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Is LC no longer interested in retail investors?

Started by Peter, March 23, 2019, 11:00:00 PM

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About a year ago I quit putting more money in and now only manually reinvest what is avaialble--many days there are only 40-60 notes available. Is Lending Club just flat out not interested in individual investors anymore? I don't really follow the news, but that's the impression I am getting. Time to just start taking my cash out as it becomes available?


From the latest available SEC filings, 7% of loan origination funding came from self-directed/retail investors and falling. (source:" class="bbc_link" target="_blank">  LC hasn't cared about the retail investor in a long time, IMHO.  CD rates are very close to outpacing my LC returns, and it just isn't worth my time hunting down new loans to invest my idle cash.  There was a time when I really liked the steady returns and security of this investment and told everyone I knew about it.  I wish I could find something similar where they gave a crap.


There was a time when I had $100k+ in LC and Prosper. Now I'm down to about $20k as I let things run off. I think there are other long-time investors that are still using their special sauce to try and juice returns. I just don't have the time or expertise to try and outperform. My best CDs these days are paying 3.63%. Hard to get excited about the return with LC and Prosper once you take into account the tax penalty. They have been slow to increase rates and I've been frustrated that LC's business model derives the bulk of their revenue on the loan origination. This means that they care less about the loan performance over time than the investors. Not sure what LC could do since they have competition from other sources, like Goldman Sachs's Marcus platform. Maybe their cost of funding and their acquisition cost are structurally too high now.


I noticed that starting October 1 the number of LC loans that match my filters dropped by 80-90%. At first i thought that this happened because LC pulled most loans into end of September to hit their Q3 numbers. But its been 2 weeks and the volume did not pick up.


I've noticed that over the past 6 months or so, my automatic investing (with filters!!) are finding fewer notes that qualify. I have tightened my own requirements since last year, following a sharp rise in charge-offs.

I dont know if that has anything to do with the question of retail vs commercial investors, but I do think that LC seems to give up the better quality notes super fast probably to commerical vendors or third party apps that are designed to cherry pick the loans automatically (as opposed to using their default 'automatic investing' algolrithm with 'filters').

In an attempt to find why so many loans were suddenly charging off, I started to use several diffenent filters, and then mark the qualifying loans by putting them into portfolios. While I seem to have made a dent in *new* (early) chargeoffs, I cant find very many loans that qualify, so I increased the amount to be invested in each note. Even with that I end up with extra dead money in my account.

As a retail investor, I think we are given the leftovers after commercial interests have picked over the better loans. I believe commercial players have more data, expertise and systems that can pick notes, so they have a distinct advantage.

The name of the geam in loan picking is to reduce risk and maximise return. If you believe the LC site data that would mean choosing more B loans (or higher grades). Its hard to find lower grade loans that arent going to charge off early.

I've been hit hard with chargeoffs. The effects of chargeoffs on overall earnings are so bad I am willing  to be very selective to get have to Positive Return (Interest-Chargeoffs/Principal+Recoveries). Its better to be out of the market in cash (or ub safter investments like govt insured CD's and Treasuries) than in a market where you are statistically likely to have losees year over year.


I'm actually using 3rd party automated tool to pick loans.
The volume of notes that the tool is able to select decreased drastically on October 1 and still did not improve.

Not sure if overall volume of LC loans available to individual investors has decreased or my filters are too tight for current LC notes. Given that overall interest rates for safe investments (money market, 12-18 months CD) have increased from around 1.5% a year ago to close to 2.7+% right now, LC's interest rates have not kept up to justify additional risk.

Given above, LC definitely needs to come up with some sort of money market account of idle cash similar to what Peter described in today's article." class="bbc_link" target="_blank">


Look, retail investors are not a target market for LC, nor any other well established & funded P2P platform. We are a relic from days past in which they needed us to get their business off the ground.

On average, we invest small & take much more effort to support than the institutional investors. Supporting a few institutions that invest by the $100Ks or more will always be a better model than trying to cater to the thousands of us needy, whiny, less sophisticated (than institutional) investors.

As a percentage we are providing less of the overall LC funding, and I think we all see the trend towards neglecting the retail market. We're just not as necessary as we once were, and don't be surprised if we are eventually shut out.


The drop-off of loan availability on the fractional platform seems to be persisting well into November. Do you agree that fewer loans are now coming onto the platform than earlier in Q4? Has anyone asked LC about it?


New loans in October are 1/2 of September and about 1/3 of July August volume" alt=":(" title="Sad" class="smiley" />
Looks like November will be even less than October.
Is LC giving all of us a hint?


I've been thru this cycle many times.  Here's how it works...

At LC, the allocation of loans between the whole-loan market and the fractional-loan market is done by "some guy" who rotates a big knob.  He adjusts this knob to try to balance (within his understanding) allocation of loans between the two markets.  Then 4 times per day, the computer processes a batch of loans and X% go to the whole loan market, and 100%-X% go to the fractional loan market.

About once a year or so a new guy takes over this job.  The new guy makes the same mistake every time.  He looks at how fast loans are bought up.  He says "wow, the whole loan market buys up the loans instantly, so they want more, whereas the fractional loan market leaves them sitting there, sometimes for days, so they want fewer."

The mistake this fellow is making is that the two markets operate differently.  The fractional loan market REQUIRES INVENTORY to function.  Investors need to be able to login to the web site and see a nice array of choices, so they can apply their investment criteria (whatever it may be) and find a few loans they can buy.  If the fractional loan investor  logs in and sees nothing, or crap, like the 52 loans presently in inventory, he'll go away disappointed, and that destroys the fractional loan business.

The solution is to educate the guy.  Retail investors need to complain that LC is presently operating the fractional loan market (ie the market on the web site) with INVENTORY LEVELS THAT ARE TOO LOW.

A reasonable inventory level which makes fractional loan investors able to do their thing is around 500 loans.

Please call or write LC and make this point.  The squeaky wheel gets the grease.  I guarantee you that the institutional investors aren't shy about squeaking when they need grease.

Don't just assume that because "some guy" at LC is doing something stupid that there's a big organized and informed corporate policy to screw you.  The world isn't that organized.

NEW LOANS:   | 4250.eth 0.179 Ξ | 4246.eth 0.179 Ξ | 1931.eth 0.200 Ξ | ALL