Since we’ve been on the topic of peer-to-peer lending this week, I wanted to talk a bit about Pertuity Direct and find out if you guys have had any experience with them. While Pertuity Direct specializes in social lending much like Lending Club does, they use a somewhat different model…
The Pertuity Direct approach
Instead of investing directly in notes corresponding to individual loans, lenders invest in borrowers through the so-called “National Retail Fund.” This is essentially a privately-offered, closed-end mutual fund that invests in the loans of Pertuity Direct issues to their borrowers.
While this sounds like a somewhat roundabout way to do things, there are some distinct advantages. Most notably, you don’t have to select loans in which to invest, meaning that the process is considerably more efficient for investors. This also results in a high level of diversification as your money is automatically spread across a large number of loans.
The downside of this approach is that, as an investor, you don’t have any control over your interest rate or risk level. You’re simply buying into the full pool of loans that Pertuity Direct has approved.
The only stated borrower requirement is a minimum FICO score of 660, though I would imagine that they’re also on the lookout for recent delinquencies, etc. The average credit score of their borrowers is 744, and 75% of approved loans go to people with a 700+ credit score.
If you’re not sure where you stand, you can take a free peek at your credit score courtesy of FreeCreditReport.com or MyFICO.
According to the prospectus, the minimum investment is $250, meaning that there is a relatively low barrier to entry. Something to keep in mind, however, is that there is no secondary market for fund shares. This means that your investment will relatively illiquid, though they do offer periodic buybacks.
Something that I’ve had a hard time getting my head around is the expected return. Of course, this depends on a variety of factors, some of which (such as the expected default rate) are difficult to pin down. What I can say is that borrowers were recently paying an average of 13.5% on their loans, so there seems to be a lot of potential there.
Anything to add?
If you’ve had any experience with Pertuity Direct, please let us know your thoughts. For the time being, I think I’ll be sticking with Lending Club, though I’m always open to trying new things.