Cashing Out in LendingRobot Series
Before getting into any type of investment it is important to know how easily it would be to liquidate or cash out. One goal we strive for in LendingRobot Series is to be completely transparent. Liquidity is an important part of every investment as the ability to quickly turn an investment back into cash is valuable.
When trying to liquidate as an individual Lending Club investor, one must either wait for maturity or sell notes on the secondary market. However, in LendingRobot Series our focus is on maturity not liquidation. There is no transfer of property as we do not use a broker dealer like Lending Club’s FolioFN, so there are no trading costs or friction between origination platforms and accounts, nor do we penalize for withdrawing or cashing out of investments.
There is incentive for staying in LendingRobot Series, as we discount late notes aggressively. For instance, if a note of \$100 was purchased and it was late, we discount it entirely after just 90 days (120 days if the loan is secured) rather than waiting 120 days for default and 30 more for charge-off. Also, the note could still have full or partial recoveries.
We distribute in priority of cash, where an investor who has invested first would get priority to cash out before an investor that enters the fund after them, which is the traditional way hedge funds would provide liquidity. We account for the sum of cash coming in and interest made when an investor wants to cash out – leaving 33% of that cash, so that even the smallest investor is able to cash out.
An investor is able to cash out in a matter of 2 weeks, although we do not take into account the time it actually takes to wire funds out. There is a possible waiting period of 3 weeks or more in order to actually cash out. When a withdrawal request is made, we will require time for the allocation of funds from the origination platforms to LendingRobot Series before funds are received in the investor’s bank account. The actual amount of cash available fluctuates each week as we continually reinvest 67% of each weeks funds. Each week an investor has the option to be able to withdraw the cash available at minimum of 33%. The best case scenario is that the investor can cash out in 2 weeks. The worst case scenario is that the investor is cashed out as loans amortize, similar to as if they invested on their own.
We will use the example of 50 investors each investing \$200K which totals the amount of cash invested to be \$10M at a 10% rate and 36 months. Each week when a request is made to cash out, we look at the amount of cash available and the minimum amount (33%) able to be released. In this same example, there are 100 Units and \$75K of cash estimated to be available each week. If two investors wish to cash out it will take them approximately 10 weeks to cash out, depending on the amount of investors coming in at the time. We include 2 weeks where we process the request to withdraw in the approximate timeframe to be completely cashed out. If more investors invest in the fund while an investor is trying to cash out then the cash out process may happen more quickly. The cash out amount available is actually 33% of the \$75K available and the rest of the funds get reinvested.
- Vanessa Hoying
- March 2, 2017
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