In a recent write-up on the Orchard blog, the FinTech company profiled Don Davis, Managing Partner of Prime Meridian Capital Management.
Davis launched the Prime Meridian Small Business Lending Fund in the summer of 2014. The objective was to lend to high quality SME loans via P2P/Marketplace lending platforms. Since the fund launched the net returns for investors have averaged 10%. Not too bad. Davis says, “There are three questions I always suggest investors ask a fund manager to very quickly get to the bottom line – what is the average weighted gross interest rate, what is the annualized loss rate, and what is the recovery rate after default? The answers to those three questions allow you to compare performance and risk across funds,”
According to Davis, the annualized loss rate has held under 3% and an average recovery rate of 30%. When you look around at the historically low-interest rate environment – you understand the opportunity available for institutions and private investors.
Interestingly Davis is at it again. He just soft-launched a new fund this past July. Davis has partnered with Val Katayev of Poise Holdings on the new fund. The duo will use bank credit facilities to juice returns with a leverage ratio of 70%. Initially they will invest only in Prosper loans but expect to add Lending Club to the roster.
And what are the expected risk-adjusted returns? Net to investors: 12% to 14%. That’s even better.