Editor's pick. This article was originally published on Thursday, Jan. 26, 2017.
So you want to bankroll loans made by online firms like Prosper and Lending Club (LC) - Get Report , which rely on individual investors for financing, but you don't have time to analyze credit risk and potential returns for dozens of different borrowers?
LendingRobot CEO Emmanuel Marot has the solution: a hedge-fund style investment vehicle for clients looking to park $100,000 or more in so-called peer-to-peer loans, with average returns as high as 11.5%.
Called LendingRobot Series, it's a premium alternative to the company's original adviser service, LendingRobot Classic, which has 6,500 clients with over $120 million in assets.
The new product will allow accredited investors to spread their money among four different packages, or "series," that comprise loans from multiple originators including some of the best-known fintech lenders. The options are based on investors' risk preferences, ranging from short-term conservative to long-term aggressive, with average maturities ranging from 12 to 40 months.
While a best-case return might be as much as 11.5% on the long-term aggressive product, investors stand to lose as much as 4% if conditions sour.
"All investors would be well served by diversifying into multiple marketplaces, but that process is tedious, complicated, and requires a high degree of domain expertise to accomplish correctly," Marot said.
"That's why we've created LendingRobot Series," he added, "to provide investors that understand the value of investing in alternative lending with the confidence that comes from intelligent automation, easy liquidity, and complete transparency."
His Seattle, Wash.-based firm, founded in 2012, was the first robo-advisor to use machine-learning algorithms and blockchain technology to help retail investors fund online loans.
"Alternative lending proved to return excellent performance, and with new origination platforms growing quickly comes the opportunity to diversify further," Marot said.
A one-stop shop for investors, the new service's costs are a fraction of typical hedge-fund fees. LendingRobot Series charges 1% of assets under management and caps fund expenses at 0.59%, while offering automatic and real-time allocations and maturities from 20 months to three years.
Investors who want to cash out can typically do so within three weeks, the company said.
"You get excellent returns and very, very low volatility, and it's super easy to use," Marot added.
In its earliest stages, peer-to-peer or "marketplace" lending, as it's also known, used Web-based platforms to connect borrowers who might not qualify for bank credit with individuals willing to finance their requests for a sufficient return. Now many companies also accept funding from banks and other financiers intrigued by the potential profits.
Securities backed by marketplace loans totaled about $7.2 billion as of June, the U.S. Financial Stability Oversight Council said in its 2016 Annual Report. Total peer-to-peer lending, meanwhile, reached $50 billion in 2015, a small portion of the $3.3 trillion U.S. consumer lending market.
The industry, exempt from many of the stricter regulations applied to banks after the 2008 financial crisis, drew heightened scrutiny last year when LendingClub's CEO and co-founder Renaud Laplanche stepped down after the firm disclosed that a small portion of loans sold to one investor didn't meet the buyer's criteria.
That prompted some institutional investors to pull back.
"Turmoil within the past 12 months among some of the largest origination platforms showed that 'platform risk' is real, and left many clients increasingly worried about investing only in unsecured consumer loans despite the fact that the returns have remained steady," Marot said.
LendingRobot has $700,000 in seed funding and is backed by $3 million in Series A funding from Runa Capital. The Series service is currently limited to 99 accredited investors.