Normally, making a steep investment in an emerging marketplace isn't a slam dunk, or even completely prudent.
Joseph Besecker doesn't see it that way in this case. The president and CEO of Manheim Township-based investment adviser company Emerald Asset Management Inc. calls his company's recent acquisition of investment company Direct Lending Capital LLC an opportunity he believes is almost guaranteed to pay.
While Besecker isn't permitted to say how much the company spent to acquire the peer-to-peer lending company — a contingency of the sale was not to disclose the price — he can say the investment is "substantial" on his part, and he fully believes the technology and the potential of the marketplace will make the purchase a success.
"This is the early innings of what is going to be a very big game," Besecker said this week at the Lancaster company's offices. "It's something that gives investors a new opportunity in alternative investing."
Direct lending — often referred to as peer-to-peer lending — gives people looking for credit a different avenue to obtain it. It's a way of cutting out the middleman — in this case, banks — in getting money to people who have a very good credit history but may have been squeezed out by the traditional banking system because of new regulations or bank policies.
Direct Lending LLC, based in Oceanside, Calif., doesn't make the loans but buys the peer-to-peer loans that are given out to credit-seekers. As a part of Emerald now, Emerald will buy those loans it finds to be safe credit investments for its client portfolios.
The new division, Emerald Direct Lending Advisers, currently is not taking on new investments while it finalizes the paperwork associated with the acquisition. By the end of the month, however, company officials said, they hope to be soliciting new investors.
Howard Freedland, the chief investment officer with Direct Lending and now a principal with Emerald, said that in peer-to-peer lending, only about 10 percent of applicants are approved and loans are given only to those with prime and super-prime credit histories.
Freedland explained the peer-to-peer lending industry as an evolution, much like the evolution of the record or book industry.
"People still read books, they still listen to music," he said. "They just don't buy them the same way they did 20 years ago."
Besecker founded Emerald in 1991 and has grown it to a asset management company handling nearly $3 billion for investors in small and mid-capital, pension funds and other sources.
While Emerald has grown, Besecker said, it doesn't have as much growth space in the markets it's in, which led him to look for new opportunities. The direct lending market presented itself while he was watching a news report on it while at a California pension investment seminar. He then heard a speech at the seminar from Freedland, who had helped start Direct Lending LLC in 2011.
Within six weeks, the two were talking about a sale.
Peer-to-peer lending industry leaders Lending Club and Prosper have been growing rapidly and consistently over the last two years, Freedland said. According to LendAcademy.com, a blog tracking the industry, Lending Club has risen from just less than $40 million in new loans in January 2012 to nearly $160 million in new loans in June of this year. Prosper issued about $10 million in new loans in January 2012 and was up to about $27 million in June 2013.
"The market is just booming right now for this," Besecker said.
He said the acquisition of the company will not take any staff away from the local office or from the satellite offices in King of Prussia, Conshohocken or Monroeville. Instead, the acquisition will create a California base for the company that already was looking for a Golden State location.
"We're over the moon excited about this," he said. "The world doesn't know about (direct lending) yet. But they will."
What: Emerald Asset Management acquires Direct Lending LLC
The details: The two sides made it a condition of sale not to disclose the sale price publicly, Emerald Asset Management CEO and President Joseph Besecker said. Direct Lending will now be called Emerald Direct Lending Advisers and will keep its Oceanside, Calif., office. The office will serve as a West Coast presence for Emerald. Besecker stressed the acquisition of the company won’t do anything to the service current clients receive.
Emerald Asset Management: Based in Manheim Township, Besecker started the business in 1991 and has grown it to 42 employees and nearly $3 billion in assets managed. It’s still a small business compared to other asset management companies, but Besecker said this deal will help the company move into the relatively new peer-to-peer lending arena.
“I was 32, 33, sold everything I had, moved back in with my parents and started the business,” Besecker said of his company. “We’re David fighting the Goliaths and we’re beating them every day.”
Direct Lending LLC: Conceived and started in 2011, the company has been investing in peer-to-peer loans for about a year. The company’s chief investment officer and co-founder, Howard Freedland, said the idea for the company came after a meeting with Renaud Laplanche, CEO of peer-to-peer lending industry leader Lending Club. He said the company’s financial information cannot be disclosed until the documentation related to the fund offering has been completed.
Freedland said the company’s intention was always to look for an investing partner that could expose it to a broader range of investors. “Regardless of how good a job we did and what our background was, we knew we needed to be affiliated with a financial institution,” he said. “We always saw it as a way to accelerate our growth and get exposure to institutions we believed should be investors in peer-to-peer lending.”