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A Big New Investor Using the Lending Club Retail Platform

by Peter Renton on August 15, 2012

One large Lending Club p2p investor snapping up 75% of loans

For a few weeks now I have been noticing this. I login and browse available loans at Lending Club and see many brand new loans  that are about 75% funded.

Take a look at the graphic above. I took the screen shot this morning when this loan had been on the Lending Club platform for about 20 minutes. Already it was 75% funded by one investor.

There are Caps in Place for Large Investors

I spoke with Scott Sanborn, the Chief Marketing Officer at Lending Club, about this. He was aware that there are a small number of large investors using the retail platform. But he explained that these large investors must adhere to certain caps that limit how much they can invest per loan. This limit appears to be 75% because when I went through the new loans today there were a handful that were right at 75% funded with just one investor.

Sanborn made it clear that Lending Club wants a level playing field for small and large investors alike and they make sure that no one investor can fully invest in a loan that takes it off the platform immediately. So far it seems to be working. I have been watching these loans closely over the last 24 hours and all of the loans that this large investor has chosen (assuming they are all the same investor) are still less than 90% funded.

Even with the huge increase in investor funds recently almost all loans at Lending Club stay on the platform for at least 24 hours and the majority for at least a week. But once a loan is over seven days old the LC Advisor funds can take over and loans can be fully funded very quickly. This happens to a large extent in the first few days of every month.

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{ 30 comments… read them below or add one }

MK August 15, 2012 at 1:26 pm

This brings up a question I have. Is Lending Club limiting the loans to one large investor? If not, one with 75% and another with 25% could still dominate the platform.
This could cause another issue. If only one large investor is allowed on a loan, it would be a race between the large investors to see who gets the good loans. If there is not a max number of large investors per loan, I would prefer to see a 45% limit and max of 2 large investors per loan.

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Peter Renton August 15, 2012 at 1:50 pm

That is a good question and the way I understand it is that right now the limit is 75% per investor not per loan. Keep in mind there are hundreds of loans being added every day and I see only about 10% of them having a big investment. That leaves a lot of other loans.

But this is all changing soon anyway. Apparently there are several new investors coming on the retail platform soon and the limit rules are all changing. My point with the post is that LC is aware of the big investors and that these investors are operating within certain limits. I imagine these rules will continue to evolve as the platform grows.

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Anil Gupta August 15, 2012 at 1:39 pm

Number of lenders, average amount per lender and percentage loan funded per day are some of the variables I use to select loans for investing.

Based on last update of early this morning in my database, there were seven loans that had avg amt invested per lender greater than $2,000 and there were ten loans that were funded more than 75% by less than 10 lenders.

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Peter Renton August 15, 2012 at 1:51 pm

That is curious Anil. Why do you use these variable for investing? Are you assuming that large investors know what they are doing and you seek to jump on board with them or is it something else?

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Howard August 15, 2012 at 2:33 pm

Given the timing, I’m guessing the Big New Investor is Thomson Reuters. As for why somebody would use the # of lenders, % funded by one investor, etc as search variables is that it could save some time. If the Big New Investor actually has a clue, then following his lead could reduce the amount of investigation you need to do. OTOH, if the Big New Investor has somebody making the funding who is clueless, after you look at a few and see that they don’t meet your requirements, then you can *exclude* anything touched by the Big New Investor. Either way, you save time.

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Peter Renton August 15, 2012 at 4:28 pm

Howard, I am pretty certain that this big new investor is not Peter Thomson of Thomson Reuters because they made it clear in the press release that he was investing through the LC Advisors fund. This is someone who is investing on the retail platform one loan at a time.

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Dan B August 15, 2012 at 8:11 pm

The short history of this investment class is already littered with examples of investors who deploy large amounts per note achieving mediocre &/or poor results. Size of note investment means little. Often times it’s just a sign of laziness or a sign that they slept through Statistics 101. Following an investor who achieves consistently good results is one thing, following an investor because they invest a large amount per note is another. In an effort to be more polite I won’t voice my opinion of people who use that nonsense as a screening or filtering tool.

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Sean August 16, 2012 at 5:36 pm

Given that there’s already a 7-day cap in place before the LC Advisor funds can invest in a loan, I’d like to see something similar for large investments in general. Maybe until the 7-day period has expired, all note purchases are limited to a much smaller amount or percentage per investor, something in the $1000 / 5% range. After that period has expired, it’s open season for LC Advisor or other large investors to pick up any amount remaining. Possible feedback for Mr. Sanborn…

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Dan B August 16, 2012 at 6:31 pm

I’m sorry, but as much as putting more & more limitations on what large retail investors can do may make it easier for all small investors (myself included)……………I disagree. Who gets to determine what constitutes a “large investment”? Who gets to decide what the percentage limitation or time period should be? You? No offense but I’m not really comfortable with that.

