We have an industry up here in Canada that always seems to be on the verge of being regulated, specifically companies offering "payday loans". Not quite sure where this issue stands in the US, but I know that the effective interest rates can be very high (partially due to fees). So it's not suprising that hedge funds would be looking into the "alternative lending" business as a means of generating high returns. I would be quite interested to see what the default rates look like in this business though...
Sounds like U.S. hedge funds are getting into the business of loan sharking. I wonder how they are going to collect... "Frankie, do you have an edge? I left mine at at home".
it seems to me that a hedge fund only needs to generate 8-10% per year and they can get away with charging 2 and 20. commercial banks doing regular mezannine loans can get 8% yield on those loans, yet those people get paid peanuts compared to hedge fund managers. seems to me it's all about perception, marketing, and estabilished industry norms. it is not about performance. there is another benefit for a hedge fund that does private lending. these loans are illiquid, they don't trade. at the end of the month/quarter, when the hf manager needs to report his returns for the month, it's up to him to determine the value of these loans. as long as the company makes interest payments and intends to pay the principal back, who can argue that the hf didn't return 8% this year? so there you go, another "low volatility and high sharpe" strategy.