By Ryan Weeks on Tuesday 7 June 2016
LendingRobot is attempting to sweeten the deal for Lending Club investors, while the platform itself scales back on its borrower-facing marketing efforts.
LendingRobot is an automated investment service for marketplace lenders like Lending Club and Prosper, catering specifically to retail investors. LendingRobot is today launching what it calls its first “Pro” feature: Adaptive Portfolio Rebalancing (AdPR). The product is available only to Lending Club investors.
The new tool intends to maximise investor return through a pair of primary functions. The first of these is to regularly analyse investor portfolios in order to single out and sell underperforming loans on Lending Club’s secondary market, and to then reinvest the cash automatically. The second is to monitor that same secondary market for “underpriced” loan assets, in order to add these to a client’s portfolio, as and when they match that client’s requirements. The “Pro” feature will only be available to clients that have more than $20,000 managed by LendingRobot, and can be turned off or on at any time. LendingRobot believes this to be a unique feature “across all robo-advisors”, not only in peer-to-peer.
We asked LendingRobot CEO Emmanuel Marot for an explanation of what constitutes an “underperforming” loan:
“For each note, we calculate the updated expected return based on payment history (e.g. "was it previously at least one late in payment?"), current status ("how many days since last payment due?"), probability of default based on grade, probability of total early repayment, etc.”
“What we called an 'underperforming' note is one for which this expected return dropped significantly. You're right that the most likely event is that some payment is due, and the overall probability of default is increasing as days go by. That, in turn, lowers the price at which we're trying to offload the note.”
“The note may sell, it may not. The beauty is that it doesn't cost anything to try (including our clients' time, because it is all automated)!”
LendingRobot’s raison d’être to date has been to streamline the allocation of funds on behalf of individual investors. Lending Robot first integrated with Lending Club in August last year, and joined forces with Funding Circle US in November. The specialist service provider has long talked about “levelling the field” for retail investors, but some may argue that the $20,000 stipulation for the new “Pro” feature clashes somewhat with that mantra, in that AdPR users effectively gain access to a premium investment service.
Lending Club’s recent troubles were not glazed over by LendingRobot representatives, but the company remains “very confident” in the platform’s ability to deliver consistent returns to investors. At the hour of Renaud Laplanche’s sudden departure in May, Mr. Marot said: "The impact for individual investors in general, and LendingRobot clients in particular: zero." Marot believes that the AdPR tool could serve as a means of enhancing Lending Club’s currently “underutilised” secondary market, and notes that the US Treasury’s recently published recommendations for marketplace lending included calls for a more active and stable secondary market.
All of this is framed by the context of a general waning in investor demand for Lending Club loans, and indeed for marketplace loans in general. Lending Club said in a recent 10-Q filing that it was considering funding loans using its own balance sheet in response to the pulling back of a number of third-party institutional investors. Only today, the FT’s Ben McLannahan reported that Lending Club and other online lenders are significantly scaling back on their borrower-facing direct mailing activities. Leading research firm Mintel has revealed that Lending Club’s direct mail offers fell from 41 million in April to around 10 million in May. The platform is said to have sent out a record 70 million offer letters in March.
Lending Club will doubtless be hoping for a retail investment boost from LendingRobot’s latest innovation. In the mean time the platform seems likely to continue slashing its marketing efforts until the tide of investor sentiment turns.