Liberum, an advisor and research firm out of the UK that has a division directly focused on alternative finance, has released a very strong research report, “Direct Lending: Finding value/minimising risk,” with arguments for direct lending as an investment strategy.
The first half of the report reviews the addressable market and the growth of the marketplace lending industry, which the report interchangeably refers to as “P2P,” “Online Direct Lending (ODL),” and “marketplace lending (MPL).” While this market size and growth concept is something most in the industry are familiar with, and the report focuses on the potential for continental Europe, the numbers and charts are detailed and quite fresh.
However, more to the point, the second half of the report focuses on the risk-reward profile of consumer debt. First it addresses platform yields overall and consumer debt performance through time and stress scenarios. Finally Liberum looks at risk-return profiles directly, comparing consumer debt to property and the S&P, and displaying it in both Sharpe ratio and efficient frontier terms.
The above charts summarize the points, but there are charts covering the US and UK across platforms specifically and a variety of other metrics. The remainder of the report covers private equity opportunities in the platforms and some regulatory risk in the industry. All in all, this is a fantastic research report with a great amount of data presented visually to support their arguments.