Kensington Blake Capital launched an investment program on Prosper, one of the leading Peer 2 Peer or marketplace lending platforms. Over the course of six weeks, we have been able to reach our initial targeted size of the investment. During this time, using a variety of manually and automated strategies, we have learned much about this platform and the opportunity in this sector.
Before launching the investment program, we evaluated the historical performance database provided by Prosper for over 175,000 loans. These loans were originated between 2006 and 2014. They ranged in size from $1,000 to over $30,000. The borrowers had FICO scored in the 620 range all the way up to over 750. Prosper also provides their internal loan grades from A to E that they provide for each loan.
Our evaluation of the loan program led us to create criteria for the types of loans we wanted to invest in. We determined criteria for letter grade, loan size, loan rate, tenor, and FICO. We also establish guidelines for employment characteristics and credit payment history that impacts our investment choices.
Prosper offers an automated investment tool that allows investors to set the criteria for loans to be purchased. Over the last six weeks, we have experimented with this automated investment tool. While using the key parameters identified from our historical research described above, we were able to purchase 25% of our desired loan amounts through the automated tool. However we found that using 5-6 parameters on the automated tool tended to knock out too many loans. We purchased 75% of our allotment using a manual loan review process where we initially screened for only 2-3 parameters and then reviewed each loan by hand. While this was more time consuming, we felt more comfortable we could find attractively priced loans using this manual process.
We did experience one issue that lengthened the amount of time required to reach our investment goal. We purchased approximately 120 individual loans, but we had subscribed for nearly 170 loans. Over 50 individual loans or 30% we had approved were not able to reach the funding stage. Prosper does not tell you the reason a particular loan does not fund, but there are a number of possible explanations. These include not enough investor subscriptions, the borrower choosing to cancel their loan request, or Prosper rejecting the loan through its due diligence. While there was no cost associated with these loans cancelling, it did consume more time reaching our target investment size.
Overall Kensington Blake Capital’s experience with Prosper has been a successful one. We were able to reach our initial target investment in about six weeks. We feel good about the portfolio of loans we were able to construct using the platform. We will follow-up with a further review in a few quarters when we are able to evaluate the actual performance of the loans.
Commentary by Brian Zwerner, Managing Principal, Kensington Blake Capital, LLC.
For further information on Prosper, please see their website here:
Please also see Kensington Blake Capital’s article below on our initial launch on the Prosper platform: