NYHFR Survey: P2P Lending Increasingly Popular Among Alternative Asset Managers

Mar 4 2016 | 10:45pm ET

Peer-to-peer lending platforms will increasingly rely on larger hedge funds to fund their expansion, according to a new survey by the New York Hedge Fund Roundtable (NYHFR). 

The 2008 credit crisis that partly resulted from overly lenient lending practices has caused the pendulum to swing the other way, noted NYHFR in a statement, with banks having since increased their lending requirements so dramatically that many people can no longer obtain traditional mortgages or loans.

Accordingly, the environment is ripe for disruptive peer-to-peer lending platforms (P2P), which have become extremely popular among not only borrowers but also institutional and alternative investors. 

NYHFR members had the opportunity to weigh in on P2P lending at the Roundtable’s most recent event, as well as through an online electronic poll. 

Key findings include:

  • Only 17% of respondents said their firms have invested in P2P loans or P2P lending platforms. 81% said they have yet to invest in the sector at all, and 2% of respondents indicated that they are interested in the sector, but are staying on the sidelines to see how alternative investments already made in the space fare.
  • 63% of respondents said that the rapid growth of the sector would make it necessary for alternative investors to embrace P2P platforms if they want to diversify their investments within the financial and banking sectors. 
  • One-fifth of the survey’s participants believe that higher interest rates will pull institutional capital back towards more tried and true investments in the major banks, while 17% think P2P lending will never be more than a small niche strategy for the investment community.
  • Asked which portion of the P2P market is most attractive with the greatest growth potential for the near future, 43% of respondents think that investments in the platforms making P2P loans themselves are the way to go as they avoid direct default exposure. 31% think that securitized bundles of P2P loans offer the biggest bang for the buck, and 26% think that the best bet is taking direct positions in some of the larger P2P loans made to small businesses.
  • When asked whether institutional investors will embrace securitized bonds backed by P2P loans, 78% of respondents said history has proven that investors have incredibly short memories and that if securitizations backed by P2P loans offer attractive returns, investors will dive in. Meanwhile, 22% think that there isn’t room for more than a handful of these deals and that, with losses from the mortgage crisis still so fresh in investors’ minds, most investors will keep any investments in these deals to a minimum.
  • Asked whether rising interest in P2P lending will lead to an imbalance between supply and demand, 61% of respondents felt that if demand continues rising, P2P platforms will be forced to loosen lending requirements, while 39% think that the regulations banks must contend with have become so cumbersome that there will be no shortage anytime soon of attractive, low-risk borrowers unable to get loans through traditional channels.

Each NYHFR survey includes an interesting bonus question, which in this case asked about the vacancy on the U.S. Supreme Court caused by the recent death of Justice Antonin Scalia. Roundtable members were asked to weigh in on what they believe the most likely outcome will be:

  • 41% of respondents believe that President Obama will only be able to fill that seat before leaving office if he can to come up with an extremely conservative candidate able to please both parties.
  • 30% think President Obama will nominate a Democrat for the vacant seat and will more than likely be successful at filling that seat before he leaves office.
  • 29% think that Republicans are going to do everything in their power to veto any candidates President Obama comes up with, regardless of how qualified they are, in order to drag the process out long enough for the next president to fill the post – in hopes that the new president will be a Republican.

Of the respondents, 24% were fund managers, 9% were allocators, 9% were risk management or trading, 46% were service providers, and 12% were other industry participants.

The New York Hedge Fund Roundtable is a non-profit organization focused on promoting ethics and best practices within the alternative investment industry. The membership consists of investors, fund managers and other industry professionals who regularly meet to discuss current issues within the industry and connect with peers.

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