Family offices and high net worth investors are looking to private debt because they have nowhere else to put their cash.
Roxana Mohammadian-Molina is chief strategy officer at Blend Network
A recent article by Bloomberg described how ultra-rich families with cash on hand had started to pile into private debt to avoid stock market volatility. As a company that is backed by a number of high-profile investors, we at Blend Network have witnessed a similar trend with an increased lending appetite from our family office and high net worth investors.
Blend Network is backed by investors including Cyrus Ardalan, former vice chairman of Barclays and current chairman of OakNorth Bank and Citigroup Global Markets, the family office of former Publicis Group CEO Maurice Levy, and Jean-Phillipe Blochet, co-founder of Brevan Howard, one of the world’s largest hedge funds which at its peak had $40bn in assets under management.
Family offices and high net worth (HNW) investors are looking to private debt because they have nowhere else to put their cash. Yields on government bonds are barely positive in the US, negative in Japan and much of Europe. Effectively, investors are guaranteed to lose money by holding bonds till maturity. If inflation rises, as seems likely, the losses would be even larger.
Investors we speak to are nervous about equity markets and believe a correction may be on the cards. Between 19 February and 23 March, the S&P 500 index lost a third of its value. With barely a pause, it has since rocketed, recovering more than half its loss. Global equity markets are hovering near record highs and are set for five straight months of gains.
While the catalyst is the market’s bet on central banks keeping the stimulus taps open for years to come, the same investors are undoubtedly worried that financial markets have got out of whack with the real economy and that something has to give.
It is no surprise, then, that family offices and high net worth investors are looking to the private debt market, often focusing on real estate. According to research firm Preqin, the number of family offices active in private debt has more than doubled since 2015. But while some family offices have highly sophisticated investing operations and are able to originate property deals in-house, most rely on external origination and in-depth due diligence by professional teams.
Against this backdrop, peer-to-peer (P2P) property lending platforms such as us at Blend Network are seeing increased appetite from investors to source good deals. In other words, P2P property lending platforms are being used as an origination vehicle for wealthy investors, but also for institutional lenders. That is also advantageous for retail investors using P2P lending to deploy cash since they are effectively able to co-invest with highly sophisticated investors on the same deal and under the same conditions.
Borrowers like turning to family offices and high net worth private investors through P2P lending platforms due to the extra flexibility and faster access to cash than with most banks.
Alternative finance platforms and P2P lenders lenders can offer higher flexibility compared to traditional lenders, and borrowers prefer these one-on-one customer relationships instead of going through traditional lenders’ ‘tick the box’ exercise. Overall, recent months have seen P2P lending consolidate itself as a robust solution for both lenders and borrowers.
