Before I started writing this blog I had no idea what an accredited investor was. It sounded kind of official but what did it really mean? It is actually just a designation by the SEC that an investor has reached certain levels of income ($200,000 annually) or assets (more than $1 million excluding a home). Here is the full definition from the SEC.
Accredited investors have more options because they are considered more sophisticated investors (of course that may or may not be true) and presumably they can understand investment risks better than your average investor. They can invest in all kinds of different investment vehicles such as hedge funds or private equity that are not available to average investors. They can also invest differently when it comes to p2p lending.
Invest in Lending Club and Prosper From Any State
Accredited investors in Lending Club and Prosper do not need to open an account at either company in order to invest. They have access to private placement funds that are not available to the general public.
These private placement funds are allowed to take on accredited investors from any state, thereby circumventing the restrictive state requirements set forth by Lending Club and Prosper.
This Article is Purely Informational
In researching this article and I spoke with many senior managers at Lending Club and Prosper and I was warned that I can only share publicly available information. You see, these private placement funds have strict rules and part of these rules is there can be no public solicitation for investments.
So let me be clear. This post is for information purposes only and I am not recommending investment in these private funds.
LC Advisors Offers Two Private Placement Funds
If you read the latest Lending Club prospectus (which was just released last week) there is all kinds of information about LC Advisors. This, of course, is publicly available information and as such I can share details here.
LC Advisors is a Subsidiary of Lending Club
LC Advisors, a subsidiary of Lending Club, is an SEC registered investment advisor that also acts as the general partner to two private investment funds. They started offering these funds through private placement in February 2011. By the end of last year the total investment in these funds exceeded $75 million and as was reported by Lending Club last week that number is now over $100 million.
There are two funds run by LC Advisors. A conservative fund called the Conservative Consumer Credit Fund (CCF) that invests in only A and B grade notes and the Broad-Based Consumer Credit Fund (BBF) that invests in all loan grades.
Both funds are very careful not to tread on the toes of retail investors. There are rules that prevent them from investing in new notes and when they do invest they only take small portions of the notes. In the latest prospectus Lending Club shares that on November 30, 2011 the average investment per loan by CCF was $4,098 and for BBF was $3,575. The average percent ownership per loan was only 23.7% and 24.7% respectively.
As for returns, well, that is not shared in the Lending Club prospectus but I was surprised to read in the Wall Street Journal last week that basically provided this information. According to that article CCF is up 5.9% for the first eleven months and BBF is up 10% in its first year.
There is a Minimum Investment of $500,000
Now, investing is these funds is only for the truly wealthy accredited investor. These are 3C1 funds and as such they have a maximum limit of 100 investors. When these funds first launched the minimum investment was $100,000 but sources tell me now that minimum has increased to $500,000.
Now, Prosper has taken a different tack. There are no private placement funds on offer through any Prosper subsidiary. But there are still options. Unfortunately, Prosper was very explicit that I cannot reveal the names of these funds publicly.
But I can say this. If you read this Wall Street Journal article the journalist reveals the name of one of the funds. And then this investment advisor discusses how he invests in Lending Club and Prosper for his clients – and reveals the name of the other fund. My research also revealed the presence of a third fund but again I am not able to share any more information about that.
Now, if you are interested in learning more about Prosper’s options for accredited investors then I encourage you to call Prosper and ask for Austin Bryant. He will be happy to discuss more details with you.
Of course, you can be an accredited investor and ignore these funds. That is my preferred method because it provides more flexibility not to mention a lower minimum investment. But I also realize there are those investors who like the idea of p2p lending and want to invest but want somebody else to do the work for them.
Peter Renton is the chairman and co-founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech. Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series. Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.