processes, your procedures, your risk management, your corporate governance, your adherence to your written underwriting standards and the list goes on and on.

I would recommend, even if you don’t have an institutional transaction that you’re contemplating in the near future, I’d recommend getting a field examiner into your office, get him to inspect your operations, inspect your internal controls, etc. and advise you on what changes you can make today so that when you’re ready for institutional capital, you can pass an inspection of that sort.

I would say 95% + of our investors will require a Field Exam and, if you’re not ready today to pass the Field Exam, you won’t be able to change your operations overnight. It can take weeks, if not months to make the changes required to pass one of those inspections. So, that’s probably the best advice I can give, to institutionalized their business.

Peter: Okay, that makes sense. Last question then, for your guys, sounds like, you’re not planning on major changes to your strategy going forward. I mean, are you looking at this year…..it sounds like you’re looking to still grow the business, I mean, maybe you can give us a sense of how you see the rest of the year planning out for Finitive.

Jon: Sure. As I mentioned, we have a very strong pipeline at the moment, we are working very hard to satisfy the clients in that pipeline and put the capital in place that they need to continue funding their operations. We do expect that to continue to grow, whether that is measured by capital commitments raised, number of clients, even our headcount, I think, we’re looking at expanding on the second half of this year. So, I wouldn’t exactly say it’s business as usual, this has been a very unusual time, but we continue to move forward and execute the business strategy that we had in place from day one.

Peter: Right. Okay, well best of luck, Jon, it was great chatting to you again and I really appreciate your coming on the show.

Jon: Thanks again for having me, we appreciate it.

Peter: You bet, see you.

You know, I agree with Jon there. I actually think 2020 is going to be remembered as the year where there was the culling of the heard in the non-bank lending space. There certainly are….across every asset class, there are companies that are struggling and companies that continue to do okay. Certainly, the well-capitalized ones, the ones that have really been able to generate profits, generate cash flow, are going to be in much better shape to weather this storm than those that really are still, you know, cash flow negative and trying to claw their way to profitability.

I think those kinds of companies….it’s going to be very difficult for them to survive the next 12 months and we’re going to see a lot of distressed sales of these platforms and there will be some that would just go completely out of business. It’s what we’re seeing, but I think, like anything, when these things happen, the strong will survive and I think the industry, as a whole, will be better for this in the long run.

Anyway on that note, I will sign off. I very much appreciate you listening and I’ll catch you next time. Bye.

Today’s episode was sponsored by LendIt Fintech Digital, the new online community for financial services innovators. Today’s challenges are extraordinary with the upheaval affecting all areas of finance. More than ever before, we need to come together as an industry to learn from each other and make sense of this new world. Join LendIt Fintech Digital to connect and learn all year long from your peers and from the fintech experts. Sign up today at digital.lendit.com.

You can subscribe to the Lend Academy Podcast via iTunes or Stitcher. To listen to this podcast episode there is an audio player directly below or you can download the MP3 file here.

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Filed Under: Lending and Fintech Podcast Tagged With: Finitive, institutional investing, Jon Barlow, non-bank lending

Views: 398

Ten Years of Investing in Marketplace Lending

I look back at my ten years of involvement in marketplace lending and share the major changes I have seen in the last decade

July 3, 2019 By Peter Renton 9 Comments

Views: 1,756

This month marks ten years since I made my first investment in what was then called peer to peer lending. In July, 2009 I transferred $500 in to LendingClub to give it a try. Little did I know that first small investment would end up changing my life.

I had first read about peer to peer lending back in 2008 and I was immediately intrigued. I discovered Prosper but when I tried to open an account there they were in a quiet period. So I went looking for an alternative platform and found LendingClub. Within a few months I added $10,000 to that initial $500 investment. Then, I became so enamored with the whole idea of peer to peer lending that I was soon rolling over 401(k) accounts for my wife and I, as well as telling all my friends about it.

It was just over a year later that I decided to start blogging about this industry. Back then no one was writing about it and I really believed the industry had so much potential. So, I started the blog that would become Lend Academy back in November, 2010. The more I learned about peer to peer lending the more convinced I became that it had tremendous potential.

