Major management changes for Pimco http://pimco.com have been the flavour of 2014, with the departure of Mohamed El-Erian earlier in the year, and the more recent departure of Bill Gross. El-Erian has now disclosed he has made an investment of some $12m in the US P2P lender Payoff.
This year the two high profile heads had a very public fallout and El-Erian left the company, while Gross has just announced his resignation joining Janus Capital Group https://www.janus.com. Pimco remains the largest bond fund in the world, based just outside Newport Beach in California. The fund has had outstanding returns over the last 20 years, piloted by these two most public faces CEO and Co-Investment Officers Gross and El-Erian.
El-Erian has taken a $12m equity investment in the on-line lending platform Payoff, and also is an investor in their lending vehicle. Unlike the other US high profile lenders such as Lending Club https://www.lendingclub.com and Prosper https://www.prosper.com, Payoff plans to incorporate behavioural science into its business model.
Now behavioural science is increasingly being used by Investment Banks and Hedge Funds. The science is about recognising that much decision making is made by subconscious mental processes that operate automatically and often beyond our awareness. So the key idea is to try to understand more clearly the behaviour of traders and investors as they make investment decisions. Hedge Funds are using coaches to work with their traders looking closely at the manner in which traders act, and think. The same way top athletes use psychologists to ensure they remain in a positive, confident, winning frame of mind. In fact I used a London based behavioural psychologist for two of my European Credit Traders which proved very useful for my business.
According to an article Tracey Alloway from the FT wrote http://goo.gl/VFBZfJ Payoff has hired a scientist from the online dating website eHarmony http://www.eharmony.co.uk, to incorporate psychometric testing into their lending platform. Their objective to try and understand why people get themselves into serious financial difficulty, with a goal to assist these people get out of their financial problems.
Like Australia’s SocietyOne, Payoff is not open to retail investors, it is restricted to accredited investors. A common theme, with P2P is if the lending platform is restricted to “accredited investors” only, this is moving away from the whole premise of peer to peer lending. But nevertheless, it remains a highly encouraging fact that someone so high profile in the financial markets as El-Erian, has taken a large stake in the on-line lender, further enhancing the profile of P2P industry worldwide.