Direct Lending Fund General Fund Presentation v2

DIRECT LENDING
Generating Monthly Cash Income From Fully Amortizing Consumer Term Loans
as of July 2012
REPLACING LOST YIELD

Interest Rates are at Historical Lows
ye ar 10
1.53% 1.62% n/a 2.64% n/a 4.00%
Ye ar
ye ar
ye ar
US Treasuries Munis Bank CDs AA Corporate
0.17% 0.20% 0.72% 0.30%
0.32% 0.45% 1.30% 0.42%
0.64% 0.61% 1.41% 1.40%
2.61% 2.77%
Source: Bloomberg July 2012
Investors are being forced to make difficult decisions

Accept historically low interest rates on short duration investments
Take duration risk by tying up capital for longer periods Accept volatility risk or loss of principal if rates rise in the future
We went looking for a better alternative
30
ye ar
All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby.
OUR TARGET
9% - 11% Interest
Provide investors with consistent cash income without taking significant principal risk
9% - 11% interest income net of all fees and expenses Average duration of 30 months Highly diversified portfolio No leverage
Where did we find these qualities?
THE YIELD ON CONSUMER CREDIT REMAINS HIGH
1981 16% 14% 12% 10% 8%
2012 Over the past 30 years, cash yields on most investments have declined while interest rates on consumer loans and credit cards have remained high
6%
4% 2% 0%
T-bills 10 yr TNotes 10 yr Munis 30 yr TBonds 30 yr Munis Consumer Credit
Credit spreads on unsecured consumer credit are attractive on both a relative and absolute basis and have proven durable over a variety of interest rate cycles
Source: Federal Reserve
PRIME & SUPER-PRIME BORROWERS Dominant Loan Purpose is Credit Card Pay-Offs
Loan Purpose
Credit Card Pay-Off Personal
Business Home Other
Borrower Credit Profile Average Credit Score
712
Target Loans
Prime Super-Prime
800+ 790 - 799 780 - 789 780 - 789 770 - 779 760 - 769 750 - 759 740 - 749 730 - 739 720 - 729 710 - 719 700 - 709 690 - 699 680 - 689 670 - 679 660 - 669 650 - 659 640 - 649 630 - 639 620 - 629 610 - 619 600 - 609 590 - 599 580 - 589 570 - 579 560 - 569 570 - 579 560 - 569 550 - 559 540 - 549 530 - 539 520 - 529 510 - 519 500 - 509 <500
WEAK
MODERATE
STRONG
EXCELLENT
5
CONSUMER CREDIT GOOD LOANS TO GOOD PEOPLE

Banks have abandoned their historical foundation of making small loans
Banks with high cost infrastructure can no longer make small loans profitably Huge unmet consumer demand - 60% of loans are to pay-off credit cards due to high interest rates and reduction in available credit
Ed the Electrician
+ + + + + + + + Lives in Indiana Has had the same job for 10+ years Makes $86,000 a year Has a FICO score of 718 Hasnt had a delinquent payment in at least 5 years Owns his own home Wants to borrow $7,000 to pay-off all his credit card debt His local banker doesnt make installment loans anymore
ONLINE LENDING A NEW PARADIGM

New consumer lending platforms allow investors to be the bank
BANKS
LENDING PLATFORMS
INVESTING THROUGH LENDING PLATFORMS

A powerful new alternative to the traditional banking model for credit origination
Over $1 billion lent across 114,000 loans through May 2012 Currently $56 million per month growing 5% month over month Over 5,000 new loans each month Fully amortizing unsecured consumer loans Short Duration: Combination of 3 & 5 year loans Loan level transparency (publicly available data) Disruptive Internet-based lending model is more efficient than traditional banking, using technology to: lower the cost of loan origination build broadly diversified loan portfolio by geography, borrower credit, loan size, and loan type Automated credit scoring and credit verification Growing number of Lending Platforms
Be the Bank
FRACTIONAL OWNERSHIP PROVIDES GREATER BORROWER DIVERSIFICATION
One borrower
Multiple lenders
More borrowers means further diversification by geography, employers, and other borrower characteristics
The Fund holds a fraction of any single loan, for example $2,000 of a $6,000 loan. Fractional ownership permits broader diversification each invested dollar participates in more loans
DIRECT LOAN ORIGINATION PROCESS

