Deep-Pocket Investors Ready to Take the ‘Peer’ Out of Peer-to-Peer Lending

Institutional investors are taking increasing interest in marketplace lending, the practice of connecting borrowers directly to investors as an alternative to traditional bank lending, according to a survey published Monday.

The survey found broad awareness of marketplace lending among institutional investment professionals, with 85% of respondents interested in making some form of investment.

At the same time, only 29% said they currently had capital allocated to the space.

Institutions’ interest is likely to disrupt an industry that until recently was known as “peer-to-peer lending,” whereby individual investors were matched with individual consumer borrowers.

Richards Kibbe & Orbe, a law firm, and Wharton FinTech, a student-led initiative, surveyed some 300 investment professionals, about half of whom worked at investment funds with more than $500 million under management and more than a tenth at funds with upward of $10 billion in assets.

Sixty-three percent of investment professionals said they expected returns from investments in marketplace lending to outperform those of corporate credit of similar quality, such as corporate bonds.

As to which types of investment interested them, respondents most often cited credit investment, with 27% looking to the purchase of whole loans, 23% to direct investment in a lending platform and 31% interested in multiple strategies.

Thirty-one percent said they would like to target small-business loans, 28% consumer loans and 24% each real estate and education loans.

Respondents expressed most concern about the risk of low credit quality among borrowers and marketwide credit events.