Important Disclosure Addendum: Loan repayment status as of 12/31/2016. There is no guarantee the loan repayment status applies to the future.
Performance data quoted represents past performance, which is not a guarantee of future results. Current performance may be lower or higher than the performance quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. You can obtain performance data current to the most recent month end by visiting www.rmplx.com.
[BEGIN VIDEO TRANSCRIPT]
ALLEN: Philip, the RiverNorth Marketplace Lending Corporation – or RMPLX, as we like to call it – has now been live for a little over a quarter. To kick us off today, maybe talk about your broad thoughts on the fund and how things are going after a little over a quarter of actual live performance.
PHILIP: We've been very pleased across the board, I would say, on the launch. It was certainly a longer registration process than we had expected out of the gates, and I thank our investors and our potential investors that have continued to work with us as we've readied the product. Looking back on the first quarter, some highlights. I would say we're really happy with the returns, first and foremost. Secondly, we have a great group of investors, so I think we're very happy with that core group that we have in the fund today. That's always great to see, and we're very happy about that. I would also add, very importantly, we designed a whole host of systems for this asset class. As we've talked about in previous videos, there's a lot of data associated with these loans that is flowing on a daily basis back and forth between ourselves, the originator, the servicer and our admin provider. We've worked very hard to design those systems, and are very happy to report that those systems are working well across all facets, whether it be on the custody side, or cash reconciliation, loan data every day as well as valuation. Having the systems work and work smoothly was really important to us, so I'm happy to mention that here and give that update.
ALLEN: To be clear, just on systems, you are striking a daily NAV on thousands of loans. Certainly, there is a systems requirement just to handle that amount of volume.
PHILIP: That's accurate, yeah. It's a lot to get the data, the time of the day that the data will come in, in the format that you want to work with the data. We obviously work with our originating partners and servicers to set the standard for the data before the data starts flowing. Then getting that in a process in a time in which we can strike that daily NAV, which, again, we're pleased to report we have obviously done that every day, and we've done that without a lot of system stress. We're also happy about that. Lastly, on the bigger picture topics I would talk about, we are happy and we are pleased with the capital raise that we have had. We took a slow and steady approach to raising assets because we didn't want to put undue stress on our systems. For us, as we think about striking a daily NAV and bringing this asset class, these whole loans into a registered product, it was really important to us that we do that slow and steady and make sure that we feel really rock solid on our foundation as we go. We started with two platforms, we added a couple more platforms throughout the fourth quarter, and now we are up to five as of early January 2017. Again, raising assets and bringing on platforms is something we've done in a very concerted, thoughtful manner.
ALLEN: You referenced returns, which is something that is front and center on most of our viewers' minds. RMPLX returned about 220 basis points from inception through 12/31/16. Can you talk a little bit about just returns, what drove returns, and then your thoughts on the return stream maybe versus some other fixed income alternatives.
PHILIP: The returns were certainly in line with our expectations. We have sort of a range that we like to underwrite to, so we were well within that range, so I was very happy with the returns for that period of time. Most of that return is driven between a variety, or should I say, two different segments between income, and sort of otherwise. We obviously are valuing loans every day, so loan valuations could move on a daily basis as we run that valuation. We've been happy with returns in line with our expectations for what we underwrite to. I don't see any changes to that opportunity set today; we're still looking at the same loans at materially similar prices going forward. We'll see what happens in terms of market prices, in terms of performance in those underlying loans, but we've been happy with that and I still like the opportunity where we are today. On your other point, I think you brought up a very interesting concept about the time at which our returns occurred, so the 4th quarter of 2016...
ALLEN: ...was a very interesting time...
PHILIP: "Interesting" is a good way to describe it. One month that I'll highlight for this conversation is the month of November. The month of November was one of certainly some headlines and surprises, potentially, in the political landscape. I think that resulted in some pretty sharp moves in the interest rate market, specifically rates moving higher as the market started pricing in the effects of potential tax reductions and the benefits in fiscal policy. The Barclays Aggregate Index in the month of November returned -237 basis points. That's in line with our expectations – rates selloff, bond prices go lower. What I think is interesting when we think about our asset class, and we've talked about this previously, were a very short-duration instrument that is much less exposed to changes in the interest rate market that way. In the month of November, we were up 67 basis points, which is a relatively short set of time that we're talking about, but I do think it's an interesting idea to think about that bonds can really be going down in price. We have a similar cash flow in that we have contractual principal and interest, much like a fixed income instrument...
ALLEN: Yeah, that's a good point.
PHILIP: ...we've performed in a positive – had positive returns during that period of time.
