Ac­cess to a New As­set Class

Prime Merid­ian Cap­i­tal Man­age­ment en­ables high net worth in­di­vid­u­als to in­vest in the bur­geon­ing field of on­line mar­ket­place loans.

Inc. (USA) - - INNOVATE -

WHEN THE SHAR­ING ECON­OMY

be­gan to take off in the mid-2000s, it was al­most in­evitable that lend­ing would be­come part of the mix. If in­di­vid­u­als could rent or lend out things like homes, cars, and tal­ent, why not money?

In­deed, on­line peer-to-peer (P2P) lend­ing—or mar­ket­place lend­ing as it’s also known—started on sites such as Pros­per and Lend­ing Club as a way for bor­row­ers and lenders to come to­gether with­out the need for a bank. By elim­i­nat­ing banks as the “mid­dle­man,” bor­row­ers could get lower in­ter­est rates for typ­i­cal credit needs such as re­fi­nanc­ing a high-in­ter­est credit card or tak­ing out a per­sonal or small busi­ness loan. Lenders could earn higher re­turns—typ­i­cally in the high sin­gle-dig­its—than they would if they kept their money parked in a check­ing or sav­ings ac­count. Prime Merid­ian Cap­i­tal Man­age­ment saw prom­ise in this newly emerg­ing as­set class. The Wal­nut Creek, Cal­i­for­ni­abased investment man­age­ment firm was started in 2012 by vet­eran fi­nan­cial man­ager Don Davis to spe­cial­ize pre­cisely in the bur­geon­ing P2P lend­ing space. The com­pany has a fam­ily of four funds that give in­vestors ac­cess to short-du­ra­tion, high in­ter­est rate loan port­fo­lios by tak­ing ad­van­tage of the ef­fi­cien­cies in the grow­ing on­line P2P lend­ing arena. Davis says the loans in Prime Merid­ian’s funds in­clude un­se­cured con­sumer debt con­sol­i­da­tion, small busi­ness fi­nanc­ing, real es­tate, and more. The funds are at­trac­tive to Prime Merid­ian’s clients—mainly ul­tra high net worth in­di­vid­u­als and as­set man­age­ment firms—be­cause they are de­signed to create a steady stream of in­come. They also have a low cor­re­la­tion to other as­set classes in a port­fo­lio, mean­ing that they can per­form dif­fer­ently than equities or bonds in the same eco­nomic cli­mate. Davis says he was at­tracted to the P2P lend­ing space af­ter re­search­ing var­i­ous al­ter­na­tive in­come prod­ucts such as real es­tate investment trusts (REITs) and cer­tain oil and gas prod­ucts. At the time he was run­ning Novus In­vest­ments, an al­ter­na­tive as­set man­age­ment firm. He liked the on­line lend­ing model be­cause he says it was much more trans­par­ent and ef­fi­cient than a bank. “If an in­di­vid­ual wants to bor­row money from a bank, to this day it’s still a very ar­chaic process,” he says. “When you go to an on­line lender, they’re uti­liz­ing tech­nol­ogy in a much more ef­fi­cient way, and the whole process can take two weeks or less. That’s why they’re so pop­u­lar.”

In­deed, P2P loan orig­i­na­tions to­taled more than $23 bil­lion in the U.S. last year, ac­cord­ing to Deloitte, with Lend­ing Club the big­gest player. So far, Prime Merid­ian is find­ing ro­bust in­ter­est in its P2P-cen­tric funds and claims assets un­der man­age­ment have grown to $560 mil­lion. “We ex­pect to be at $1 bil­lion by next sum­mer,” Davis adds. The com­pany makes money by charg­ing clients a man­age­ment fee and a per­for­mance fee for the funds it man­ages. As he looks ahead to other types of lend­ing in the P2P space, Davis says auto loans in­ter­est him, but stu­dent loans do not.

“The in­ter­est rates are lower and also there are a lot of po­lit­i­cal is­sues sur­round­ing stu­dent loans con­cern­ing ex­tend­ing pay­ment cy­cles or giv­ing stu­dents pay­ment hol­i­days,” he says. “That’s good for stu­dents and for so­ci­ety, but that also means there’s a lot of un­cer­tainty in this space. And our ob­jec­tive at Prime Merid­ian is to give our in­vestors the best riskad­justed re­turns.” Learn more at pmi­funds.com

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