Dynamic Credit has launched a fund for institutional investors investing in non-bank loans with two US peer-to-peer lenders already onboarded.
The asset manager connects to lending platforms via APIs and sees the loans that become available instantly. Within six seconds, the firm has run its model, calculating the probability of defaults and the largest risk-adjusted returns to find the best opportunities.
The fund purchases the loans with the highest risk-adjusted returns that are the least likely to default. Principal and interest payments from the loans, minus fees, are then passed along to institutional investors who have purchased shares of the fund.
The fund’s one per cent per annum fee covers management, services and costs.
The fund is only for institutional investors and aims to deliver net returns between five and seven per cent, purchasing primarily unsecured consumer and small- and medium-sized enterprise loans.
Dynamic Credit said it has the capacity to deploy more than a billion euros in the next 12 months via the fund.
The first loans the fund has purchased are from US P2P lenders LendingClub and Prosper Marketplace, but it will soon buy loans from European originators as well.
“We are saving investors the time and effort of finding these opportunities,” said Matt Kus, director of business development at Dynamic Credit.
“Investors get exposure to a diversified pool of loans from different loan originators across the US and soon Europe too, and it’s not just a pool of diversified loans, it’s a pool of the best, diversified loans.
“We’re launching this now because we have a history of managing money through crisis periods.
“We’ve already had strong interest from larger institutional investors looking for short duration exposure in a managed vehicle which offers higher returns.”
Elsewhere in the world, Kus said Dynamic Credit is looking at potentially funding a segment of the origination of Funding Circle’s coronavirus business interruption loans (CBILS) and the opportunity to purchase government guaranteed loans in the Netherlands.
In the UK specifically, Dynamic Credit has seen opportunities to purchase loans in the ‘big three’ P2P lending platforms, RateSetter, Zopa and Funding Circle, as well as alternative finance provider MarketFinance. However, it is currently exercising caution.
“In the immediate term we’re a bit cautious about the UK due to the impact of Covid-19 which is proving to be the largest impact on our economies in our lifetime and combining that with Brexit upcoming and the impact of hedging pounds to euros,” said Kus.
“But are very open to purchasing from UK loan originators and opportunities such as the government guaranteed emergency loans, so we are engaging with some to originate under CBILS and think there will be a pick-up in opportunities to look at in the next three to four quarters.”