Higher yields driving marketplace lending uptake among institutions, finds study

By Ryan Weeks on Tuesday 13 March 2018

Alternative Lending

A new study by Greenwich Associates pries into institutional investment trends in marketplace lending.

According to a new study, marketplace lending is here to stay. That’s among the major findings of the Greenwich Marketplace Lending research study, conducted August to October 2017. It is based on the fact that 52 per cent of institutions currently investing in the asset class believe that marketplace lending will be a significant part of the financial system in the next 10 years.

Greenwich Associates interviewed 74 investors from pension planners to asset managers to compile its results. These investors control more than $3.5 trillion in assets between them. When the research was conducted, 21 of the firms were investors in marketplace loans, while 53 were not.

Of those investing in the asset class, 67 per cent cited higher yield as their primary reason for investing. Diversification and low correlation (48 per cent), access to consumer or small business credit (43 per cent) and low volatility (33 per cent) were also cited as important drivers.

The treatment of marketplace loans in institutional portfolios was also considered. Almost 40 per cent of firms not currently investing in marketplace loans said that they didn’t know how to characterise them. A Lending Club blog post on the subject suggests, therefore, that “the potential for future adoption is still vast as more investors become aware of the asset class”.

Among those already investing, 67 per cent see marketplace loans as structured products, but at least some of those investors must also see them short-duration fixed income products, as this category was ticked by 48 per cent of respondents. This further underlines the complexity that comes with categorising marketplace loans.

The Greenwich survey indicated three primary catalysts likely to drive further institutional adoption of the asset class: rated securitisation offerings, more advanced reporting and analytics, and an active secondary market for marketplace loans.

Question marks linger for both existing and potential investors over how the asset class would perform during a downturn, with the vast majority of platforms launching in the wake of the global financial crisis.

The full report can be downloaded here.

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