Cherry Picking of P2P Loans? Not So Fast

Black Cherry Peer to peerAs Crowdfund Insider covered recently, the FT wrote up an article that inferred that “Cherry Picking” of peer to peer loans presently posed an issue in allowing a level playing field between retail and institutional investors. Following the article, we had an enlightening conversation with representatives of Funding Circle that clarified there is no issue with Cherry Picking today – and the P2PFA wants to play a role in assuring this in the future.

James Meekings, co-founder of Funding Circle stated;

“It’s absolutely right that members of the P2PFA have agreed that retail and institutional investors should have the same opportunities as each other, which are not to the detriment of the other party. This forms part of a wider refresh and James Meekingsformalisation of the trade body’s operating principles. It’s extremely important to note that this was already the case for members. At Funding Circle, loans are randomly allocated either as a partial loan, which is funded by a group of retail investors, or as a whole loan, where one institutional investor funds the loan. Both retail and institutional investors have the opportunity to pick which loans to invest in or they can choose to take an automatic spread of loans across risk bands.”

The rise of institutional money moving into P2P loans is an inevitability.  Institutional money from  hedge funds, family offices and other managers has provided the rocket fuel for the dramatic growth occurring in the US direct lending space today.  The UK has always held dear its roots in aligning opportunity with retail investors.  This fact is important enough for the P2PFA to assure it continues in the future.

Peer2PeerLendingUKThe P2PFA is a selective group that represents the majority of all loan originations occurring in the UK today.  Current members concur that both retail and institutional investors will always be treated the same.

Funding Circle introduced whole loans about a year ago to make it easier for institutions to participate but they state there is no concern that Cherry Picking is an issue presently with either whole or partial loans.

Stained FTAt Funding Circle, retail and institutional investors are both given the opportunity to actively pick loan parts or whole loans, or they can both use autobid which gives them a spread of either loan parts or whole loans on the marketplace across risk bands. The system is designed to ensure that both sets of investors are treated the same and given the same opportunity.

Peer to peer, or marketplace lending, is a sector of finance that prides itself on transparency.  Funding Circle, as do other platforms, publishes its entire loan book online.



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