Less than a week removed from the news that SoFi might be looking to roll out a REIT, we now learn that the platform has launched a hedge fund. The new vehicle – the SoFi Credit Opportunities Fund LLC – will invest in loans originated by the SoFi platform, but may, in time, come to purchase loans from its competitors. The Wall Street Journal broke the news yesterday evening. SoFi appears to have filed a Form D with the SEC for the fund in late January.
The fund launched in February with $15m in the pot, but SoFi CEO Mike Cagney has told the WSJ that its assets could quickly multiply to $500m or even $1 billion. The Credit Opportunities Fund will charge a performance fee of 25% on returns, but only after those returns top a hurdle rate of 3 percentage points plus the rates of short-term government debt. We understand that at least half of the fund’s capital may be deployed via other platforms.
The fund is not dissimilar in style Lending Club’sLC Advisors vehicle, which holds over $1bn in assets under management, and which buys a selection of the platform’s own loans on a passive basis. In a sense the new SoFi vehicle is also similar to the Funding Circle SME Income Fund, which provides investors access to the platform’s global SME loan portfolio. The crucial difference here, of course, is that the Funding Circle fund is a listed vehicle. Recent market rumblings would suggest that one of the big US marketplace lenders is actively considering a Closed End Fund launch in the UK.
SoFi has been at the forefront of capital markets innovation within the alternative finance space. The platform has been prolific in the securitisation space, and – as mentioned above – appears to be on the verge of launching a real estate investment trust, which would be a first within the global marketplace lending space.
SoFi offers great rates to great borrowers – as explained during a recent 30 second Super Bowl advertising slot. The model is a truly disruptive one, but one which requires a constant flow of low-cost capital in order to function effectively. That need has driven a unique and varied approach to fundraising.
The WSJ alluded to “waning investor interest” within the marketplace lending sector as the primary impetus behind the new SoFi fund. Market volatility, regulatory concerns (such as the Madden vs. Midland saga) and declining share prices in the online lending space could be contributing to this so-called decline.
SoFi raised $1bn from SoftBank in August, valuing the company at $4bn. The platform soared past the $6bn mark in cumulative lending volume in mid December 2015. The $4bn mark was topped as recently as Septemeber. So astronomical a rate of origination growth requires a constant flow of capital to keep pace with. The Credit Opportunities fund could become an important piece of the puzzle.