SoFi Hedge Fund was Not Created for Capital, says CEO Mike Cagney

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If you were at LendIt then you might nod at this — the echo from the alternative lending industry congregation last week had just three words: Long term capital. 

Nearly 3500 industry folks gathered at San Francisco to share woes and celebrate victories.

“The nonbank lending industry is at an inflection point,” said Mike Cagney, CEO of SoFi. Cagney known for his candor warned that for the business to make a leapfrog, companies need to establish more balance sheet partnerships, preferably with banks. A failure to do so would cap the number of originations.

“What banks really like is for the alt lenders to be the infrastructure/origination framework and for them to be the balance sheets. But the problem occurs when they also want to retain the customer, this is going to dictate the direction of the industry because you will get a natural cap and you won’t be able to go more than a billion and half originations a month without having balance sheet partnerships.”

In house capital? Not really

Cagney doesn’t want to give the impression that its newly launched hedge fund came about because it couldn’t sell enough loans. It’s rather to gain more access to retail investors and this he said was a simpler vehicle than participating in equity and securitization.

“We have half a billion dollars going into the hedge fund and that’s a week’s production for us. So that’s not going to solve the funding problem.”

We’re not skirting regulation

It’s a misconception that our industry exists because of some regulatory arbitrage,” Cagney said reasoning that the industry has to follow the same lending regulations as a bank.

“There are lot of limitations that we have because we are not a bank holding company.”

Who are we? Not Banks. What do we want? National lending licenses

Cagney championed the cause for a national lending license and said that Dodd Frank falls short by limiting the Office of the Comptroller of the Currency (OCC).

“The OCC was the mechanism to get a national lending license without the deposit insurance and the industry needs that back.”

Last modified: April 20, 2019

Category: Marketplace Lending

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