Should You Buy the RiverNorth Marketplace Lending Fund?

RiverNorth started its Marketplace Lending Fund (RMPLX) in September 2016 as an interval closed-end fund. This means that shares are not bought or sold on any secondary market. For this reason, and because I found plenty of loans I liked for my own account, I have mostly watched this fund from a distance. However.....

RiverNorth Listing on the NYSE

In June, the RiverNorth Fund will be listed on the NYSE under the symbol RSF. Here's the press release. This means that now it is easier for a retail investor to buy or sell their stake in this fund. It will be a real opportunity for retail investors to invest in marketplace loans. A secondary market will exist just like for any stock listed on the NYSE.

But Should You Buy It?

The RiverNorth Data

First, here's the information itself all direct from the source:

And here's the price RiverNorth MPL Fund Price

  • The average loan size the fund holds is $10,628 and they hold just under 22,000 loans (all these numbers come from the website listing)
  • The average FICO of the borrower is 715 (a very good score)
  • They use 20.2% leverage so for every $4 invested, $1 is borrowed to also invest into loans. This can be seen as mildly aggressive but considering many funds go up to 50% leverage, I think this is a pretty reasonable number
  • Average loan duration is 1.3 years. A few years ago, I did a big article on loan duration for Bitcoin loans but it applies to all fixed income investments. This is a pretty short period, which in this environment is a good thing. Fixed income investors don't want to be caught with 5 or 10-year loans as an investment when the yield curve is inverted as it is now. Inverted yield curves mean that short term yields are higher than long term yields. They are also usually a sign that a recession is coming.
  • From the Annual Report (p.14), here is the asset allocation: You can see that 96.16% of the total assets in the fund are in Whole Loans, something we as retail investors could never do.

Loan Distribution by Platform

The Fund has 90% of its assets in Consumer loans, 9% in small business loans and 1% in Cash. But let's see which platforms they use. From the Annual Report (p.15-18).

  • Lending Club (~28%)
  • Prosper (~26%)
  • SoFi (16%)
  • Funding Circle (1%)
  • Square Capital (8%)

Lending Club and Prosper are pretty well documented here and elsewhere. SoFi is primarily a student lender although they do other loans including some mortgages. Funding Circle is a business lender. Square is a payments processor. They offer loans to their existing customers since they have all the income and payment data already.

Why You Should Buy RMPLX?

Here are some reasons why it might make sense to buy this fund

  • It's easy. If you have an account with any listed broker, then you can buy the shares
  • Whole loans on Prosper and LC. Instead of only owning fractional loans, you are exposed to the whole loan pool that only institutions can invest in.
  • More loans overall to choose from. If the choice of loans for you as a retail investor is no longer to your liking (I feel you), then this gives you a better selection
  • The short loan duration. An advantage in this current market
  • Access to business loans. If you, like me, like business loans and wish you could invest in them, now you can. You can invest in loans offered by Square and Funding Circle

Why You Should NOT Buy RMPLX?

If you are satisfied with your loan selection and returns, then you should keep doing it yourself. I am in this category where I don't think this fund makes sense for me, but I know it will make sense for others especially those that wouldn't have any p2p investment exposure without it.

  • Costs are high. The Fact Sheet says the expense ratio is 2.99%
  • Use of leverage adds some risk
  • A small portion is held in Asset-Backed Securities (when LC or Prosper or SoFi does a securitization). This is less transparent than just holding the loans yourself.
  • Quarterly returns are mixed against the Barclays Aggregate Index that is their benchmark
  • Platform concentration risk (Prospectus, p.16). You may not like that 54% of this Fund's investment is in LC and Prosper. OR, maybe you do

So there you have it. A jumping off point to your own research to see if this fund has a place in your investment portfolio. The fund definitely has some qualities I like and a couple I don't, but there is lots of good information here for you to go over so you can decide for yourself.

About the author

Stu Stu Lustman, the author of this post, is a Credit Analyst by trade trying to bring Commercial Credit Analysis techniques to the world of Peer to Peer Lending. Check me out on Twitter, LinkedIn and Google+

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