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December 9, 2014

Soros getting ready to back P2P lending

Billionaire investor George Soros has been laying the foundation so he can back peer-to-peer lending, a burgeoning industry that is making greater use of more traditional funding methods in an effort to reduce lending costs. 

Soros talks with potential partners
In recent months, officials of Soros Fund Management have held several meetings with potential partners, individuals familiar with these private gatherings told American Banker.

These discussions are still at the planning level, and the exact details are currently undetermined, one person close to the matter told American Banker. It could take months before the parties involved make a formal announcement about any sort of deal, the individual stated. 

Broader industry shift
Soros' involvement in P2P lending could signal a broader shift in loan origination, as institutional investors become increasingly interested in this particular activity, American Banker reported. Mohamed El-Erian, former CEO of Pacific Investment Management Company, LLC, made headlines earlier this year by taking an equity stake in startup lender Payoff, according to The Financial Times. 

While Prosper and Lending Club currently hold a substantial share of the market for this lending, El-Erian's decision to back Payoff could impact the quickly-growing industry, The Financial Times reported. The startup lender wants to help borrowers refinance their debt at lower rates than permitted by credit card companies and banks, Scott Saunders, founder and CEO, told the news source. 

Widespread involvement
While the former PIMCO CEO is only one high-profile executive to get involved in the sector, several major financial firms - including BlackRock, Waterfall Asset Management and Fortress Investment Group - have been investing in online lending, according to American Banker. BlackRock may have the largest stake in this particular sector, but advisers say that banks, money managers and business development companies are all involved. 

Currently, hedge funds and wealth management offices are providing the majority of resources needed for the loans issued by Prosper and Lending Club, The Financial Times reported. This situation marks a shift from the model P2P lenders used to start out, which involved connecting borrowers and retail lenders. 

Another factor that could help fuel the shifting nature of this industry is the interest of banks, according to American Banker. While some banks - including Capital One - have helped support the sector by taking second-lien positions, others are in discussions with Funding Circle to either refer loans for a fee or purchase them, Sam Hodges, U.S. managing director for the small business lender, told the news source.