LOAN ORIGINATED BORROWER INQUIRY
+ Referred to Website by: + Affiliates Partners + Advertising + Borrower answers 6 basic questions to pre-qualify (90% fail) + DLF does independent credit analysis and portfolio optimization + DLF makes buy/pass decision + Institutional DVP + Loan and Note in separate SPV
DATA COLLECTION
+ Borrower completes detailed online questionnaire + Data collected from IRS database + Data collected from ADP and/or Paychex + Data collected from FICO providers + Lending Platform does manual credit verification as necessary
CREDIT SCORING
+ Lending Platforms utilize proprietary credit scoring models based on FICO and heuristic credit variables + Loan is Rated & Priced (APR)
DATA VERIFICATION
+ Borrower provides requested physical data including W-2; tax returns; pay stubs + Lending Platforms perform manual and automated random data verifications
LOAN SERVICING
+ Serviced by originating Lending Platform + ACH Collections
COLLECTIONS & DEFAULTS

+ Lending Platforms actively call to collect in the 1st 30 days
+ 31 120 days past due collected by 3rd party collection firms
+ Payment confirmation and reporting to investors

+ Cash paid to investor accounts
+ 120 day charge-off policy

+ Ongoing collection after default
10
STRONG INTERNAL CREDIT CRITERIA

Strong Risk Analysis & Credit Scoring Process
We evaluate over 4,000 loans per month
Minimum FICO Score Absolute amount of income
Size of requested loan amount

Delinquencies and charge-offs Utilization of aggregate credit limit Size of revolving credit line Job consistency Type of employment / occupation Employer Length of credit history Education
We look for:
Ability to pay Willingness to pay Likelihood to pay
11
DIRECT LENDING FUND I, L.P.

Generating Monthly Cash Income
KEY INVESTOR BENEFITS

Monthly Income with very low risk to Principal
9% - 11% interest income net of all fees and expenses
Low risk and Low volatility

Diversification with participation in thousands of Prime and Super Prime consumer loans No leverage 30 month average duration
Professional loan selection, portfolio management, & administration

Negotiated Lender Incentives paid to the Fund which enhance the Funds performance
Flexible Cash Distribution & Withdrawal Options

Reinvestment: Re-invest all monthly principal and interest income into new loans Monthly Cash Distributions Fixed Amount: Request a fixed monthly payment per month and reinvest the balance of your pro rata Net Cash Flow Monthly Cash Distributions Fixed Percentage: Request a monthly distribution calculated as a fixed percentage of your capital account and reinvest the balance Monthly Cash Distributions Percent of Income: Request a monthly distribution calculated as a fixed percentage of your monthly income (up to 100%) and reinvest the balance Withdrawal: Request a monthly payment of all pro rata Net Cash Flow; Account pays out in no more than 36 months; The General Partner can accelerate these payments at its option
13
PROJECTED PERFORMANCE METRICS

KEY PERFORMANCE METRICS BY LOAN RISK RATING SEGMENTS Loan Gross Expected Risk Interest Default Loan Net Rating Rate Rate Servicing Return A B C D E F G 7.50% 11.75% 15.15% 18.25% 21.00% 22.75% 24.50% 1.25% 3.00% 4.40% 5.75% 7.25% 8.60% 9.50% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 5.25% 7.75% 9.75% 11.50% 12.75% 13.15% 14.00% PROJECTED PORTFOLIO PERFORMANCE 2 BASED ON ALLOCATION BY LOAN RISK RATING % Invested 0% 5% 40% 45% 5% 3% 2% 100% Gross Interest Rate 0.00% 0.59% 6.06% 8.21% 1.05% 0.68% 0.49% 17.08% Weighted Weighted Projected Loan Annual Default 3 Rate Servicing Return4 0.00% 0.15% 1.76% 2.59% 0.36% 0.26% 0.19% 5.31% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.44% 4.30% 5.63% 0.69% 0.42% 0.30% 11.77%
1 This example is for sample purposes only and the Fund's allocation among Risk Rating Segments will vary 2 Before direct expenses of the Fund, Management and Acquisition Fees 3 The General Partner has negotiated Lender Incentives with certain Lending Platforms that eliminate this fee
4 Estimated 9% - 11% annual return to investors after all fees and expenses
14
EXPERIENCED TEAM
Howard Freedland CFA, CIO & Portfolio Manager Previously CIO of F500 Advisory Services Experienced Hedge Fund Manager Experienced Executive Simon Leach, Chief Operations Officer COO of Mickelson Capital Consulting and member of the Investment Policy Committee Marketing Director of Office Depots Direct Business Division
CEO of National Water & Power

CFO of GE Capital ResCom Managing Partner of Lido Capital
Rochelle Werrett-Allen, VP-Compliance & Operations
Manager of Compliance for Mickelson Capital Consulting

