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An Institutional Investor Gives His Take on Lending Club and Prosper

by Peter Renton on October 7, 2011

It was love at first sight for Chris Spence of Diligentia LLC. Last year he was listening to the Marketplace Money radio show (one of my personal favorites) and a caller was discussing p2p lending. He had never heard of it before and he was intrigued.

Despite the fact that the radio announcer didn’t give a real positive response to the caller’s question he decided to check things out for himself. The more he researched p2p lending the more he loved the concept. He opened an account with Lending Club right away and followed soon afterwards with a Prosper account.

Chris is a serial entrepreneur who has started many companies, primarily in the healthcare space. But his passion is for investing. He had been investing informally for friends for many years but earlier this year he decided to formalize the arrangement, so he started an investment firm he called Diligentia LLC.

A Guaranteed Return for His Clients

From the start he wanted Diligentia to be a different kind of firm. His hook was to offer a contractually guaranteed level of return to his clients (7%) and then he would try and create a return superior to that and profit from the difference. This is obviously a risky endeavor to offer a guarantee like that but Chris believes this is a big differentiator for his firm. He invests clients’ money in a range of asset classes such as individual stocks, ETFs, real estate and now peer to peer lending.

The peer to peer lending portion of the portfolio is designed to be his high risk/high reward component so he only invests in the high interest loans: grades D and above. With regard to Lending Club, he uses the following filters as a minimum: no delinquencies in the last 12 months, no public records and verified income only. He focuses on previous borrowers on Prosper and wishes that selection criteria was available on Lending Club.

A Heavy User of the Lending Club and Prosper Platforms

Chris probably spends more time on the platform than most investors. While he has his filtering criteria he also likes to read the listing of every loan he invests in, so investing can be a time consuming process. He will spend anywhere from two to eight hours per day on Lending Club and Prosper depending on whether he has new client money to invest. He is also a heavy believer in diversification; he likes to invest just $150 – $250 per loan.

While he has done some of his own analysis he said that he also relies on to back test many of his filtering criteria. Even though his portfolio is still relatively young he says he is delighted with the returns he has been getting. So far they are surpassing his expectations. So much so that he is planning to increase the percentage of his portfolio dedicated to p2p lending.

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{ 17 comments… read them below or add one }

Tyrel October 7, 2011 at 12:48 pm

I wonder what his Prosper username is? I’d like to look up the stuff he’s been investing in.


Roy S October 7, 2011 at 8:31 pm
Charlie H October 9, 2011 at 11:49 am

Correct me if I am wrong but…. My warning bells start going off any one starts talking about guarenteed investment returns.

1: I’ve looked up Diligentia with the SEC. The only thing I could find is an address that may or may not be that of the company.
The Website for Diligentia states that they are based out of Mississippi.

2: I can not find a Chris Spence registered with FINRA that matches up with Mississippi address.

I can’t find a FINRA listing for Diligentia

3: The website is registered to Christopher Spence 1018 Sixth Ave
Suite A Picayune, Mississippi 39466


gharkness October 9, 2011 at 6:39 pm

I agree; it’s literally impossible for anyone to guarantee any certain return unless he has a tubload of cash to cover possible losses, and then, I don’t care who he is….the money will run out eventually, if the returns don’t happen with Lending Club and Prosper, he’ll have a lot of covering to do.

Especially once the defaults start rolling in.


Roy S October 9, 2011 at 8:50 pm

re: “it’s literally impossible for anyone to guarantee any certain return”

I can’t speak for any of the FINRA listing issues Charlie brought up, but I can speak to the perceived impossibility of guaranteeing returns. The prime example are banks. They guarantee returns for savings accounts and CD’s. They use the same method Peter states Diligentia is attempting to use, playing the spread. The question here is whether a 7% return, is feasible especially in the current market where savings and CD’s are returning under 2%. If a savvy investor can pull off the net annualized return Prosper states on their website of 10.59%, then he will not only return 7% to his investors, but he will pocket the 3.59% above what he has guaranteed (minus expenses, of course). Obviously, I would want to make sure that the 7% guarantee comes with some sort of insurance (like FDIC or NCUA guarantees) for the principal lent to Diligentia before ever investing with them, as Diligentia would have to be investing in some rather risky investments, in my honest opinion, to achieve this level of return and then some.


Peter Renton October 10, 2011 at 6:01 am

@Charlie, I admit I didn’t check his credentials with FINRA or the SEC so I cannot vouch for the legality of his business. I was more interested in hearing the perspective and p2p lending strategy from someone who is managing other people’s money. I have sent Chris an email to see if he can respond to your concerns.

@Gharkness, Agreed. The challenging time will come when defaults start to peak around 12 months, then it might be challenging to reap a 7% return on a month-by-month basis.

@Roy, I think it is certainly possible for a savvy investor to pull off returns of greater than 7% every month through p2p lending but I also wouldn’t like to guarantee it.


gharkness October 10, 2011 at 7:56 am

” I can speak to the perceived impossibility of guaranteeing returns. The prime example are banks. They guarantee returns for savings accounts and CD’s.”

