Author Topic: Competing with institutional lenders for notes.  (Read 23303 times)

GS

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Re: Competing with institutional lenders for notes.
« Reply #30 on: July 17, 2013, 07:24:02 PM »
Thanks RawRaw and Peter,

I'm glad to see that LC plans to find ways to keep smaller investors in the market.  Good news.

Rob L

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Re: Competing with institutional lenders for notes.
« Reply #31 on: July 17, 2013, 09:02:12 PM »
Maybe the question to ask LC goes something like "We individual / retail investors are feeling a bit paranoid about our long term relevance to LC when we see you have attracted substantial and growing institutional interest. Can you explain why LC feels we are an important part of its future and alleviate our concerns? Where do we fit in long term?"

berniemadeoff

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Re: Competing with institutional lenders for notes.
« Reply #32 on: July 18, 2013, 12:21:30 AM »
LC will care as long as it's part of their IPO pitchbook and investor backlash would hurt the offering price.  We need to make the most noise now while we have some leverage.

flyp52

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Re: Competing with institutional lenders for notes.
« Reply #33 on: July 18, 2013, 12:45:20 AM »
Today at the 2:00pm feeding frenzy I got shut out of every loan I tried to get into, including a $24K loan!  I'd like to see a rule something like not allowing an investor to take more than 30% of the remaining loan amount during the first say 10 minutes a loan is listed.  That would at least give more investors, investing at a range of investment levels, a shot at the popular loans.

LonghornSF

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Re: Competing with institutional lenders for notes.
« Reply #34 on: July 18, 2013, 01:09:46 AM »
Hey guys! 

Since I've always have noticed groups will demonize the other side before actually talking to them, I emailed LC about the topic of this thread.  I told them we as a forum were worried about P2P become B2P (loved that, whoever came up with it). 

Well, I just got off from a phone call from LC today (called me the same day).  A gentleman named Eric wanted to talk and tell me why LC is not forsaking retail investors.  He started by noting I'd been investing since 2009 with LC, so he knew I've seen rapid changes.  These were the takeaways:

1) The average note takes 5 hours to fund. 

2) LC has tried to balance the amount of retail and institutional money.  LC is actually designing a few products that are coming out in a the next few months geared to helping retail investors out.  I didn't ask specifics about this.

3) In the past month or two, both retail demand and institutional demand has increased dramatically and they haven't gotten enough increase in borrowers yet.

4) The problem with the high yielding notes disappearing quickly is known by LC.  The problem is that the high grade notes represent a small amount of the total notes offered, but it represents a large amount of the type of notes investors want.  Roughly 40% of notes are A and B and roughly 70% are ABC.

5) LC is very concerned about retail investors and view them as the source of long term success for both loans and investors.   They want to be very proactive in making sure they aren't edged out.

He said that if I was concerned about the platform edging out retail investors, feel free to email or call him with additional observations.  He thanked me for bringing this to his attention.

Respectfully, I think you are being very naive. Let's sort through a few of his answers:

1) The average note takes 5 hours to fund.

Ok, how quickly do the best notes fund (answer: within minutes or less)? Sure, after institutions and sophisticated individuals pick off the best loans, there are some left. You can bet that the remaining loans have a much lower return on a risk-adjusted basis.

2) LC has tried to balance the amount of retail and institutional money.  LC is actually designing a few products that are coming out in a the next few months geared to helping retail investors out.  I didn't ask specifics about this.

My guess is it is similar to their auto invest product where they blindly invest across loans for you. I suspect that such a solution would have a negative selection bias.

3) In the past month or two, both retail demand and institutional demand has increased dramatically and they haven't gotten enough increase in borrowers yet.

Hence the reason LC decreased interest rates across the board for loans. Don't count on this supply-demand imbalance correcting itself until rates go much lower.

4) - no disagreement here

5) LC is very concerned about retail investors and view them as the source of long term success for both loans and investors.   They want to be very proactive in making sure they aren't edged out.

 ::) I do believe they are concerned about getting more individuals in as borrowers.


I'm shaking my head at some of these posts on here. "Us individuals deserve more time", "LC needs to protect individuals", "They owe us", etc. Fellow individual investors, understand this: LC does NOT care who funds a loan. If anything, they prefer institutions. They would rather deal with 100 institutions that invest $100 million each than 1 million individuals that put in $10k each. Institutions are easier to deal with, have lower return expectations, and carry far more weight. Even one modest-sized institutional investor would invest more than everyone on this board combined. We have no bargaining power in this situation.

