Alt. Lender SoFi Takes On Investor Shortage with Hedge Fund Launch

© Can Stock Photo Inc. / leungchopanSocial Finance CEO Mike Cagney always does things a bit differently.

The alternative lender, commonly known as SoFi, began in student loan refinancing but quickly expanded to other arenas, such as mortgages and personal loans, It announced yesterday it was launching a hedge fund to invest in its own loans.

SoFi typically does not hold loans on its books for long, but repackages them and sells them.

Online lending faces a problem on both sides — finding borrowers as well as investors. SoFi’s plan could help on the investment side.  It was already a major player in securitizations in the marketplace space, another way to entice investors with ostensibly lower risk, raising $1.6 billion in securitization funding last year.

The hedge fund, called SoFi Credit Opportunities Fund, has “a real chance to solve the balance-sheet problems facing the industry,” Cagney told the Wall Street Journal. The fund could allow SoFi to support the market for its loans without raising cash by selling shares, the WSJ reports. The fund will also look at buying the loans of other lenders.

The move is reminiscent in a broad sense of Lending Club’s LC Advisors, which manages funds with more than $1 billion in assets that buys slices of Lending Club’s own loans.

“SoFi already is a balance sheet lender, so this separate fund is a way for themselves to continue the growth of their issues through a bankruptcy remote entity,” said Hyung Kim, co-founder of Ldger, which provides a platform for securitizing marketplace loans.

“Overall with the concerns on the back of loan performance (mostly in the unsecured consumer space — so not completely directly related to SoFi’s student refinancing program) many balance sheet lenders are looking for more permanent sources of capital,” Kim said. “This isn’t quite a solution, more of a distribution of capital sourcing.”

Emmanuel Marot, CEO of LendingRobot, noted rumors in circulation (which he could not confirm) about investors’ decreasing interest in SoFi loans.

SoFi raised a $1 billion round led by SoftBank Group in Japan on a $4 billion valuation, placing it among the highest valued alternative lenders in the U.S. Cagney has gained attention recently for saying he wants SoFi to replace banks — most startup CEOs are singing a more conciliatory tune at this point.

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