Head of Insurance Operations
David Mickelson ChFC, CEO Founder & Principal of Mickelson Capital Consulting and its affiliates RIA since 1995 Accredited Estate Planner and Chartered Financial Consultant with over 20 years experience providing sophisticated wealth management services to ultra-high net worth individuals and family offices and their trusted advisors
Elizabeth Jordan, Office Manager

Oversees office operations
15
FUND STRUCTURE
FUND STRUCTURE
3(c)(1) Delaware Limited Partnership SEC registered notes issued by specially formed trusts (Notes) secured with fully amortizing consumer loans with three & five year terms Generate monthly cash income by investing in a highly diversified portfolio of Notes Purchase a large number of Notes laddered by acquisition date with various characteristics such as risk categories based on likelihood of default, borrower characteristics, geographic location, and loan type Monthly. $250,000 minimum investment Each investor must be an accredited investor as defined by the SEC Monthly with 30 day advance notice. Since Notes are illiquid, withdrawals are treated as a separate Share Class and principal and interest are distributed as received. The Fund may purchase a withdrawing Partners Interest but is not obligated to do so 1. Reinvestment: Investors may elect to reinvest principal and interest earned or; 2. Distribution: Investors may elect to receive (a) a fixed payment per month; or (b) a percentage of their capital account
ASSETS
STRATEGY
DIVERSIFICATION
SUBSCRIPTIONS INVESTOR QUALIFICATIONS WITHDRAWALS
DISTRIBUTION SUB-CLASSES
16
SUMMARY OF TERMS
NET ASSET VALUE NAV is calculated and reported on a tax (cash) basis. Each non-defaulted loan is carried at its currently amortized principal balance. Defaulted loans are written off immediately against the current months income Fund expenses including custodial expenses, third party administration, audit, tax and legal expenses are paid directly by the Fund The General Partner may negotiate purchaser inducements from loan platforms that originate Notes. All purchaser Inducements will be paid directly to the Fund 2% per annum paid monthly in arrears Negotiated rate for institutional investors, RIAs and FoHFs .25% one-time fee of Notes acquired in the prior 4 months No performance fee Monthly electronic/paper statements provided by the Administrator Millennium Trust Company Opus Fund Services Rothstein Kass Paul Hastings
PARTNERSHIP EXPENSES PURCHASER INDUCEMENTS MANAGEMENT FEE LOAN ACQUISITION FEE PERFORMANCE FEE REPORTING CUSTODIAN ADMINISTRATOR AUDITOR LEGAL COUNSEL
17
POTENTIAL RISKS
Reputation Risk + Government is increasing regulation on a wide range of consumer lenders + Loan collection procedures are a key area of concern Economic Risks + Limitations on maximum lending rates + Limitations on loan fees + Economy may worsen + Loan payments are influenced by the unemployment rate Tax Risks + Tax rates on earned income may rise significantly + Tax rates on passive income may rise significantly
Please review the Direct Lending Fund I, L.P. placement memorandum for a more extensive discussion of potential risks
18
CONTACT INFO
Direct Lending Advisors, LLC
301 Mission Avenue, Suite 209 Oceanside, CA 92054 (760) 804-8050
David Mickelson CEO dm@mickcap.com (760) 804-8056 - Office

Howard Freedland, CFA - CIO howard@mickcap.com (760) 804-8054 Office (949) 813-5563 Mobile Simon Leach sleach@mickcap.com (760) 804-8050 Office (760) 710-7679 Mobile
19
DISCLOSURE AND CONFIDENTIALITY

Direct Lending Partners, LLC (DLP) and Direct Lending Advisors, LLC (DLA), both wholly-owned subsidiaries of Mickelson Capital Consulting (MCC), serve as the General Partner and Adviser of the Direct Lending Fund, L.P. and other associated investment vehicles discussed herein (the Fund). The Fund invests exclusively in consumer loans originated through various online lending exchanges. Any grades or credit scoring attached to loans are assigned by the lending exchanges. The materials and information contained and described herein are proprietary to DLP, DLA, MCC, and the Fund and may not be reproduced or distributed in any fashion without such parties written consent. These materials do not constitute an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instrument or participate in any particular trading or investment strategy and no representation or warranty is given with respect to any future offer or sale. This information is not investment or tax advice or an investment recommendation. These materials have been prepared solely for informational purposes and are subject to change without notice. The information contained herein is generally believed to be reliable but no representation or warranty is given with respect to its accuracy or completeness. Investments may lose value over time and no return is guaranteed.
20
APPENDIX 1
Online Consumer Lending Exchanges
21
CURRENT LENDING PLATFORMS
Signature Consumer Loans

