Former Citigroup Chief Executive Officer Vikram Pandit is part of a group of investors plowing $5.9 million in a new digital exchange aimed at making it easier for smaller investors to buy loans made to mid-sized companies.

MMKT, which raised seed funding from Leonard Tannenbaum's Fifth Street Asset Management Inc., aims to break open the club-like world of middle-market loan sales, according to a person with knowledge of the investment. Pandit will be joined by venture-capital firms QED Investors and Victory Park Capital, said the person, who asked not to be identified because the information hasn't been made public.

This is the latest attempt by new players to gain a foothold in the lucrative business of selling corporate debt. Blythe Masters, who quit JPMorgan Chase & Co. last year, is pushing to apply blockchain — the digital protocol underlying the virtual bitcoin — as one way of improving liquidity in the syndicated loan market. A number of electronic trading platforms are also trying to upend the way corporate bonds are traded.

Pandit declined to comment through his spokeswoman, Shannon Bell. Dana Andreoli, a spokeswoman for Victory Park who works at Edelman, declined to comment. A QED representative didn't immediately comment.

The loan market has been slow to adopt new technology, with the vast majority of issuance still undertaken through a complex network of contacts and with many deals struck by phone and even settled by fax. Buying loans through the MMKT exchange would be cheaper than paying fees charged by syndicate desks who have long worked to distribute such loans to investors, according to Tannenbaum.

"There's this tight club of 50 to 100 lenders that sell to each other and everybody knows that," said Tannenbaum, interim chief executive officer and chairman of MMKT. "The family offices don't have access to our deals. It's all clubbed up. What if we went beyond the club?"

The loan market has been booming in recent years as low interest rates encouraged yield-starved investors to snap up riskier corporate debt. That has sparked intense competition between non-bank entities, big lenders and private-equity firms in underwriting and distributing the debt.

The amount of loans issued by middle-market companies in the U.S. rose to $15.02 billion in 2014 from the $13.4 billion a year earlier, according to Standard & Poor's Capital IQ Leveraged Commentary & Data.

"If you're a QIB — a qualified investor with over $100 million — why pay 2/20 when you can buy direct to build your own portfolio with a small fee to MMKT," Tannenbaum said, referring to the 2 percent management and 20 percent performance fees charged by many investment funds.

Pandit has invested in several financial technology startups including Orchard, which provides data and analytics for peer-to-peer lenders such as LendingClub Corp. and Prosper Marketplace Inc. Ron Suber, a former Wells Fargo & Co. executive and president of Prosper, is another investor in MMKT, said the person.

Suber declined to comment.

Tannenbaum said that while MMKT is initially focused on the primary market where new loans are sold, it aims to expand into trading existing loans. As in the bond market, some investors and traders have complained of a lack of liquidity in loan trading.

Details of the funding are expected to be announced on Wednesday.

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