- Consumer credit fund will be passive, won’t use leverage
- Rival fund run by LendingClub has seen withdrawal requests
Prosper Marketplace Inc. is setting up a private fund that will purchase consumer loans arranged through its online platform, providing another source of capital to fuel growth after other investors pulled back.
Executives at the closely held company are meeting with potential clients this week to pitch the Prosper Capital Consumer Credit Fund, according to a person familiar with the matter who asked not to be identified discussing confidential talks. The fund’s managers are targeting returns of 6 percent to 8 percent.
The goal is “sustainable and attractive risk-adjusted returns,” according to a presentation obtained by Bloomberg. The fund will buy a cross-section of “unsecured consumer loans originated through the Prosper marketplace on a passive basis.”
It’s a tough time to be raising capital. Online lenders, which enjoyed years of rapid growth, are trying to shore up funding for their loans this year after an uptick in default rates and other industry turmoil rattled investors. Some big buyers slowed purchases or demanded sweeter terms.
No Fund Fees
The pressure mounted in May with the surprise resignation of LendingClub Corp.’s founder and leader, Renaud Laplanche, amid an internal investigation into a botched loan sale. He had pioneered the industry, building his firm into the largest online marketplace for U.S. consumer loans.
The scandal has complicated online lenders’ years-long effort to make their loans appeal to a broader swath of investors. They’ve packaged loans into securities with the help of Wall Street, forged partnerships with banks that want to buy the debts and created funds that purchase loans.
LendingClub, for instance, has run investment vehicles for several years similar to the one being started by Prosper. And Social Finance Inc., an online lender that gained popularity by refinancing student debt, started a hedge fund this year to buy its loans and potentially those of competitors.
The Prosper fund plans to start buying loans for clients as soon as September and could manage as much as $1 billion over time, according to the person. The fund won’t use leverage or charge investors performance or management fees, though loans in the portfolio will still be subject to Prosper’s standard servicing fees of 1 percent. The minimum investment is $250,000 and Prosper expects it to be attractive to family offices, high-net-worth individuals and foundations, the person said.
A spokeswoman for San Francisco-based Prosper declined to comment.
A similar fund managed by a LendingClub unit has had a rough ride this year. Returns slumped. The company disclosed that it had improperly allocated some loans to the portfolio. And by mid-June, clients had asked to pull out $442 million -- or 58 percent -- of the fund’s assets, forcing managers to limit withdrawals, according to a letter sent to investors. In response, LendingClub has said it overhauled the fund’s governance.
The new Prosper fund will allow quarterly resumptions of up to 5 percent of net asset value, according to the presentation.