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Alternative Market Briefing

Peer-to-peer lending platform creates opportunity in consumer term loans

Monday, February 17, 2014

Precy Dumlao, Opalesque Asia:

Peer-to-Peer (P2P) lending platforms have created an opportunity to invest in consumer term loans, an old and well-understood asset class, said Howard Freedland, principal at Emerald Asset Management.

In its latest white paper, Emerald said investing in P2P originated loans is becoming an institutionally accepted asset class which seeks to deliver attractive yields with an extremely short duration in a yield starved investment environment and fairly predictable returns net of expected defaults.

"An investor can now construct a diversified portfolio of securities representing consumer loans with potentially attractive yield, duration, and credit characteristics," Freedland said. He added, "A confluence of regulatory and technological changes impacting traditional bank lenders have created an opportunity for investors to directly participate in this asset class. A combination of technology and financial innovation has made consumer term loans available to a much broader segment of the investor population in the form of investable securities called 'Borrower Dependent Notes’ which represent fractional interests in individual consumer term loans.

According to the paper, loaning money to strangers is typically a risky venture, but the structural size and scope of P2P consumer lending seeks to mitigate this risk by taking advantage of the "Law of Large Numbers."

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