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Industry Profile – Conor Neu

Managing Director, Evolution Capital Management

Conor Neu is a Managing Director at Evolution Capital Management, a Los Angeles-based alternative asset management firm, and affiliate of Evolution Financial Group, a global financial services provider. Neu has been with the company for 14 years, having joined Evolution after graduating from Princeton in 2002 with a B.S.E. in Computer Science. Neu has occupied a variety of roles at Evolution where has played a critical role in developing the firm’s high-frequency trading, event and volatility trading, and financial technology operations. “Throughout my career, my focus has always been to identify opportunities and implement investment strategies that have unique risk-reward profiles,” says Neu. These days, the biggest opportunity he sees is in online lending.

Online lending first appeared on Neu’s radar back in 2012, which he describes as the end of the “wild west” for the industry. However, as far as institutional capital is concerned, Neu and Evolution were notably early to the game. 2012-2013 was a significant year for online lending. Both Lending Club and Prosper opened up whole loans to investors for the first time. Previously, investors could only participate in the asset class through fractional loans. This new development marked the beginning of a fundamental shift in the industry from retail to institutional capital, and the participation of firms like Evolution was instrumental in propelling the industry forward to where it is today.

Neu spent most of 2012 researching the asset class, developing initial relationships with online lenders and eventually putting together a strategy for building an asset management business around online lending. “Through our analysis, we quickly realized that online lending fit our target risk-reward profile. It was outside of traditional investing opportunities and beyond the efficient frontier in terms of asset class returns,” says Neu, referring to the concept propagated by Nobel Laureate Harry Markowitz which seeks to approximate the maximum return for a given level of risk. Since not many resources existed at that time to support asset managers investing in online lending, Neu had to build everything from scratch. First, he assembled a best-in-class team, drawing institutional quality talent from Bridgewater Associates (Research Team), Goldman Sachs (Sales Team), and The Capital Group (Investor Relations Team). Second, he built out a suite of deep analytical and execution tools specifically for online lending. “We didn’t want to rely on platform underwriting. We wanted to re-underwrite every loan that we looked at so that we trust in it and believe in what we’re purchasing,” says Neu. Third, he built out the operations and finance team to support these functions and make sure everything ran smoothly. Neu concedes that while building proprietary technology was a large investment both in time and resources, it is one that has paid off and which he believes will continue to provide immense value over time. “In my career, I’ve looked at short-term trades as well as long-term trades. I view online loans as more of a long-term investment strategy. At Evolution, we’ve taken the time to put a solid foundation in place right from the start, upon which we can grow and meet the demands of an ever more institutional client base,” says Neu.

Concerning the construction of Evolution’s individual funds, Neu is not at liberty to disclose the particulars but says, historically, most of their focus has been on the consumer segment of online lending because that is where they have seen the most attractive risk-adjusted investment returns. However, they have since moved into the small business segment and are starting to look more closely at real estate platforms. Neu also finds the opportunity in student lending to be interesting given the massive but fragmented market. While platforms such as SoFi have chosen to focus mainly on the super-prime end of the credit spectrum, Neu believes there is a large opportunity for innovation by other platforms to approach the rest of the trillion dollar market. Although Neu acknowledges he won’t be able to predict every development in this burgeoning asset class, he’ll be paying close attention for Evolution to capitalize on emerging investment opportunities.

Despite Neu’s successful track record investing in online lending, challenges persist for asset managers like himself. With new platforms and products consistently popping up, it is up to Neu to know everything going on and keep his finger on the pulse. Furthermore, given the rapid growth and success of online lending, there is undoubtedly additional legal and regulatory oversight on the way. “I think that keeping an open dialogue between platforms, investors, and regulators is extremely important and will be beneficial in standardizing analysis of these assets. The ability to compare these loans ‘apples-to-apples’ and the reassurance of regulatory oversight should help institutional investors get comfortable with an asset class that will no doubt be a part of all well-diversified portfolios in the near future,” says Neu.

More than anything else, Neu still believes in the potential of the asset class and the existence of the outsized risk-reward profile he identified back in 2012. Neu concludes, “That’s what excites us about the whole industry and that’s why we’ll continue to see a massive amount of capital flowing into it. It is simply one of the best investments out there for earning short duration, high yield, and low volatility returns.”