In 2013 as the industry was getting ready to take off I started LendIt, along with my fellow co-founders. It was the first ever conference focused on online lending and the one day event sold out. Then came the go-go years of 2014 and 2015 where dozens of new platforms got under way and venture capital was flowing into the space. The industry had its biggest setback in 2016 with the LendingClub crisis but the strong platforms endured and industry moved to focus on profitability.

Now, as I look back on the last 10 years I see so much has changed. The industry is now known as marketplace lending (thanks to Charles Moldow of Foundation Capital) and it has driven a resurgence in consumer lending and small business lending.

Ten Ways Marketplace Lending Has Changed Since 2009

1. Scale [Read more…]

Filed Under: Peer to Peer Lending Tagged With: bank partnerships, fintech, institutional investing, Lending Club, Prosper, Returns, securitization

Views: 1,756

How Fintex Capital Enabled the $30M Banco BNI Europa Investment in Upgrade Loans

A unique structure created by Fintex Capital enabled the European digital bank to easily invest in Upgrade loans

August 1, 2018 By Peter Renton Leave a Comment

Views: 719

Last month we learned about the new $30 million investment received by Upgrade from the Portuguese digital bank Banco BNI Europa. On the face of it this was not that remarkable, Upgrade has attracted many investors and BNI Europa has demonstrated their commitment to the marketplace lending space with many other investments.

But what caught my attention was the way this deal was structured. In reality BNI Europa did not actually purchase Upgrade loans, they invested in a privately placed bond that was backed by Upgrade loans. This bond was issued by Fintex Capital.

I reached out to Robert Stafler, the CEO and Co-founder of Fintex Capital based in London, to learn more about this transaction. Fintex was founded in 2015 and Robert has been a frequent speaker at our LendIt Europe events so I have gotten to know him and his company reasonably well over the last few years. He agreed to chat with me to explain how their investment structure works.

Fintex Capital SA is the company’s Luxembourg-based proprietary securitization vehicle. They create a bespoke program for every client, one tailored to the specific needs of the client. This is a pass-through securitization meaning there is no fixed coupon on the bond, the bond simply passes through the economics of the underlying assets less a management fee for Fintex.

The Fintex bond is capital markets friendly as it is cleared through Euroclear and has an ISIN number (XS1772189442) so details can be viewed on a Bloomberg terminal. The bond can be increased to as much as $200 million if needed through tap issuance. The loans can be sold directly into the bond which results in no accrued interest leakage unlike the pass-through or cert deals done in the US. Even though this deal just became public in July Fintex has been buying loans on Upgrade’s platform since April and had fully deployed the $30 million by mid-June.

When I asked Robert about exactly what value Fintex provides for investors he had this to say: [Read more…]

Filed Under: Peer to Peer Lending Tagged With: Banco BNI Europa, Fintex Capital, institutional investing, Upgrade

Views: 719

Orchard Launches New “Deals” Platform Connecting Institutional Investors and Originators

In an industry first, Orchard Deals is helping facilitate both primary and secondary market transactions

September 12, 2017 By Peter Renton 2 Comments

Views: 1,057

[Update: There will be a webinar at 11am ET on September 27 on the The Orchard Deals Platform brought to you by LendIt and Crowdfund Insider. Details here.]

When I first invited Orchard Platform CEO, Matt Burton, on the Lend Academy Podcast back in 2014, we talked about their ambitions around launching an institutional secondary market for marketplace lending. It has proven to be a massive undertaking and it has taken several years longer than anticipated but with the launch of Orchard Deals today it has now become a reality.

To be clear, Orchard’s new platform is far more than just a secondary market. It has several new features:

  1. Deals – Pre-qualified investors can browse listings of a range of different investment opportunities offered by originators.
  2. Capital Management – For originators to help monitor and optimize capital utilization across multiple funding sources.
  3. Advanced Analytics – Benchmarking of performance data against an anonymized peer group.
  4. Data Services – Helping originators improve the quality of their data and client reporting.
  5. News & Insights – Industry news and economic data as well as Orchard’s own research and commentary.

I spoke at length with Orchard CEO, Matt Burton, yesterday to get more insight into the new Orchard Platform. The first thing that Matt stressed is that the entire Orchard Platform has been redesigned from the ground up and is a far more robust product than anything they have had before.

