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Investors per Loan on Prosper

By David Snitkof
December 16, 2013

One of the most exciting aspects of peer-to-peer lending is the ability for multiple investors to pool their funds together to fund a single loan.  An activity that was once the exclusive province of large banks is now accessible to anyone with $25.  At the same time, larger investors seeking to build a sizeable Online Lending portfolio will increasingly invest in whole loans, allowing them to deploy more capital at a faster rate.  As such, any given loan might have anywhere from 1 to over 1,000 distinct investors (the largest number we saw was 1,189)!  In this post, we explore investors per loan on Prosper, how these figures have changed over time, and what they can tell us about the composition of Online Lending today.

Distribution Today

In the graph below, we see a breakout by number of distinct investors for Prosper loans originated in 2013.  50% of loans were purchased “whole”, whereas the remaining were funded by multiple investors.  Of those loans funded by multiple investors, 64% had greater than 50 participants, and 42% had over 100.

prosper-2013-loans-bynuminvs

Distribution over Time

While 50% of loans may be funded whole today, this was not always the case.  As recently as 2012, under 3% of loans were funded by a single investor.  In 2010, over 50% of all loans were funded by more than 100 investors.  This dramatic shift is certainly due to the increased interest in Online Lending among institutional investors and their desire to accumulate substantial portfolios of what has become a compelling asset class.

prosper-loansbynuminvs-facetyear

Distribution by Prosper Rating

The ratio of loans funded by a single investor or multiple investors is not necessarily consistent across all of Prosper.  In the graphs below, we see these numbers broken out by Prosper’s credit rating. It appears that smaller investors are more attracted to the lower-risk, lower-yielding loans; nearly 90% of AAs booked in 2013 have over 50 investors.  By contrast, the A-B-C range appears to be the sweet spot for larger investors looking to fund whole loans.

prosper-volbynuminvs-facetrating-2

Performance by Number of Investors

In the graph below, we see the charge-off rate for loans booked in 2011 and 2012.  Loans funded by a single investor charge off at a substantially higher rate than those funded by multiple investors.

prosper-invperloan-coratestotal

Remember that the number of investors per loan tends to differ by credit grade, so let’s take a look at where whole vs. fractional investors were investing in 2011 and 2012.  As we can see in the graph below, loans funded by a single investor tended to be in the higher-risk credit grades, making the above charge-off numbers for those years not quite as surprising.

prosper-ratingdist-bynuminvs-2011-12-v2

Conclusion – Whole Loan Investing vs. the Wisdom of the Crowd

All other things being equal, there is no reason why a loan funded by 1 investor would perform any differently than a loan funded by 500 investors.  This has no impact on the borrower, who only has to make one monthly payment, the servicing and disbursement of which is handled completely by the origination platform.  However, the performance by number of investors may tell us something about the risk profile of whole vs. fractional investors and the loans they choose to fund.  Clearly, the Online Lending industry has developed significantly over the past year, gaining more interest from institutional investors who increasingly desire whole loans.  While some may view these trends with trepidation, we’ve seen that loans are getting funded more quickly, which is great for borrowers, and fractional investors continue to have access to a large pool of high-quality investments. Whether from one investor or one thousand, we believe that more capital flowing through these platforms is good for borrowers and investors alike and that a rising tide will raise all boats.

 

 

 

  • Ryan

    This is very fascinating! Although, I don’t invest in Prosper – I often look back at the notes I purchase through Lending Club to look at the average investment amount and the number of investors overall. Thanks for sharing this!

  • Jeff

    What is the source for this data? I’m looking through the API and can’t find which variable contains # of investors…

    • David Snitkof

      Hi, Jeff. The # of investors is actually not available in the API, but it is in Prosper’s downloadable .csv file.

  • David Snitkof

    Hi, Jeff. The # of investors is actually not available in the API, but it is in Prosper’s downloadable CSV file.

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  • Richard

    I think Propser has the whole loans restricted to 50% of all new loans otherwise whole loans would equal 100% of all new loans or to what ever the limit Prosper chooses; 50%, 60%, 70%. 80%. 90% or 100%. IMO there are enougth hungry whales to swallow as many whole loans, remember they are a max of only $35,000 each, as Prosper is willing to feed them.

    “As recently as 2012, under 3% of loans were funded by a single investor.” The appearance of these whales on the scene in 2013 really brings into question if this should still be called “peer to peer” lending. Prosper limiting them to only 50% of all new loans is probably an attempt to avoid a complaint of “false advertizing” and to perserve their “peer to peer image” at least until after their IPO.
    Thanks for another good article by you guys!
    SeattleSun

    • p2per

      Try over 75% whole loans…

    • Richard

      I have no idea what you are trying to communicate with your short statement but interested enough to ask you to please explain. TIA

    • David Snitkof

      Hi, Richard. Thanks for your continued readership and thoughtful comment! While it is very possible that enough large investor demand exists to fill the entire supply of listings, Prosper’s senior execs (and LendingClub’s as well for that matter) have stated that they intend to always maintain a strong retail component to the marketplace.

      Our view is that the influx of capital from large investors, while perhaps not technically ‘peer-to-peer’, has had a net positive impact. More funding is available to borrowers, and the increased attention has allowed the entire platform to scale, benefiting retail investors as well. Interestingly, fractional investors have invested more money so far in 2013 ($165MM) than was invested on all of Prosper in 2012 ($151MM).

    • Richard

      1) Believe me I want Prosper 2.0 to succeed and if large investors are part of achieving that goal then I support it 100%. But as you say the retail investors continues to exist at the pleasure of the senior management of these companies. I would feel better if it was the market that required our continued survival.

      2) “fractional investors have invested more money so far in 2013 ($165MM) than was invested on all of Prosper in 2012 ($151MM)” I like the way you spun that. Very clever and of course accurate. I will have to remember that approach when dealing with exponential growth situations in the future. Prosper loans in Jan 2013 ~$10M and in Oct 2013 ~%50M. The 2012 vs 2013 graphs in your first graph cluster above says it all IMO, single investors loans from ~2.5% of loans to 50% in one year. A 20X increase in 11 months.

      :-)

  • coolRob

    Does LendingClub have information on number of investors/loan?

    • David Snitkof

      Not that we’ve seen in their CSVs, though the information would certainly be interesting if we could get it