Fintech startup Pagaya Investments says it has privately placed a consumer-loan securitization that will rely solely on artificial intelligence rather than human judgment to manage and operate its debut $100 million portfolio.
Pagaya announced Wednesday that the new securitization platform will use the big-data analytics engine of its proprietary AI to actively manage the deal, including the trading, buying and selling of assets acquired from undisclosed online-lending originators.
Pagaya chief executive and co-founder Gal Krubiner said in a company release that the firm sees the new deal as a demonstration of the "practical uses of AI in the ABS market" and a way to "drive the adoption of AI in traditional finance."
"We’re just a few years away from all collateralized loan obligations (CLOs), mortgage-backed securities (MBS), and ABSs being managed by AI,” Krubiner said in the release.
The institutional asset management specialist had purchased the unsecured online-loan assets during a ramp-up phase through the same means, using the same big-data analytics technology,
The AI platform analyzed, selected and acquired the loans through a direct interface with the IT systems of its online lender partners, using about 1,500 parameters of data metrics, Krubiner told Asset Securitization Report.
Every loan was purchased individually, rather than in bulk or in pools of loan offerings structured by the lenders themselves. The collateral was ramped up over a period of months, much like in a CLO portfolio arrangement, according to Krubiner.
“We are like a CLO manager, just in consumer credit,” he said in an interview.
Although the AI system will be calling the shots, the company states that "qualitative oversight" of the portfolio will be maintained by an investment team of data scientists and AI specialists led by chief investment officer Ed Mallon, a former BlackRock managing director in opportunistic investments.
The securitized portfolio consists of prime loans, with typical balances of approximately $10,000 and APRs of 13%-16%, Krubiner said.
The loans back a privately placed issuance of unrated notes and equity stakes to undisclosed institutional investors, hedge funds and money managers via structuring agent Cantor Fitzgerald.
Krubiner said the firm plans to extend its $450 million in assets under management to $1 billion by year's end using the AI system.
Pagaya also plans to adapt the technology for other asset classes in the coming years, as well, he said, including CLOs and mortgage-backed securities, according to Krubiner.
Pagaya, founded in 2016, raised nearly $100 million in startup capital from both venture capital funding and debt financing through Citigroup to fund its machine-learning, big data analytics technology.
The company has offices in New York and Tel Aviv, and its client base includes Citi as well as banks and insurers in Israel and Europe.
