An Australian fixed-income manager has launched a new fund that invests in prime-grade consumer loans originated by peer-to-peer marketplace lending platforms around the world.
Speaking in Sydney last week, Global Credit Investments chairman and founder Steven Sher said the Diversified Income Fund invests in prime-grade consumer loans (as rated by US firm FICO) originated by marketplace lenders such as Lending Club in the US.
Global Credit Investments co-founder Gavin Solsky said poor yields from cash and historically low dividends from equities have put pressure on investors to find reliable sources of income.
Consumer credit sourced from prime-rated borrowers is a good alternative to historically low-yielding assets like term deposits, he said.
The wholesale-only fund, which was launched in March 2016 and currently has $10 million in funds under management, invests in loans of around US$6,000 that are primarily used for credit card consolidation.
The fund aims to generate stable income in the "high single digits" with no leverage, Mr Sher said – with very little volatility.
In Global Credit Investments' estimation, consumer credit generated by US marketplace lenders has delivered an annualised return of 6.04 per cent between 2008 and 2016 – compared with 7.26 per cent from US stocks (S&P Total Return Index).
Importantly, prime-grade consumer credit (ie, loans made by the top 10 per cent of US income earners) originated by marketplace lenders have had zero monthly negative returns, Mr Sher said.
"We’re trying to get a set return for the lowest risk we can, and then the second thing is it’s very important for us not to lose any capital," he said.
"In heightened stress situations, we want to make sure our fund doesn’t lose any capital."
While the fund does not invest in loans originated by Australian marketplace lenders RateSetter and SocietyOne, Global Credit Investments' investment director, Jacob Rosenberg, said he plans to look at those platforms down the track.
The fund is open to institutional and wholesale individual investors with a minimum investment of $250,000, Mr Rosenberg said.
[Related: P2P lending no threat to mortgages]