Yes, banks are institutions, and they have many more resources (a LOT of other people’s money). I was speaking to the idea of an individual or small company, such as Diligentia appears to be. Maybe they do have a lot of (other people’s) money, but as you mention, there needs to be some NCUA or FDIC covering the speculation. Or not. As long as a person knows the risks involved, far be it from me to keep them from investing. But then, I would much prefer to do my OWN investing and reap all the rewards (and suffer the risks) as a direct investor in P2P.


Roy S October 10, 2011 at 10:45 am

@gharkness, I agree that I would prefer to do my own investing (as I’m sure most people here also prefer). Economies of scale aside, I don’t think it’s merely a matter of how much money they have. There are, after all, many banks that go out of business every year (yes, they are generally the smaller banks, but it happens to the larger banks and S&L’s as well, like WaMu and Barings Bank). It all comes down to whether this is a product/service that people want and whether the business model is successful in achieving its goals. More money allows for greater diversification and the greater ability to absorb poor performing investments, but it does not guarantee success.

Diligentia may go bankrupt next year or it may grow into a million or billion dollar business. There are plenty of big businesses that started as small start-ups without a lot of resources or access to resources, though there are far more that do end up in the toilet. I do, however, wish Mr. Spence luck in being one the next successful start-ups!


Chris Spence October 10, 2011 at 11:00 am

Hello everyone, my name is Chris Spence and I am the person interviewed in the article above. I can understand (and even appreciate) some of the curiosities regarding our firm’s business model as it is uncommon to have a firm contractually guarantee returns. However, I don’t want to take attention from the stated purpose behind Peter’s work, “An Institutional Investor Gives His Take on Lending Club and Prosper”, so I will not turn my reply into a marketing plug.

The purpose of the interview was for me to offer my opinion on the P2P industry and how excited we are about it. However, I will state that most of the questions raised above are addressed in our firm’s Frequently Asked Questions (FAQ). A direct link to this particular page is provided below:

This week we will also be releasing an additional FAQ article titled, “How is our guaranteed rate calculated?” An article I think some of you may find helpful or interesting.

As mentioned previously, I don’t want to spin Peter’s article into an advertisement, but I thought my post would help provide some answers to questions raised. Lastly, if you have any more questions about our firm, don’t hesitate to email me directly via the contact information on our site.

Peter, I want to take a moment to thank you again for the interview. It will be exciting to see the growth of the P2P industry over the next 12 months. I can’t get into specifics at this time but our firm is participating in discussions with regard to moving significantly more assets into this industry for the next fiscal year.

Take care everyone,


Peter Renton October 10, 2011 at 1:32 pm

@Chris, Thanks for chiming in and addressing some of the concerns, as you can see my post aroused a great deal of curiosity among some readers. I agree it will be exciting to see the growth that will occur over the next 12 months and I look forward to following your firm’s involvement.


Steve Johnson October 10, 2011 at 1:35 pm

I think I heard similar statements made by Bernie Madoff. He did provide great returns for years. Those that got in and got out quickly did well. Those who stayed, paid.


Peter Renton October 10, 2011 at 1:43 pm

@Steve, I think that is a bit harsh. There is no evidence whatsoever to suggest that Diligentia is a ponzi scheme and to compare them to the biggest investment swindler in the history of the world is unwarranted.


Charlie h October 10, 2011 at 6:26 pm

This sounds like a version of a variable annuity.

You give us your cash and a lengthy lock up period and we will give you x% minimum + y% depending on how the assets do. Nothing illegal about that. You just have to be a chartered insurance company with a regulated amount of reserves to offer the product. Oh and a register to sell it.


Charlie h October 10, 2011 at 6:35 pm

“Our firm manages a semi-closed investment fund that may contain any combination of the following asset types:”

Then the person selling the finacial product needs to be registered with FINRA and the company needs to register with the SEC.

What you are offering is a closed end fund or a total return fund.


I am not saying you are Doing anything immoral, I just don’t think you have fully thought out the regulatory consequences of your business model.


Roy S October 10, 2011 at 6:41 pm

I hate to say it, Peter, but I had similar thoughts when reading your post. There might be one in a million Ponzi or Madoff, but their actions have long term consequences on people’s perception of the type of business Mr. Spence is entering. I think this perception/fear is a valid issue to his overall business model that he will be dealing with. I don’t mean to harp on this (especially since this entire conversation is off-topic), but this is a major reason why if I were to invest in a company like Diligentia I would want to see some of insurance from a reputable, well-known company prior to investing any money. Having an outside company looking over the business and determining whether they would insure investors’ principal would add some legitimacy to the business in addition to the security of my money (or at least a given percentage of the principal).


Dan B October 11, 2011 at 1:36 am

Charlie………There’s no minimum, maximum return here. It’s a fixed return over a fixed time period. Your essentially buying a fixed term note that will either pay you back with interest in a limp sum at the end of the 3 or 5 year term…………….or return to you a fixed amount every month over the entire term. As far as I could tell there is no liquidity beyond that.

Wow what’s all this sudden talk about FDIC & insuring this & insuring that? What insurance do we get with Lending Club & Prosper? This is all about trust. And if Peter vouches for him, that’s all I need to know. :)


Charlie H October 11, 2011 at 6:05 am

Thanks Dan B for clearing that up. I must not have read what I thought I read on the website 72 hours ago.


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