I'm not so sure FHN is a good example. A good rule of thumb is that any bank with C&D loans >20% is not a safe bank stock (I doubt they had this much for the tech crash etc). Unfortunately it seems like all the real estate fintech guys are jumping into C&D lending. I sure hope it isn't a train wreck.
I'm not suggesting that large swings in stocks are easily ignored. But just like we don't check our LC's mark-to-market daily, we do not have to check our stocks either. If you are worried about not taking a loss in a financial crisis, LC loans are probably not where you should be either. But the point still remains that if you want someone else to make those decisions, I guess you can buy a LC fund or another financial.
Where does 6% come from? But I agree with your conclusion about lower grade notes. I don't see much incentive to invest in them.
LC is subject to the market, which is highly competitive for consumer loans. Especially lately. When a company's ability to live comes from originations and they don't hold the paper, they tend not to be incentivized to miss out on volumes. Where as another type of lender could choose not to grow or even shrink slightly and earn money off of existing loans, LC is reliant on origination fees so they have to move with the market or give up a lot of profit. Anil used to bring this up in the past, but I think it is essential to understanding how the dynamic will work over time.
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