Looking Glass Investments Interview (Institutional P2P Firm)

Recently there has been a lot of talk around the peer to peer lending community about institutional investors. Peer to peer institutional investors are companies who invest in places such as Lending Club and Prosper on behalf of their clients.  We reached out to one named Looking Glass Investments (LGI) which is headquartered in Milwaukee, WI. We had the opportunity to talk with co-founders Matthew O’Malley and Dr.Chad Cotti about their experience in the industry.

How Looking Glass Investments Started

O’Malley and Cotti had been interested in peer and social lending since its infancy in 2006 when O’Malley read an article about Prosper on a airplane.  By the end of the trip, the first model for investing in Prosper had already been created.  Back in 2006 there was not a lot of data available so the team waited patiently for the industry to mature. Data needed to be available before meaningful statistics could be created with it.  At first the two started investing for fun as they were intrigued by the new peer to peer lending industry.  About 2 years ago they started working in the peer to peer lending space more professionally which lead them to create more sophisticated analysis tools. O’Malley and Cotti received $5 million in venture capitalist funding from GCI, the investment office of Lands’ End founder Gary Comer’s family to successfully start and fund Looking Glass Investments.  Currently, they staff 3 PhD Economists which are the brains behind their analysis.

Investments and Experience

We were curious if Looking Glass Investments had a favorite between the two big lenders. When we talked to them it turns out LGI does not favor either Lending Club or Prosper when it comes to investing for clients.  They stated that there were things they liked about each company and mentioned that Lending Club is currently larger, but that Prosper was in the market first.

They also mentioned that both companies are the most supportive groups of people they have had the pleasure of working with in the industry. They also mentioned that the world of peer to peer lending is still small enough to be able to get to know individuals at each company.

Technology and APIs

The Lending Club and Prosper APIs (Advanced Programming Interface) allow developers and software programs to gain access to the platforms to automatically invest in notes. We were curious of there were any challenges or issues when it came to things like Lending Club or Prosper modifying their APIs. LGI let us know that they are notified of these changes in advance which gives their developers ample time to accommodate for any changes.

Since they have been following this industry since the very beginning, there were several comments reminiscing about the changes that have come to the platform.  For instance, Prosper used to post photos of borrowers and there used to be bidding down of interest rates. This lead to an interesting paper being written which we’ll follow up on in another post.

The Business

It was very interesting to hear that LGI is not allowed to solicit to gain customers.  To invest with Looking Glass Investments you must have a substantial pre-existing relationship with them.  Additionally, you must have a net worth in excess of $1 million excluding house and net of liabilities.  They are still a relatively small company and their vision is to keep it that way in order to better serve their current customers. Think of them more as a boutique investment firm where you’ll get great service from people you can know and trust.

The Future

Like us, Matt and Chad are convinced that social lending is the future of finance.  It may not be mainstream yet, but they (and we) are extremely optimistic about where the industry is headed.  Lending Club’s recent valuation of 2.3 Billion is certainly an indication of others’ confidence in peer and social lending as well.  We also discussed how banks may get involved as the industry matures as well as other options which might be available for investors in the future, such as peer lending mutual funds.

Conclusion

We thoroughly enjoyed our discussion with Matt and Chad and hope to continue to provide updates and insight into peer to peer institutional investors.  You can learn more about Looking Glass Investments on their website http://www.lgiresearch.com/