ALLEN: Thinking about the portfolio attributes for a minute, you've spoken on some other videos about diversification in a number of levels. One is diversification across marketplace lending platforms, another is diversification across types of marketplace lending loans. I think even a third level is diversification in the portfolio, whether it be at a maturity level or even a geographic level. We look at the portfolio of 12/31, can you talk about whether you've achieved those different levels of diversification?
PHILIP: We've worked really hard to get the portfolio as diversified as we can, in the mandate at which we want to have different originators and different segments within consumer credit, as well as small business credit. Within consumer credit, there's very high prime borrowers, there's sort of mid-prime borrowers, and there's less prime borrowers. We do not participate in that lower part of the credit spectrum. By prospectus, we do not buy loans below 640 FICO at origination, so we try and make sure we're diversified across credit quality as well as geography. You will see that we are diversified across a variety of different states, and we don't have a lumpy portfolio in any specific geographic distribution, so we like seeing that. In terms of getting back to credit quality, the weighted average FICO in our portfolio – and again, when I mention FICO scores and credit scores, I'm referring to consumer loans in our portfolio. We have small business loans as well. Focusing on the consumer, our weighted average FICO score at the end of the year was 718, which certainly in the scheme of things, in the total spectrum in the United States, is squarely in that very prime part of the consumer sector. We're not only delivering on a return perspective, we're doing it on a very prime borrow, which we are happy to see.
ALLEN: Philip, last question. Turning to marketplace lending as a part of the capital markets or as an asset class, however you think about that, are there any themes that you want to highlight as you think about marketplace lending in 2017?
PHILIP: There are two things that jump out at me, which I think are important. One is stability in underwriting. As the industry continues to grow, I think one thing we're always focused on and we're always looking at in the data – again, when I refer to that data, I not only mean the loans that we own, and other originations that are platforms that we buy from, but we also talk to a variety of different originators in this segment, so we really get a pretty nice set of data. We're really looking for trends in underwriting. Is that weighted average FICO score in that total group, is it going up or down? Is that debt-to-income ratio going up or down? As we know from other credit products, as originations grow, a lot of times the quality of the originations can change, i.e. get worse as they widen out the spectrum. We're not seeing that today, which we like to see that in terms of thinking about the opportunity, thinking about where we were from a returns perspective and looking at those prices. We do not see any material changes in those prices of those loans, and we're not seeing material changes in the underwriting. A level of consistency there and stability is something that we like to see. The second point I would bring up, which is a more macro-related concept, is I think we look at tradable markets today, whether it be U.S. equities, credit products related to U.S. corporations, and we see a lot of upward momentum related to companies that derive a lot of their revenue from the U.S. consumer.
ALLEN: So flowing through bank stocks, vital services stocks and the like?
PHILIP: Yeah, credit card company stocks, financial services company stocks. We see a lot of increase in price of those assets. What that tells me is that the market is getting very constructive on U.S. consumer fundamentals. The market is starting to expect tax reductions, stimulus in the form of fiscal policy to be a real positive for Main Street USA. We really like that from thinking about what we're exposed to in our assets, the risks that we take. We really have exposure to consumer fundamentals, so I really like the fact that our opportunities set hasn't changed dramatically, meaning prices have not materially changed and the underwriting hasn't changed, so our opportunity is the same, but the underlying fundamentals seem to be getting stronger and the market is starting to expect a lot more growth from a GDP perspective in the United States. We really like that, and I think that's a great tailwind for 2017 for us.
ALLEN: As the comment relates to the portfolio, can you infer – you're not seeing coupons coming down at origination platforms like we were seeing in some other time frames in the last few years, so that's remaining attractive or steady as tradable markets are using this “rising tide lifts all boats” sort of momentum?
PHILIP: Exactly. If it were a bond, it would be going up in price as the market values that bond more dearly. Our asset really isn't going up in price, it still comes right around that par price and the coupon has been pretty stable. The opportunity set for us has stayed pretty consistent and these other assets continue to rally, so I think that's an interesting relationship between those two segments.
ALLEN: That's interesting. Philip thanks for your comments, and congratulations on the first quarter of fund performance.
PHILIP: Great. Thanks, Alan.
[END VIDEO TRANSCRIPT]
Video recorded 1.25.2017.
Produced by RiverNorth Capital Management, LLC ("RiverNorth" "we" or "us").
Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This information is provided for informational purposes only and should not be considered tax, legal, or investment advice. References to specific securities, asset classes, and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations. Opinions referenced are as of the day recorded and are subject to change due to changes in the market, economic conditions, or changes in the legal and/or regulatory environment and may not necessarily come to pass.