Rant over, hope I dispelled some myths.  I do believe that good returns will continue to exist on LC, at least for awhile :)

rawraw

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Re: Competing with institutional lenders for notes.
« Reply #35 on: July 18, 2013, 06:49:55 AM »
Didn't say I agreed/disagreed, just relaying the message :)

1) The average note takes 5 hours to fund.

Ok, how quickly do the best notes fund (answer: within minutes or less)? Sure, after institutions and sophisticated individuals pick off the best loans, there are some left. You can bet that the remaining loans have a much lower return on a risk-adjusted basis.


You conveniently ignored the explanation LC gave about this.  Was there a reason for that?

Quote
I'm shaking my head at some of these posts on here. "Us individuals deserve more time", "LC needs to protect individuals", "They owe us", etc. Fellow individual investors, understand this: LC does NOT care who funds a loan. If anything, they prefer institutions. They would rather deal with 100 institutions that invest $100 million each than 1 million individuals that put in $10k each. Institutions are easier to deal with, have lower return expectations, and carry far more weight. Even one modest-sized institutional investor would invest more than everyone on this board combined. We have no bargaining power in this situation.
And how do you know this?  We can all make up any good sounding rationals, doesn't make them true.
« Last Edit: July 18, 2013, 06:52:45 AM by rawraw »

GS

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Re: Competing with institutional lenders for notes.
« Reply #36 on: July 18, 2013, 09:58:59 AM »
I would think that LC would be better served in the long run by maintaining a large diverse group of a happy investors.  In my opinion, it would be incredibly stupid for LC to become completely reliant on hedge fund money, because while market conditions or the novelty of LC may make it the hot investment this year, who is to say what next year holds?  Safer bonds may offer better returns ... Or a new lending platform may gain share ... Who knows. 

It's not like LC has not taken action in the past to cater to both groups, and no one is asking for anything radical that will hurt the other side.  If LC says they have plans to address the problem, then I believe them.

LonghornSF

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Re: Competing with institutional lenders for notes.
« Reply #37 on: July 18, 2013, 11:25:00 AM »
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You conveniently ignored the explanation LC gave about this.  Was there a reason for that?

What explanation did they provide? Maybe I missed it.

LonghornSF

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Re: Competing with institutional lenders for notes.
« Reply #38 on: July 18, 2013, 11:28:36 AM »
Quote
I would think that LC would be better served in the long run by maintaining a large diverse group of a happy investors.

Yes, they will maintain a large, diverse group of institutional investors.  ;D

On one other note, I see a lot of people assuming that institutional means "hedge fund." While there is certainly some hedge fund money at play here, I am confident that LC will mostly appeal to investors that have lower return expectations such as pension funds and endowments. These investors generally take a longer term view and wouldn't pull their money out of LC on a whim. As LC returns continue to decline, hedge funds will become a smaller part of the LC origination scene because they (by and large) have double digit annual return expectations. I expect HFs to become much bigger players on the note trading side though.

thezfunk

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Re: Competing with institutional lenders for notes.
« Reply #39 on: July 18, 2013, 12:19:49 PM »
I thought I would chime in with my personal experience.  I have been using Bryce M.'s service in open beta to grab notes and I have calender events setup to remind me when to log in.  I am there four times a day literally spam clicking the refresh button to see the new selections.  The very moment they show up I select and click which takes me to the Lending Club page.  I have already logged into Lending Club a head of time so I don't have to go through the log in screen again.  In the time it takes me to refresh a page and make two clicks the notes are gone.  I was only missing a handful periodically up until about a week ago.  In the past week almost everyone I select is gone by the time I try and confirm it.  I don't look at the notes.  I don't read their title.  I select and try and order.  Gone.  That fast.  The frustration is building. 

I am also an investor on Prosper.  I have filters setup to auto invest with their tool.  So far, my earnings get deployed fairly quickly.  With Lending Club, I can't get my initial investment fully deployed.