Launched lending platform June 2007 Began offering securitized SEC registered Notes with fractional interests 4Q08 3 and 5 year loans Loans originated to date: $564 million (as of 3/2012) Monthly origination volume: $38 million (as of 3/20112 Investors include Foundation Capital, Morgathaler Ventures, Caanan Partners, Norwest Venture Partners, and the Thompson Family
Signature Consumer Loans

Launched lending platform November 2005 Began offering securitized SEC registered Notes with fractional interests 3Q09 1, 3, and 5 year loans Loans originated to date: $320million (as of 3/2012) Monthly origination volume: $11 million (as of 3/2012) Investors include Accel Partners ,Draper Fisher Jurvetson, Fidelity Ventures, and Compucredit
22
$1 BILLION IN CONSUMER TERM LOANS
Source: Peter Renton, Social Lending Network May 29, 2012
23
PEER TO PEER LENDING CROSSES $1 BILLION

Why Peer-to-Peer Lending is Becoming so Popular
Both Lending Club and Prosper continue to see impressive growth as shown in this chart. What is behind this rapid growth?
1. Investors can earn double-digit returns

After several years of low interest rates investors are actively seeking alternatives. Peer to peer lending offers returns in the 6-10% range and the possibility of even earning more than 10%. While there are risks most investors are earning far more at Lending Club and Prosper than they are in traditional fixed income investments.
2. Institutional investors are moving in

Last year institutional investors started moving serious money into both Lending Club and Prosper. There is now over $100 million in institutional money invested at Lending Club and that number is growing all the time. Prosper has several large institutional investors including one who has invested close to $30 million and pledged another $120 million in coming years.
3. Consumers want to get out of credit card debt

By far the most common type of loan on both Lending Club and Prosper is debt consolidation. People are trying to dig themselves out of credit card debt where rates can routinely climb north of 25% if a borrower misses a payment. Someone with decent credit can get a 36month peer-to-peer loan at 12%, pay off their high interest credit cards and become free of credit card debt in three years. It is a win-win for the borrower and the investors who loan the money.
4. Banks are still not lending freely

It is not news that bank credit remains tight. Personal loans are very difficult to obtain and the popular form of borrowing last decade the home equity loan was killed by the financial crisis. Small businesses are also feeling the pinch so business owners continue to look for alternative means of financing.
5. The industry is gaining credibility

When one of the titans of Wall Street joins the board of a p2p lender, as John Mack (former CEO of Morgan Stanley) did recently at Lending Club, it provides a level of credibility that wasnt there before. Prosper also announced this year that long time Goldman Sachs executive Eric Schwartz has joined their board. No longer could people write off p2p lending as a passing trend. Peer to peer lending is an idea whose time has come. Its rapid growth as it moves past $1 billion in originations reflects that. It provides advantages for both borrowers and lenders, more so now than ever before. Peer to peer lending is only just getting started so dont be surprised if the $2 billion mark is crossed very quickly, probably within the next 12 months.
Source: Peter Renton, Social Lending Network May 29, 2012
24
LOOKING FOR 10% YIELDS? GO ONLINE FOR PEER TO PEER LENDING