I can see how limiting what/when institutional investors can do makes sense & those limitations are already in place. Why do I make the distinction? Because institutionals already have multiple vehicles for investment in this, with advantages that retail investors big or small don’t. But within the universe of retail investors, I don’t see the fairness of discriminating & limiting what anyone can do. We’re all playing with the same rules. Why should someone be limited as to how much they can invest so that a certain amount can be set aside in case you decide to come by & invest?

Don’t want to run the risk of having a note get fully funded before you’ve had your chance? There’s a simple solution……………..Wake up earlier or invest daily, like I do.

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Sean August 16, 2012 at 8:54 pm

One of the things I like most about P2P lending as opposed to say, stock purchasing, is the sense that the playing field is kept level, and I certainly commend LC for keeping that a priority. I make the suggestion because, unless I misunderstand the checks in place, it’s only a small step to a potential exclusion scenario. If a single investor is able to reserve up to 75% of a given loan, then it follows that two investor accounts can easily close out a loan as soon as it opens. Combined with some relatively simple automation, loans could be cherry picked at a rate that waking up earlier to invest daily can’t possibly match. That doesn’t sound like a ridiculous scenario – it only requires one additional account.

I don’t know how to differentiate between a large retail investor and an institutional investor who happens not to use an LC Advisor, so I may be describing a scenario that can’t occur – if so, I’m happy to be corrected.

I do invest daily, and I think it’s great that LC is willing to continually update the rules to ensure that everyone has a chance to invest. My suggestion was meant in exactly that spirit – seeing a potential point of unbalance and looking for a way to prevent it.

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Dan B August 17, 2012 at 1:05 am

Hey I agree that undesirable scenarios can occur & probably will occasionally. But I think it is preferable to going down the road of placing too many limitations at this time………………especially when it’s going to be so difficult to determine where the line should be drawn.

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Peter Renton August 16, 2012 at 6:38 pm

While from the perspective of the small investor it would be great to limit the amount a large investor can take, I don’t think LC needs to do more than is already in place. They have shown they are bending over backwards to ensure an equitable playing field and they have also made clear that these rules are dynamic and will change as needed.

As Dan says, if you never want to miss out on a loan you should invest every day. I don’t do that, I invest every three days, but I am comfortable missing out on the occasional loan because there is still plenty of supply for a small investor like me.

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Bryce M. August 16, 2012 at 9:59 pm

I’ve been investing once every two weeks, $5-7k at a time, with no trouble cherry picking the top 10%. If some cherrys are getting picked, there are plenty left over.

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Dennis August 17, 2012 at 12:36 am

Does anyone know if Prosper follows a similar policy (caps for large investors)? I’m having a terrible time finding anything worthwhile to invest in there, especially the last two months. I’ve been with both Lending Club and Prosper for 11 months now, I never have issues with Lending Club, just Prosper. I have roughly 10k invested in Prosper and 16k with Lending Club. I have to wonder if the best loans at Prosper are going to the Prosper Premier clients while the scraps are being tossed to everyone else. I’m very close to pulling the plug with Prosper while wanting to get more aggressive at Lending Club. I have other issues with Prosper but the poor selection of loans is my main concern.

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Peter Renton August 18, 2012 at 9:21 am

Dennis, Prosper does have limits as well but they are 90% of the loan so some loans disappear pretty quickly. But I don’t think this is caused by Prosper Premier – more by people automatically choosing their loans.

Have you set up your selections with Automated Quick Invest? While there is certainly fewer loans available on Prosper with AQI you get the best chance to invest in all the loans that are available.

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Roy S August 18, 2012 at 8:02 pm

Here’s my $0.02…

I agree that there should be a cap (maybe 5%) for ALL investors on how much they can fund any one loan, but I would only place the cap on the loan for the first 24 hours the loan is listed on the platform. After the loan has been on the platform for 24 hours, any lender can fund as much of the loan as they wish. Under this scenario, it is still possible for a large lender to fund 100% of the loan, but it does give the smaller investors a chance to invest in the loan as well.

Here is how I envision it would work…Say you want to invest in 90% of the loan. You go ahead and invest in 90% of the loan. When you look at the listing it will only show a 5% investment. After the 24 hour period is up, the loan is invested at 20% (including your 5%). Since the remaining amount of the loan to be invested is 80% and you’ve already invested 5%, the system would automatically invest the remaining 80% of the loan (so you don’t have to go back in and invest in the loan a second time) or as much as you can based on the funds available in your account. If the loan had only been invested at 10% (including your 5%), then it would automatically invest the remaining 85% of your order putting the funding total to 95% (and your total to 90%). The issue I see would be if more than one person wishes to invest more than 5%, which would place the funding over 100% of the loan value, but I have addressed a similar scenario on your blog, Peter, about how I would handle such an occurrence with how Prosper currently handles that with the AQI.

