Upstart Goes Public

We have recently received an update from one of our core bond funds, the Stone Ridge Alternative Lending fund, or LENDX. As you may recall, this fund primarily buys thousands of small consumer loans, business loans, and student loans from various online platforms such as Lending Club, Sofi, etc.

In addition to purchasing loans, the fund made a handful of strategic equity investments in the lending platforms in the earlier years of the fund, with the goal of locking down access to capacity and negotiating favorable investment terms on the loans. One of those platforms is a firm called Upstart, of which the fund has purchased about $1 Billion of loans since 2016.

Last week, Upstart went public (ticker: UPST) and had a massive jump in its price. The position, which started around 1% of total assets, has led to the fund appreciating by about 6% since last week, to where it now sits at about 7% of assets.

After the IPO, the fund was able to sell about 10% of its stake in the firm. However, as is customary for private shareholders, they must hold the stock for a 6-month lock-up period. At that point it will likely take a couple months to sell down the rest of the position.

What this means is that the fund will be experiencing slightly more volatility for the next 6-9 months than it has historically, as 7% of its assets are now in public stock. This can be good of course if the stock continues higher, but we must be aware that the stock can go down as well. Fortunately, Upstart has been profitable, has a diverse capital base and has pursued a strategy of responsible growth.

Overall, this is great news. Although some volatility will be introduced into the fund, the stock position has appreciated so much in price that it is nearly impossible to go back to where we were pre-IPO. If you have any questions about this IPO or the fund, please let us know.