$400B+
in consumer applications for financial services
Even Staff
2016-01-20
Investment Trusts are the New Fashion Trend in Alternative Finance
Alternative lending platforms can offer investors returns that outpace traditional assets like the stock market or bonds. But there’s another way to buy into the revolution that’s flying under the radar: alternative lending investment trusts. We’ll coin the acronym “ALIT” to keep it simple.
ALITs: A growing phenomenon
Several different types of ALITs have sprung up over the last couple of years, providing a more geographically diversified alternative to buying loans from individual platforms like Lending Club and Prosper. These trusts buy loans from platforms in the U.S., Europe and even Africa. This latest incarnation of alternative lending is rather new, and takes much of the work out of selecting and doing due diligence on the loans investors select. It’s the hassle-free pre-cooked ready meal of “buying debt.”
Getting to know the players
The first in the field, P2P Global Investments, was founded in London in 2014 and is now tradable on the London Stock Exchange with more than £500 million in assets under its control. P2P Global invests in loans on U.S. based platforms like Lending Club, Upstart and Prosper, and also lends through the U.K.’s Funding Circle, Zopa and RateSetter. The trust’s target return rates are between 5% and 15%. That same year, GLI Finance made the decision to switch its focus from collateralized loan obligations (CLOs) to the burgeoning opportunity of SME (small and mid-sized enterprise) finance platforms. The company even has its own Alternative Finance Manifesto, which implores governments to consider the benefits alternative financing provides to small businesses. GLI Finance’s Louise Beaumont warns against what could happen to entrepreneurs if alternative finance doesn’t continue to grow. “Failure to address issues of awareness and understanding means the alternative finance industry would fail to continue growing as it has, and...SMEs will not be able to access the finance they need, when they need it,” she wrote. This year, more so-called ALITs have joined the party. VPC Specialty Lending Investments (VPC) raised £200m in a funding round in March, while Ranger Direct Lending recently raised £135m. Both are also based in London.
Pros and cons
The aforementioned players package alternative loans for investors, ready vetted by an additional team of credit assessment experts. This provides a clear benefit: A second layer of risk assessment, along with measures already taken by the individual alternative lending platform. Of course, the downside of having a team of experts select your loan exposure is simple. You have less information on each party’s credit standing, and have less insight into the conditions of the loan like value and collateral levels. P2P Global, for example, barely makes a nod to transparency. The fund doesn’t publish the names of the platforms it sources loans from, or those in which it has bought equity.
Permitted secrecy and promised performance
This secrecy is for the moment permitted, because alternative lending has not yet attracted overt regulatory scrutiny. But this novelty in turn makes it hard to assess if trusts provide value for money and will continue to do so; they have a rather short track record that makes it difficult to project future performance. Still, for those willing to accept the lack of transparency, the projected yields of these funds are often higher than for your standard investment trust. P2P Global is going for annualized returns of 5% to 15% and a yearly dividend of 6% to 8% percent. VPC Specialty Lending targets a net total return of over 10% and a net dividend yield of 8% a year, while Ranger is aiming for dividends that yield 10% on its issue price.
Another risk: leverage
One final factor that could make trusts a higher-risk venture is the issuance of leverage. Trusts have written into their terms and conditions the right to use leverage – i.e. borrow money – to fund asset purchases, in addition to cash raised through funding rounds. Unfortunately, existing capital adequacy rules are not always comprehensive enough to guarantee they can provision for all investor losses in the event of multiple defaults. This is an issue that bears monitoring and is something that could face heavier regulatory scrutiny in the future.
Takeaway
Alternative finance is expanding at triple-digit growth rates, and naturally, investors want a way to get into a model that has the potential to return more than the S&P 500 in a given year. While there are clear risks and the so-called “ALIT” space is young, trusts provide another option outside of using individual alternative lending platforms.
Disclamer: The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the suitability of any Even Financial product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional. Any information or statistical data sourced by Even Financial through hyperlinks, from third-party websites, are provided for informational purposes only. Although we promote products and services form our partners, our opinions are our own.
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Goldman Sachs-backed Even Financial, a digital matchmaker between banks and customers, just bought an insurance startup as life insurers are seeing policy applications boom
Even Financial has acquired LeapLife, a leading insurtech platform. The addition of LeapLife allows Even to immediately commence its insurance capabilities, aimed at simplifying and enhancing the way consumers search, compare, and get matched with insurance policies (LeapLife’s existing platform will continue to operate from leaplife.com). Business Insider wrote an article about it, interviewing our CEO and Founder Phill Rosen.