Ultimately, there’s just something about p2p lending that I feel should be more…well, “peer”-to-”peer”. I believe the larger institutional investors are important (especially since they are doing the majority of funding on Prosper), but I’d rather see them in a more complementary role.

But any way you slice it, it’ll be arbitrary and “unfair” to someone. So there will always be someone who is unhappy and complaining.

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Roy S August 18, 2012 at 8:06 pm

I should clarify that if the loan has already been on the platform for over 24 hours, and you wish to invest 90% of the loan that it would go through the first time (i.e. you don’t have to wait another 24 hours). The 24 hour period would only apply to the time the loan has been active on the platform, not to when you attempt to fund more than 5% of the loan.

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Dan B August 18, 2012 at 8:55 pm

Roy S………..As cliché as it sounds, I say let’s not fix it unless it is broken. At this point I don’t see it as broken.

What I find amusing about all of this is that there is an inherent assumption here somewhere that a big investor or an institutional investor is going to swoop in & grab all the “best” loans before everyone else……………….It’s amusing to me because let’s face it, we wouldn’t be having this discussion if they came in & took huge chunks of what we perceived to be crap loans, would we??

So this whole discussion on limitations presupposes that these big/institutional investors can readily identify the “best” loans & it also presupposes that everyone else can do so too…………..& that there’s this complete agreement as to what the “best” is. That’s a pretty big assumption & almost certainly bogus. A quick look at the performance numbers of big investors & institutional investors should dispel the notion that they know what the “best” loans are. So why are some of you getting excited about this?

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Roy S August 18, 2012 at 11:05 pm

@Dan, It’s not about fixing something that isn’t broken. It is about improving upon what already exists. Imagine if Henry Ford said, “The way to build automobiles isn’t broken, so why fix it?” rather than take the idea of an assembly line and apply to manufacturing automobiles. Hell, what if the people who thought up the assembly line and interchangeable parts thought along the same views as those you espoused? There might neither be an assembly line nor interchangeable parts today. Or they may have come later, and we may not have the technologies we possess today. What if the ideas had come earlier and been implemented earlier?

Perhaps, a more pertinent analogy may be Henry Ford’s comments that, “Any customer can have a car painted any color that he wants so long as it is black.” Henry Ford refused to incorporate new features into the Model T costing him vast market share, because he would not accommodate the whims of the market (or rather consumer preferences).

Putting aside whether the big/institutional investors (or anyone else for that matter) can identify the “best” loans, there is a feeling among the consumers that there should be a more level playing field among all the lenders. Right or wrong, that is how the consumers feel. In the minds of the consumers IT IS BROKEN, and therefore, it should be fixed.

My personal opinion is that everyone on the platform should have as equal an opportunity to invest in all loans as possible. It doesn’t matter whether the loan is one of the “best” loans or not. Further, I prefer the idea of 100 people investing in one loan rather than just 5 or 10 people (or sometimes just 1 large institutional investor). It’s my personal preference. And thankfully we have a choice of platforms (though I would prefer that there were more than just the two big ones). That way, if I feel that one platform is broken I can go to the other. And THAT is what each company has to realize and understand. It doesn’t matter how just Dan feels or how just I feel. You and I are just single data points. It matters how the market feels, and that is something they need to consider, regardless of whether you believe nothing is broken.

Speaking of how the markets feel, it is apparent on this board that the Folio platform is “broken.” I wonder whether LC or Prosper will act first on improving/replacing it. Again, anything a company can do to differentiate itself from its competitor(s) can be an advantage. I’m sure that there are investors (especially those who can only purchase Notes on the secondary market) who would be highly attracted to an improved secondary trading platform. The question is whether the costs associated with improving/replacing Folio will provide a great enough advantage/ROI to warrant doing so. Would it be enough to bring in new customers or even steal market share? Perhaps they should think about doing some market research to help them make a decision…?