SeattleSun

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Re: Competing with institutional lenders for notes.
« Reply #40 on: July 18, 2013, 01:50:32 PM »
I thought I would chime in with my personal experience.  I have been using Bryce M.'s service in open beta to grab notes and I have calender events setup to remind me when to log in.  I am there four times a day literally spam clicking the refresh button to see the new selections.  The very moment they show up I select and click which takes me to the Lending Club page.  I have already logged into Lending Club a head of time so I don't have to go through the log in screen again.  In the time it takes me to refresh a page and make two clicks the notes are gone.  I was only missing a handful periodically up until about a week ago.  In the past week almost everyone I select is gone by the time I try and confirm it.  I don't look at the notes.  I don't read their title.  I select and try and order.  Gone.  That fast.  The frustration is building. 


I read conflicting posts on this subject.  For instance Rob L. reported on another thread that his 6am today's experience using P2P Picks was "normal".  So is there a level of experience/compentency involved here or ?????

If thezfunk's posts is accurate (I hope it's not) then I might conclude that P2P Picks without an "auto invest" feature is useless?   

Confused in Seattle!

thezfunk

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Re: Competing with institutional lenders for notes.
« Reply #41 on: July 18, 2013, 02:22:41 PM »
I thought I would chime in with my personal experience.  I have been using Bryce M.'s service in open beta to grab notes and I have calender events setup to remind me when to log in.  I am there four times a day literally spam clicking the refresh button to see the new selections.  The very moment they show up I select and click which takes me to the Lending Club page.  I have already logged into Lending Club a head of time so I don't have to go through the log in screen again.  In the time it takes me to refresh a page and make two clicks the notes are gone.  I was only missing a handful periodically up until about a week ago.  In the past week almost everyone I select is gone by the time I try and confirm it.  I don't look at the notes.  I don't read their title.  I select and try and order.  Gone.  That fast.  The frustration is building. 


I read conflicting posts on this subject.  For instance Rob L. reported on another thread that his 6am today's experience using P2P Picks was "normal".  So is there a level of experience/compentency involved here or ?????

If thezfunk's posts is accurate (I hope it's not) then I might conclude that P2P Picks without an "auto invest" feature is useless?   

Confused in Seattle!

I do not know which tier notes Rob L. is selecting but I am only trying to grab the top '1%' notes.  P2P Picks lays them out in tiers.  I am not sure what I am allowed to say but lets just say that I am grabbing what P2P Picks is selecting as the 'best' notes.  I am sure if P2P Picks is selecting them as the best then there are other algorithms that are as well.

TonySaunders

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Re: Competing with institutional lenders for notes.
« Reply #42 on: July 18, 2013, 02:39:14 PM »
I do not know which tier notes Rob L. is selecting but I am only trying to grab the top '1%' notes.  P2P Picks lays them out in tiers.  I am not sure what I am allowed to say but lets just say that I am grabbing what P2P Picks is selecting as the 'best' notes.  I am sure if P2P Picks is selecting them as the best then there are other algorithms that are as well.

I doubt P2P Picks even hits the 30 second window it needs to in order to observe these notes. And they are certainly gone by the time you get to it. It's not a problem of optimizing which loans to invest in, it's a problem of doing it before they are gone.

I'm not exaggerating, you have 30 seconds, no more, often less. Third party services have the same problem. I'm skeptical that even an automated service that targets this issue would be effective.

berniemadeoff

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Re: Competing with institutional lenders for notes.
« Reply #43 on: July 18, 2013, 03:10:16 PM »
Lets hope the fast institutional investors are using models that only select the worst loans, leaving us with the best in the bunch!

rawraw

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Re: Competing with institutional lenders for notes.
« Reply #44 on: July 18, 2013, 03:19:21 PM »
Quote
You conveniently ignored the explanation LC gave about this.  Was there a reason for that?

What explanation did they provide? Maybe I missed it.
It was the #4 takeaway.  That a lot of the ideal loans people want are a very small part of the platform and until they can grow this or the demand changes, the loans will continue to get funded quickly.  He stated that LC is centered around prime people, so of course you have more ABC's than the DEF's.

For example, in P2P picks the LM notes hang around a while.  But it is the desirable low grade ones in PM that go quickly -- and it's just because the platform isn't necessarily geared to getting a ton of those type of borrowers.

My rate for my LM portoflio is 11%.
My rate for the PM portfolio is 17%.

In Bryce's backtests, if I remember correctly, they both have similar ROIs.

« Last Edit: July 18, 2013, 03:23:29 PM by rawraw »