The New Orchard Deals Platform

The key piece that I was interested in was the new Orchard Deals platform. The old Orchard Platform provided technology solutions for both originators and institutional investors but Deals is the piece that finally connects the dots. The platform connects institutional investors with origination platforms that have listed specific investment opportunities. Orchard has 55 institutional investors registered on their platform and 25 originators (with several more in the queue). Originators cover the gamut of consumer, small business and real estate lending.

[Read more…]

Filed Under: Peer to Peer Lending Tagged With: institutional investing, Orchard, secondary market

Views: 1,057

Peerform is Back With an Interesting New Investment Partner Random Forest Capital

Peerform’s new loan offerings were a perfect fit for machine-learning focused investment firm Random Forest

August 31, 2017 By Peter Renton Leave a Comment

Views: 1,161

I first wrote about Peerform way back in 2010 when they began life as Lendfolio. Even though they are not that well known beyond marketplace lending enthusiasts they are in fact the third oldest platform still operating in the US – behind Prosper and Lending Club.

I haven’t covered Peerform for almost three years so when their founder Mikael Rapaport contacted me recently I was curious to find out what they had been up to. It turns out a lot has happened at Peerform since 2014.

Late last year Strategic Financial Solutions (SFS) a leading debt settlement company, acquired Peerform and they have been building out new product offerings. Speaking of which they have three distinct products today:

  1. Marketplace loans – unsecured consumer loans, typically prime or near prime borrowers, up to $25,000 with rates ranging from 5.99% to 29.99%.
  2. Direct pay consolidation loans – unsecured debt consolidation loans, mostly prime consumers, where the debts are paid directly to the credit card company.
  3. Debt negotiation loans – debt settlement customers who qualify to accelerate their settlements with a loan.

SFS looked at many marketplace lending platforms before deciding to acquire Peerform. They were impressed by their underwriting and regulatory sophistication, their strong brand presence online, their low customer acquisition costs and how they had been frugal with the capital they had raised.

Peerform has been online since 2010 and so have an established web presence. Because of this they get a great deal of free traffic from Google – appearing on the first page of results for many popular search terms. This alone made them a very attractive acquisition target for a company like SFS.

A New Investment Partnership

[Read more…]

Filed Under: Peer to Peer Lending Tagged With: institutional investing, Machine Learning, peerform, Randon Forest Capital

Views: 1,161

A Review of the Biggest Allocations to Consumer Lending Platforms

We take a look at what these investments mean to online lending and fintech overall.

May 18, 2017 By Todd Anderson Leave a Comment

Views: 166

With worldwide rates continuing to stay low investors continue to look at alternative fixed income assets to earn larger returns. Online lending platforms offer a stable environment for higher yielding products and three large investors have made big plays in the last year.

Credigy, a U.S. subsidiary of National Bank of Canada struck a $1.3bn purchase program with Lending Club. Aegon, Dutch provider of life and annuity insurance products, will invest $1.7bn in loans issued by the German based Auxmoney platform. NewOak, New York-based asset management and institutional advisory firm, partnered with Canadian platform LendingArch to purchase up to $2bn in consumer loans.

Now, those three commitments represent the largest investment commitments to date coming from one firm but by far the largest commitment of all is the $5bn consortium deal for Prosper loans. Here several firms have combined to form a new entity that has been buying Prosper loans for several months. The firms are Jefferies Group LLC, Third Point LLC, Soros Fund Management and New Residential Investment Corp.

These large deals have given the online lending industry a big boost after recent turmoil and the nature of the assets allows for investors to see results fairly quickly. The trend of these sizable allocations shows that the consumer space is in a strong position to provide investors with the type of yield they are more accustomed to seeing.

These platform CEOs all say that big investors like these firms allow them to diversify their funding sources and create a more stable environment. This also helps to create more credibility to the fintech industry in general. One of the bigger barriers to entry that fintech companies have seen is that asset allocators like pension funds, insurance companies and family offices don’t have enough knowledge to be willing to allocate some of their alternative investment capital. [Read more…]

Filed Under: Peer to Peer Lending Tagged With: Aegon, asset allocators, auxmoney, Credigy, institutional investing, Lending Club, LendingArch, NewOak, Prosper

Views: 166

Leading Chinese Platform CreditEase Makes First Investment on Avant and Prosper

The P2P lending platform turned wealth management firm creates the first Chinese offshore fund to invest in loans issued by western platforms.

