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BNPL · Consumer Loans · Liquidity Risk · Private Credit
Investor unease in private credit is extending to specialty lending strategies, exemplified by Stone Ridge Asset Management's Alternative Lending Risk Premium Fund (LENDX).
The fund, heavily exposed to consumer and small-business loans including Buy Now, Pay Later (BNPL) debt from platforms like Affirm and personal loans from LendingClub, recently informed investors it would only fulfill 11% of redemption requests. This follows an earlier offer to repurchase a small percentage of shares, highlighting a growing liquidity mismatch in semi-liquid private credit products.
Other managers, such as Cliffwater, are also facing similar redemption challenges. Despite these liquidity concerns, underlying credit performance in the BNPL sector appears relatively stable.
A CFPB study, cited by the Richmond Fed, indicates BNPL dollar originations grew to $43.9 billion in 2023, with charge-off rates at 1.83% in 2023, significantly lower than the 4.19% for credit card loans. While BNPL remains a small segment of overall U.S. consumer credit, the broader private credit market, estimated at $3.5 trillion, faces increasing scrutiny over valuation and liquidity, particularly as investor demand for exits rises.