Past performance is not a guarantee of future results. Diversification does not ensure a profit or guarantee against loss.
Investing involves risk. Principal loss is possible.
The Fund's investment objectives, risks, charges and expenses must be considered carefully before investing. The prospectus (and summary prospectus, if available) contains this and other important information about the investment company, and it may be obtained by calling 844.569.4750. Read it carefully before investing.
RiverNorth Marketplace Lending Corporation is distributed by Quasar Distributors, LLC. RiverNorth Capital Management, LLC, Quasar Distributors, LLC and ALPS Distributors, Inc. are not affiliated.
Allen Webb is a registered representative of ALPS Distributors, Inc.
NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE
The Fund is classified as non-diversified, which means the Fund may invest a larger percentage of its assets in the securities of a smaller number of issuers than a diversified fund. Investment in securities of a limited number of issuers exposes the Fund to greater market risk and potential losses than if its assets were diversified among the securities of a greater number of issuers.
Daily subscriptions are subject to caps per management’s discretion.
Pursuant to Rule 23c-3 of the 1940 Act, the Fund must make a quarterly repurchase offer of at least 5% of the Fund's outstanding shares. The Fund's Board of Directors will set the actual level of the quarterly repurchase offers. It is possible that a repurchase offer may be oversubscribed, in which case shareholders may only have a portion of their shares repurchased.
The Securities and Exchange Commission (SEC) does not approve or disapprove of any security.
Important Risk Information
See the prospectus for a more detailed description of Fund risks.
The Fund's Shares will not be listed on an exchange in the foreseeable future, if at all. It is not anticipated that a secondary market for the Shares will develop unless the Shares are listed on an exchange. Thus, an investment in the Fund is not suitable for investors who might need access to the money they invest for several years or longer. The Fund may decline to accept any subscription requests for any reason regardless of the order in which such subscription request was submitted to the Fund in a particular subscription period. If a borrower is unable to make its payments on a loan, the Fund may be greatly limited in its ability to recover any outstanding principal and interest under such loan, as (among other reasons) the Fund may not have direct recourse against the borrower or may otherwise be limited in its ability to directly enforce its rights under the loan, whether through the borrower or the platform through which such loan was originated, the loan may be unsecured or under-collateralized, and/or it may be impracticable to commence a legal proceeding against the defaulting borrower. The Marketplace Lending Instruments in which the Fund may invest will not typically be guaranteed or insured by any third-party and will not typically be backed by any governmental authority. Prospective borrowers supply a variety of information regarding the purpose of the loan, income, occupation and employment status (as applicable) to the lending platforms. As a general matter, platforms do not verify the majority of this information, which may be incomplete, inaccurate, false or misleading. Prospective borrowers may misrepresent any of the information they provide to the platforms, including their intentions for the use of the loan proceeds. Marketplace Lending Instruments are generally not rated by the nationally recognized statistical rating organizations ("NRSROs"). Such unrated instruments may be comparable in quality to securities falling into any of the ratings categories used by such NRSROs. Accordingly, certain of the Fund's unrated investments could constitute a highly risky and speculative investment, similar to an investment in "junk" bonds. The Marketplace Lending Instruments in which the Fund may invest may have varying degrees of credit risk and the Fund will not be restricted by any borrower credit criteria or credit risk limitation. There can be no assurance that payments due on underlying Marketplace Loans will be made. At any given time, the Fund's portfolio may be substantially illiquid and subject to increased credit and default risk. The Shares therefore should be purchased only by investors who could afford the loss of the entire amount of their investment. The Company's fees and expenses may be considered high and, as a result, such fees and expenses may offset the Company's profits. A portion of the investments executed for the Company may take place in foreign markets. As a result of the foregoing and other risks described in this Prospectus, an investment in the Fund is considered to be highly speculative.
In the context of mutual funds, Net Asset Value (NAV) per share is computed once per day based on the closing market prices of the securities in the fund's portfolio.
Basis Points (BPS): A common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01% (0.0001), and is used to denote the percentage change in a financial instrument.
The Barclays Capital U.S. Aggregate Bond Index is an unmanaged index of investment-grade fixed-rate debt issues with maturities of at least one year. Barclays U.S. Corporate High Yield Index covers the universe of fixed rate, non-investment grade debt. The indexes cannot be invested in directly and do not reflect fees and expenses.
Prime is a classification of borrowers, rates or holdings in the lending market that are considered to be of high quality.
Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period.
Coupon is the annual interest rate paid on a bond/loan.
CFA® is a registered trademark owned by the CFA Institute.