Online lending has the potential to outpace stocks, bonds, and real estate in profitability, based on the recent findings from the Gillmore Centre for Financial Technology.
A key discovery from the study highlighted that the innovative framework, general characteristics-based portfolio policies (GCPP), could generate a yearly return rate ranging from 8.86% to 13.08%. This was observed using an extensive dataset from online loans procured from LendingClub, which markedly exceeds the performance of an equally weighted loan portfolio.
The research, titled ‘Gaining a Seat at the Table: Enhancing the Attractiveness of Online Lending for Institutional Investors’, emphasises the need for institutional investors to position themselves prominently within the online lending sphere. The research indicates a possible missed opportunity for investors due to potential unawareness and misunderstanding about the new asset class.
Gillmore Centre for Financial Technology’s director at Warwick Business School and co-author of the paper, Ram Gopal, expressed his concerns. He said, “Online lending is in danger of slipping by and costing institutional investors, in particular, a lot of money. Limited awareness of this emerging asset class and the accompanying lack of understanding in industry, coupled with stringent government regulations, has led to this high potential investment flying under the radar.”
Furthermore, he added, “Online lending through a GCPP framework can have a transformative impact on institutional investors and unlock business growth for many organisations. Industry leaders and asset platforms should work together to ensure that businesses and investors collaborate on appealing investment opportunities that provide high pay-offs, underpinned by the research of world-class institutions that can lead innovations in emerging opportunities such as online lending.”
Morris Strub, associate professor at the Gillmore Centre and another co-author, provided further insight. He mentioned, “The absence of effective frameworks for investment in online loans and other new asset classes continues to complicate the investment landscape. But the Gillmore Centre’s development of GCPP can help sophisticated investors to harness the potential of new asset classes emerging from Financial Technology. Our framework can be applied not only for investment on online lending platforms, but also for traditional assets such as stocks or bonds.”
This groundbreaking paper was the collaboration of top-tier university scholars including Ram Gopal from the Gillmore Centre for Financial Technology at Warwick Business School; Xiao Qiao, assistant professor at the School of Data Science, City University of Hong Kong; Morris Strub from the Gillmore Centre; and Zonghao Yang, a PhD scholar at the City University of Hong Kong.
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