Even Financial Launches Insurance Offerings With Strategic Acquisition of LeapLife, a Leading Insurtech Platform
Pioneering B2B Fintech Expands its Industry-Leading Financial Services Monetization Platform to Help Insurance Carriers Find and Connect with Consumers New York, New York – April 22, 2020 – Even Financial (Even), the leading API for financial services search, acquisition, and monetization, announced today that it will be launching services for the insurance industry through the acquisition of LeapLife, an insurtech platform and digital life insurance agency. The addition of LeapLife allows Even to immediately commence its insurance capabilities, aimed at simplifying and enhancing the way consumers search, compare, and get matched with insurance policies (LeapLife’s existing platform will continue to operate from leaplife.com). Even and LeapLife now offer the only full end-to-end, multi-carrier digital life insurance marketplace experience. Over the coming weeks, Even will further integrate LeapLife’s technology and insurance offering into its industry-leading API, making turnkey insurance marketplaces programmatically available to a vast network of channel partners — when and where their consumers are most in need — while also enabling the company to expand to other insurance sectors, including homeowners, renters and auto insurance. This adds to Even’s peerless breadth of real-time, personalized financial product offers — an expansive suite that already includes loans, savings, credit cards, and more. “Even’s goal to evolve how financial institutions find and connect with consumers is not limited to loans or credit cards, but applicable to all financial products and services, including insurance,” said Phill Rosen, Even Founder and CEO. “Despite its importance, purchasing life insurance is often an overwhelming and inconvenient experience. With more than $600 billion in premiums paid each year, and only 6% of policies sold completely online, we see tremendous opportunities to help modernize the life insurance industry and offer solutions that solve challenges for consumers and carriers alike.” LeapLife is an established insurtech platform and digital life insurance agency that utilizes data science, deep underwriting knowledge, and proprietary technology, enabling consumers to apply for instant-decision life insurance policies with real-time quotes. LeapLife works with many best-in-class insurance carriers to offer consumers a seamless experience from beginning to end. This approach made Even and Leaplife a perfect match. As a digital insurance broker, LeapLife offers personalized life insurance recommendations based on a consumer’s unique needs. Paired with the Even API, which enables customer acquisition for insurance to be native and programmatic, consumers benefit from a more streamlined, transparent, and highly personalized experience when shopping for life insurance. Just as Even’s 2018 acquisition of Birch (the award-winning credit card rewards app) allowed the company to accelerate its expansion into credit cards, the addition of LeapLife will similarly put Even at the forefront of consumer insurance offerings. Charles Svirk of MassMutual Ventures, an investor in Even, said “The Even and LeapLife teams share a vision that the future of insurance acquisition will rely on the power of data-driven, programmatic distribution. We are thrilled to support them as their industry experience, impressive technology, and trusted relationships will help scale Even’s insurance offering and build partnerships to provide these critical innovations in insurance acquisition.” The Even API and platform solve significant, long-standing pain points in financial services acquisition by seamlessly connecting supply and demand. Even has continued its rapid growth trajectory in 2020, surpassing over $1.5 billion in credit issued through its API and expanding its platform to over 400 partners. Even has secured over $55 million in funding from major financial institutions, venture capital firms, and fintechs to back its goal to evolve the financial services acquisition ecosystem. About Even Financial Founded in 2015, Even Financial is a B2B fintech company that is transforming the way financial institutions find and connect with consumers. By seamlessly bridging financial institutions (including American Express, Goldman Sachs, and SoFi) and channel partners (such as TransUnion and The Penny Hoarder) via its industry-leading API, Even turns any consumer touchpoint into an ROI-driven, fully customizable, programmatic acquisition source for financial product offers with full compliance, security, and scale across loans, savings, credit cards, insurance, and more. Even is backed by leading financial services firms and VCs including American Express Ventures, Canaan Partners, Citi Ventures, F-Prime Capital (Fidelity), Greatpoint Ventures, Goldman Sachs, LendingClub, and MassMutual Ventures. Even is the leading search, comparison, and recommendation engine for financial services. Media Contact: media@evenfinancial.com
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