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Dennis August 19, 2012 at 12:47 am

Roy – Dan:

I really like Roys idea, I think he’s on to something. It’s not that hard to identify what loans are best and what ones aren’t. If someone has delinquencies past or present, not good. If someone is 20%+ DTI, not good. No job, low income, very high credit card usage – high risk. If institutions can’t figure that out then they are either lazy or just don’t care. Most of them make money on commision, they get paid whether they’re right or wrong, doesn’t matter to them. What Roy is suggesting is a level playing field. Small or large investor, doesn’t matter as everyone has an opportunity to pursue their investment style. I’m getting pretty darn frustrated with Prosper because I don’t think the field is level. I think large investors (institutional have an advantage that the small investors don’t – purchasing power) are dominating Prosper. I could be right, I could be wrong, but Roys policy would insure opportunity for all. If Roys ideas were made policy at Prosper and Prosper made it clear to me that those policies would always be honored, I’d feel a lot better and probably get a little more aggressive in my investing there. Right now, for whatever reason, most of what I’m seeing in loan quality from Prosper is garbage. I don’t have this problem with Lending Club and I’m about to rev up my investing there. Prosper needs (IMHO) to get on the ball if they want more of my investment dollars (as a small investor).

Just my 2 cents worth…………

Dan B August 19, 2012 at 1:10 am

Roy………I guess we’ll have to agree to disagree here because my disagreements with your positions are almost too numerous to list. For starters, I disagree that the playing field isn’t level. I also disagree that there is consensus on this board that the field isn’t level.

Furthermore I disagree that Folio is, as you put it “broken”. I use Folio more than most here. In fact, considering that I’ve sold over 400 LC notes on Folio in the last 3 years & over 100 Prosper notes on Folio…………..I don’t think that I’m going that far out on a limb by saying that I’ve more experience using Folio than anyone on this board. Are there problems with Folio? Sure there are & Foilo is a challenge to learn, but it’s hardly broken. Perhaps some people who feel it’s “broken”, just haven’t yet learned to use it properly & efficiently. I could go on & on but I’m really not in that type of mood tonight.

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Peter Renton August 19, 2012 at 4:51 pm

In my meetings with Lending Club on Friday there was a discussion about limits and exactly what those should be. Right now, we are talking about something that is not really a problem because 99.9% of loans stay on the platform at least 24 hours and the vast majority for several days.

However, I am aware of a new LC investor who is going to coming on board some time in September or October and this investor will dwarf all but the very largest institutional investors. And no, they are not investing through LC Advisors they will be investing through the retail platform just like you and I. So limits must be put in place and they need to be done soon. I like Roy’s idea, I think it has potential and 24 hours should be short enough to satisfy a large investor.

But all of us here should get over one thing. This is not peer to peer lending anymore. Sure, peer to peer is a part of it, but as word of this asset class gets around the big money players want in. I am fine with this because I am most interested in the returns. This is an industry that has its roots in peer to peer lending but it is that no longer. Maybe that idea deserves a separate post because it is something all investors should agree to.

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Chris V August 19, 2012 at 3:18 pm

Peter- I have been closely reading your blogs about P2P lending and I actually have a loan currently under review with LC. Its been 7 days and all its been funded is $4k, and I need $16K+. As you stated before, you only see 10% of the loans having a big investment, but it still leaves many others, as my loan being invested the minimum. Is there something that that I can do to get my loan funded faster?

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Peter Renton August 19, 2012 at 4:53 pm

Chris, What I said is that 10% of the loans have a big investment in the first day of its listing. The likelihood is that your loan will have many small investors and a couple of large ones. With a $16K loan I think you will have no trouble being funded but you might have to be patient and wait until the last day or two. Good luck.

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Bryce M. August 19, 2012 at 4:58 pm

Give us the Loan ID and we’ll do our part. I figure if you’re coming to Peter’s website, it’s a good sign! :p

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Chris V August 19, 2012 at 5:27 pm

Peter- Thank you for the advice! Bryce- Thank you for the support!
Loan- 1475013
Thanks Again!

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Peter Renton August 19, 2012 at 5:39 pm

I took at look at your loan listing and it all your credit data looks clean. The only advice I would give is that in future there is no need to say “PLEASE HELP!!!!”. You may really want or need this loan but many investors prefer borrowers who don’t appear needy. Having said that, I think you will have no trouble meeting your funding goal.

I have kicked in $50 and maybe Bryce will do the same…..Bryce?

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Chris V August 19, 2012 at 6:09 pm

Peter- Thank you for the advice and support! I wish there was a way to delete those comments.

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Bobby Glanton August 19, 2012 at 10:26 pm

Are there any new peer to peer lending services where you can have a lower credit score than whats required at Prosper and Lending Club, also will Prosper and Lending Club consider a loan if a person agrees to an interest rate in the 30% range if a person has a score thats fair and not seriously bad. Thank you for your prompt response.

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Peter Renton August 20, 2012 at 7:48 am

Bobby, There is only one other p2p lending service, Peerform, and they have the same credit score limits. Sorry, but to be considered for a loan you will need a credit score in the mid 600′s.

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