One of the largest online lenders thinks it has found a prescription for the sector’s growth problem: launching a hedge fund. Social Finance Inc., the San Francisco startup focused on student loans, in recent weeks opened a credit fund that will buy its loans and some from its competitors. The unusual move by SoFi, as the company is commonly...
Social Finance ( known as SoFi ) , the online lender focussed on student loans , has opened a new hedge fund called the SoFi Credit Opportunities Fund , which will buy SoFi ’s own loans as well as some from its competitors . According to the WSJ , the move “ is an attempt to get around waning investor interest that is threatening online lenders ’ growth . The fund lacks the deposits needed to fund its loans like traditional banks , so it relies on being able to sell the loans to investors to free up capital to make new ones . ” The new hedge fund has “ a real chance to solve the balance - sheet problems facing the industry , " according to SoFi investor Executive Mike Cagney , and will allow SoFi to support the market for its loans without needing to raise cash by buying shares .