Overview of Theorem

General Overview

Theorem Fund

Theorem Company

LPs

Partners

In practice, things are slightly more complicated, there might be a third party (like a bank)

Bank might hold a loan for a short amount of time, or bank might serve as a trust

Banks/Capital Markets

Can offer to give up some of our loans in exchange for cash
We think our loans will return more than our cost of borrowing
Will help increase our return
Will put up a loan collateral so we can get more money into the fund
Warehouse facility
ABS - Way to package loans together to change the risk-return profile as compared to individual loans

Get data from LC, prosper
Get all data after origination, including the stuff that tells them whether they should take the loan or not
All the loans are currently unsecured
- Mortgages are unsecured
LC and Prosper want to produce as many loans as possible, because they get a fixed amount for each loan
However, they don’t have unlimited money, so they have to sell loans as fast as possible
People trust theorem, last 5 years, you’ve been positive, so we’ll buy your loans at a slight discount
- If you don’t have your own model, if you’re not a smart investor, then you can rely on people like Theorem
This is the bread and butter of theorem, run the model and get the default rate, check what our expected return from that loan or not, and send the information back to the platform (as fast as possible).
- If we do it too slowly, then someone else might get the loan, and they’ll get left in the dust
- This is done with the auction agent
  - Currently turned off because of corona
- There’s no transaction fees
Many platforms sell the loans to the banks
Platforms aren’t using things like

uid: 202005221033 tags: #theorem #meetings

February 22, 2023