May 31, 2016 By Peter Renton 2 Comments

Views: 953

CreditEase invests in 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.

[Read more…]

Filed Under: Peer to Peer Lending Tagged With: Avant, China, CreditEase, institutional investing, LendIt China, Prosper, wealth management

Views: 953

Marlette Funding: the Fastest Growing Marketplace Lender in the US

In just 15 months Marlette Funding has issued over $800 million in consumer loans and is already profitable.

June 22, 2015 By Peter Renton Leave a Comment

Views: 1,957

Marlette Funding logo

You could be forgiven for never having heard of Marlette Funding. They have only been in business for just over 15 months and their major retail brand is called Best Egg. But this unassuming company is quickly becoming a major player in our industry.

I chatted with Marlette’s founder and CEO, Jeffrey Meiler, recently to get the scoop on his company. During our conversation one thing quickly became very clear to me. Unlike many new platforms I speak to, this was a company that is steeped in the consumer credit industry with 80% of their workforce having worked together before, mostly at Barclays in the Barclaycard division.

$400 Million in Their First 10 Months

The growth has come very fast at Marlette. They issued their first loan on March 17, 2014 and by the end of the year they had originated just shy of $400 million in new loans. By May they had already surpassed that number for 2015. They are without a doubt the fastest growing marketplace lender in our industry.

To say their story is all about growth, though, would be missing the point according to Meiler. While growth is important it is only one aspect of a broader business scorecard. He prefers to look at his company through three different lenses: growth, profit and cash flow. In other words, growth is not that important if it doesn’t also lead to the establishment of profitability.

On this count, Marlette is also the industry leader. Despite just launching in March of last year, by Q4 of that year they made money on a GAAP basis. I have never heard of another company in this industry making money so quickly. Year to date they have also made money on a GAAP basis and they will break even on a cumulative basis in the coming weeks. And Meiler expects Marlette to be cash flow positive by Q4 of this year.

[Read more…]

Filed Under: Peer to Peer Lending Tagged With: growth, institutional investing, marlette, new platform

Views: 1,957

Avant Launches Institutional Marketplace with Some Big Name Investors

April 13, 2015 By Peter Renton Leave a Comment

Views: 58

avant

Avant has been somewhat of a quiet achiever in the online lending space. In just over two years CEO Al Goldstein and his team have built a successful business that is set to become a dominant player.

Strictly a balance sheet lender until now, Avant is launching their institutional marketplace today. And they have signed on three very big names for their launch. KKR, the legendary private equity firm, is the lead investor and they are joined by Victory Park Capital, who seem to be in every major deal these days, along with Jefferies, the leading investment bank, who have also invested in CircleBack Lending.

An Introduction to Avant

So who is Avant? They recently rebranded from AvantCredit to just Avant and they are probably the leading near-prime online consumer lender in the US today. They focus on the 600-720 FICO segment and they have an average FICO score of 640.

When I spoke with CEO Al Goldstein a while back he told me that he thinks the mid-prime segment is a huge opportunity but that it is difficult to execute on. At Avant they are very much focused on big data and machine learning algorithms. Goldstein said that all loans are approved within 24 hours and for half the customer base underwriting is completely automated. Their goal is to increase that to 100% of their customers in the near future.

While there is some overlap with Lending Club and Prosper in the 600-720 FICO segment Goldstein said that he didn’t really view them as direct competitors. He views some of the brick and mortar mid-prime lenders as Avant’s competitors.

[Read more…]

Filed Under: Peer to Peer Lending Tagged With: Avant, institutional investing, marketplace lending

Views: 58

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LendIt Fintech News, Powered by Lend Academy, has been bringing you all the news and information about fintech and online lending since 2010 when it was founded by Peter Renton. We not only have the industry’s most active news site, but also the largest investor forum and the first and most popular podcast.

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