Pagaya, an AI-driven institutional asset manager that focuses on fixed income and consumer credit markets, today announced it raised $102 million in equity financing. CEO Gal Krubiner said the infusion will enable Pagaya to grow its data science team, accelerate R&D, and continue its pursuit of new asset classes including real estate, auto loans, mortgages, and corporate credit.
Pagaya applies machine intelligence to securitization — the conversion of an asset (usually a loan) into marketable securities (e.g., mortgage-backed securities) that are sold to other investors — and loan collateralization. It eschews the traditional method of securitizing pools of previously assembled asset-backed securities (ABS) for a more bespoke approach, employing algorithms to compile discretionary funds for institutional investors such as pension funds, insurance companies, and banks. Pagaya selects and buys individual loans by analyzing emerging alternative asset classes, after which it assesses their risk and draws on “millions” of signals to predict their returns.
Pagaya’s data scientists can build algorithms to track activities, such as auto loans made to residents in cities and even specific neighborhoods, for instance. The company is only limited by the amount of data publicly available; on average, Pagaya looks at decades of information on borrowers and evaluates thousands of variables.
Of course, those algorithms are at the whim of unpredictable traders — particularly now given the pandemic’s headwinds. The sorts of models Pagaya leverages learn by studying patterns they expect will continue, and when faced with unfamiliar situations, they could fail to predict the outcomes correctly.
But Pagaya doesn’t cede all control to the machines. Its originations group, which recently expanded to the West Coast with the appointments of a new SVP and VP, is responsible for identifying, researching, exploring, and establishing acquisition channels with a focus on consumer industries like credit card receivables, unsecured consumer installment loans, and soon potentially residential mortgages and home equity lines of credit.
In May, Pagaya issued a $200 million consumer credit ABS — the firm’s seventh to date — bringing its total ABS issuance to over $1 billion in roughly a year and a half. The company now manages over $1.6 billion in assets overall, up from $450 million in April 2019, and it counts Israeli banks Hapoalim and Leumi, European banks, Israeli insurers, and Citi among its customers.
Singapore’s sovereign wealth fund GIC led the series D round that closed this week, which saw participation from Aflac Global Ventures, Bank Hapoalim’s Poalim Capital Markets, Viola, Oak HC/FT, Clal Insurance, GF Investments, Siam Commercial Bank, and American Express CEO Harvey Golub. It brings Pagaya’s total raised to over $200 million following a $25 million raise last April.
A growing number of funds say they’re following in Pagaya’s footsteps. A report the Bank of England published in October 2019 found that two-thirds of financial services in the U.K. use AI and that many expect to more than double the number of business areas to which they apply it within the next three years. Be that as it may, skepticism abounds — Canada-based Horizons vowed to revamp its AI-powered exchange-traded fund after a year in which it “significantly underperformed.”
Pagaya was founded in 2016 by CTO Avital Pardo, a former Fundbox data scientist and Israel Defense Forces senior analyst; Krubiner, who was named a 2019 Rising Star of Wall Street by Business Insider and who has held various roles at Deutsche Bank; and Yahav Yulzari, the owner of real estate development company Galya Global. The startup is headquartered in Tel Aviv with a satellite office in New York.