The U.S. may soon have its first closed-end mutual fund focused on the marketplace lending sector.
In a document filed recently with the Securities and Exchange Commission, Chicago-based RiverNorth Capital Management sought permission to pioneer that market.
According to the filing, at least 80% of the fund's managed assets would be loans originated through online lending marketplaces. Those investments will come predominantly from U.S.-based lending platforms, the filing stated.
RiverNorth believes that "the recent and continuing rapid growth of the online and mobile marketplace lending industry has created a relatively untapped and attractive investment opportunity, with the potential for large returns," the document said.
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Unlike open-end mutual funds, which may continue to issue shares no matter how many investors are already participating, closed-end funds raise a fixed amount of capital. Initially, the RiverNorth fund will not be listed on a securities exchange, and the shares may be illiquid, according to the filing.
RiverNorth intends to use leverage and borrow up to half of the fund's total assets, the document stated.
A spokeswoman for RiverNorth declined to comment on the record, citing SEC restrictions on public comment prior to the approval of a pending application.
The establishment of a closed-end fund is a significant milestone in the development of the marketplace lending industry, sometimes known as peer-to-peer lending. The small but booming industry, led by San Francisco-based Lending Club, brings together lenders and borrowers through online platforms.
The proceeds of a closed-end fund represent permanent capital for the marketplace lending industry, Bill Ullman, a senior adviser at Orchard Platform, noted in a recent blog post. That is in contrast with money from hedge funds, which could flee just as rapidly as it arrived in the sector.
Ullman also pointed out that most of the investors in closed-end funds are wealthy individual investors.
"This brings the industry back in a sense to its origins of 'peer-to-peer' lending," Ullman stated, "by allowing individual investors to gain access to diversified pools of marketplace loans without having to join each and every platform and handpick loans one by one and do so with professional management."
The U.K. is already home to two similar funds focused on marketplace lending.
Cormac Leech, an analyst at London-based Liberum Capital, said the establishment of a closed-end fund is a positive development for the U.S. marketplace lending sector.
"Ultimately the name of the game is to make it as easy... and as efficient as possible to get exposure to this asset class," he said.