What Should Be Next for LendingRobot Series?
The Alternative Lending space, while still young by most measures, has grown immensely over the past several years. The number of origination platforms during that time has ballooned to over one hundred; which is largely beneficial to alternative lending investors. We’ve stressed time and time again how important diversification is and the plethora of origination platforms to choose from makes this highly achievable. The only problem with so many choices is doing the due diligence and research required to make informed decisions about how to allocate one’s funds. With LendingRobot Series, we do this work for you; all you need to do is choose your desired risk tolerance and time horizon.
For those visually inclined, take a look at the graph of default rates (from FRED ) for various types of loans over time:
It should be clearly apparent that default rates do tend to move together over time, but the type of loan experiencing the highest default rates at any given time can change. For example, we see that commercial real estate had the highest default rates in 1991, but single-family residential mortgages took the top spot during the mortgage crisis. We can also see that the default rates of consumer loans and credit card loans look fairly stable in relation to the swings of commercial loans and residential mortgages. The purple dashed line represents a hypothetical default rate on a portfolio weighted 50% towards credit card loans and 10% in all other remaining loan types. The diversified default rate is relatively stable, and would give you exposure to different types of assets that could provide more attractive interest rates.
With LendingRobot Series, the origination platforms we currently invest on give exposure to medium-term consumer credit, short/medium-term small business, and short-term real estate loans. When considering adding additional origination platforms to LendingRobot Series, we have four requirements that they must pass: data transparency, business stability, geographic diversity, and leadership in their niche.
The number of potential origination platform partners is narrowed dramatically using these four criteria. What follows is an analysis of platform data to select those that compliment our existing investment pool for each Series and finally, a simulated allocation optimization between the platforms for each of the Series.
We expect the Alternative Lending space to mature in the years ahead, with many more origination platforms having the desired traits for potential partnerships. We are confident that, through our measured approach, LendingRobot Series will continue to represent the best Alternative Lending opportunity to match any investment objective.
- Justin Hsi
- February 23, 2017
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