Why are wealthy investors using peer-to-peer lending platforms to do private lending?

By Qandor member Paul Watson, Head of Origination at Blend Network. In this article, he argues that peer-to-peer property lending platforms have seen a significant increase in funding lines from those investors keen to deploy their cash.

A recent article described how ultra-rich families with cash on hand have started to pile into private debt to avoid stock market volatility. As a company that is backed by a number of high-profile investors, we at Blend Network have witnessed a similar trend with an increased lending appetite from our family office and high net worth investors. We are backed by investors including Cyrus Ardalan, former Vice Chairman of Barclays and current Chairman of OakNorth Bank and Citigroup Global Markets, the Family Office of former Publicis Group CEO Maurice Levy and Jean-Phillipe Blochet, co-founder of Brevan Howard, one of the world’s largest hedge funds which at its peak had $40bn in assets under management.

Of course, family offices and high net worth investors are looking to private debt because of the attractive returns on offer which are underpinned by an asset with a shortage of supply. Yield on Government bonds are barely positive in the US, while they are negative in Japan and much of Europe. Effectively, investors are guaranteed to lose money by holding those bonds until maturity. If inflation rises, as many expect it to, the losses would be even larger.

Equity markets don’t offer much cause for optimism either. Investors we speak to are nervous that equity markets may see a correction following their recent rise. Between 19 February and 23 March, the S&P 500 index lost a third of its value. With barely a pause, it has since rocketed, recovering almost all of its losses. While governments around the world have pledged to do ‘whatever it takes’ to see their economies through the crisis, investors are undoubtedly worried that financial markets have got out of whack with the real economy and that something has to give.

Furthermore, even the recent rise in equity markets has been uneven and seen a geographical dislocation. UK and continental Europe stock markets, which are more reliant on industries like car manufacturing, banking and energy, have lagged behind while US markets have rallied mainly due to the outperformance of the tech sector, which now makes up a fifth of the S&P 500 index.

It is no surprise then that family offices and high net worth investors are looking to the private debt market, often focusing on real estate. According to research firm Preqin, the number of family offices active in private debt has more than doubled since 2015. But while some family offices have highly sophisticated investing operations and are able to originate property deals in-house, most rely on external origination and in-depth due diligence by professional teams. 

Due to their high flexibility and transparency, peer-to-peer property lending platforms are in an ideal position to serve as an origination vehicle for those wealthy investors. We at Blend Network are seeing increased appetite from our investors to source good deals. But while larger funding lines mean peer-to-peer lenders are under pressure to originate more deals, these platforms who have built their reputation and track-record on balanced risk/reward for their lenders are not willing to compromise on quality deals for the sake of quantity.

From the the peer-to-peer lender’s point of view, having a well diversified lender base formed of institutional money, family offices, high net worth investors and retail investors is highly desirable. Of course, that is advantageous for all those retail investors using peer-to-peer lending to deploy cash, since they are effectively able to co-invest with highly sophisticated investors on the same deal and under the same conditions. Meanwhile, borrowers, of course, like turning to family offices and high net worth private investors due to the extra flexibility and faster access to cash than with most banks. All in all, this increasingly popular way of investing and funding deals appears as a win-win for everyone.

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