The following story appears in the June 25, 2012 Investment Guide issue of Forbes magazine.
CHRIS BARTH , FORBES STAFF
Years ago clipping coupons from bonds was the province and passion of people in retirement. Today a tidal wave of aging boomers want income, but traditional sources are lacking. Ten-year Treasurys yield 1.6%. Safe-money bank CDs? 0.5%. Investment-grade corporate bonds are delivering 3.2%. So coupon clippers are seeking alternatives. Thats why dividend stocks and annuities are all the rage. But theres another neat source of high yield that relatively few consider. Peer-to-peer lending, or making personal loans via the Internet using websites like LendingClub.com and Prosper.com. After six years of experience and some bumps, including a financial crisis and ensuing recession, peer-to-peer (P2P) lending has finally earned its place on an income investors menu. The basic premise of these bank disintermediaries is that they harness the networking power of the Web to match people who have excess cash with people in need of it or those who simply want to refinance credit card debt. The key to its success has been how the sites have managed the inherent riskiness of unsecured personal loans. Believe it or not, it is now possible to earn yields of 6% or more, making relatively safe loans to complete strangers. Los Angeles financial advisor Brendan Ross committed $300,000 of his own money to Lending Club in early 2011. Based on his quarterly interest payments he claims he has accrued about $40,000 in income to date. Annual yield: 10.2%. Id been tracking the P2P space pretty much since inception, Ross says. I was waiting to feel like its loan underwriting model had matured. San Franciscos Lending Club is the largest P2P lender, followed by its crosstown rival Prosper. There are also a host of microlending sites, but their loans are generally low-rate or non-interest-bearing, as they go to people in emerging economies. Lending Club and Prosper have loaned a total of more than $1 billion since inception, in 112,000 loans. Lending Club currently issues about $45 million in loans a month versus Prospers $13 million per month. Prosper ran afoul of the SEC in 2008 and temporarily shut down to revamp its risk-assessment model. At Lending Club, after a quick registration you can sort through hundreds of potential loans. Each loan has its own risk rating, term (either 36 or 60 months) and rate of return. Loans with the highest ratingbased on the borrowers FICO score and some proprietary analysispay in the 5% to 9% rangeabout the same as junk bonds. Interest rates on riskier loans range as high as 31%. Both companies also offer diversified funds of aggregated loans and IRA options. Lending Club and Prosper vet thousands of loan applications, whittling down the pool to only those borrowers the company deems least likely to default. Renaud Laplanche, cofounder and CEO of Lending Club. says his firm declines about 90% of all borrower applications, focusing on the 10% of borrowers with the best credit. Of course defaults happen. Lending Clubs top-rated three-year loans expect a default rate of around 1.4%, and the riskiest loans, offering rates as high as 25%, have a 9.8% default rate. By contrast junk bonds have an average default rate of 1.9%. Its prudent to opt for the pools of hundreds of P2P loans both sites offer. Thats how advisor Ross is earning 10%, despite a handful of defaults on direct loans he made. Indeed, Lending Clubs website prominently features the statistic that investors who have at least $20,000 spread over 800-plus loans have never lost a dollar of their initial capital. John Mack, former chairman of Morgan Stanley, is a convert to P2P lending. After committing several million of his own capital to such loans, he joined Lending Clubs board in April. Says Mack: Three-year Treasurys are about 40 basis points. Lending Clubs more conservative fundthree years, amortizing quarterlyis about 7%. Given where short-term rates are today, theres a real opportunity here.
25
APPENDIX 2
The Consumer Lending Market
26
CONSISTENT PROVEN PROFITABILITY
10.8%
Federal Reserve Average Credit Card Net Return

18%
Banks have earned an average of 10.8% per year on average over the past 25 years
(Source: Federal Reserve data; 1985 - 2010)
16%
14% 12% 10% 8% 6% 4%
Estimate of 181 million credit card holders in the United States (58% of population) Positive lending spread in 25 of 26 years throughout volatile economic and interest rate cycles. Analysis does not include additional fees charged by banks Banks keep majority of consumer loans on their balance sheets due to steady profitability
15.5% 10.8%
4.7%
2%
0%
Interest Rate Charge-Off Net Spread
27
HISTORICAL CONSUMER DEBT CHARGE-OFFS
+ 36 month average charge-offs are less volatile than nominal charge-offs + Investing over time further reduces charge-off risk
28
TRENDS IN CONSUMER CREDIT
And unemployment continues to show steady improvement
Source: American Bankruptcy Institute. Data as of 11/11.
Source: US Bureau of Labor Statistics, 3/2012
29

Direct Lending Fund General Fund Presentation v2

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DIRECT LENDING

REPLACING LOST YIELD

US Treasuries Munis Bank CDs AA Corporate

0.17% 0.20% 0.72% 0.30%

0.32% 0.45% 1.30% 0.42%

0.64% 0.61% 1.41% 1.40%

Source: Bloomberg July 2012

Investors are being forced to make difficult decisions

We went looking for a better alternative

Where did we find these qualities?

THE YIELD ON CONSUMER CREDIT REMAINS HIGH

1981 16% 14% 12% 10% 8%

Borrower Credit Profile Average Credit Score

CONSUMER CREDIT GOOD LOANS TO GOOD PEOPLE

ONLINE LENDING A NEW PARADIGM

INVESTING THROUGH LENDING PLATFORMS

FRACTIONAL OWNERSHIP PROVIDES GREATER BORROWER DIVERSIFICATION

DIRECT LOAN ORIGINATION PROCESS

COLLECTIONS & DEFAULTS

+ Payment confirmation and reporting to investors

+ 120 day charge-off policy

STRONG INTERNAL CREDIT CRITERIA

Size of requested loan amount

Ability to pay Willingness to pay Likelihood to pay

DIRECT LENDING FUND I, L.P.

KEY INVESTOR BENEFITS

Low risk and Low volatility

Professional loan selection, portfolio management, & administration

Flexible Cash Distribution & Withdrawal Options

PROJECTED PERFORMANCE METRICS

CEO of National Water & Power

Rochelle Werrett-Allen, VP-Compliance & Operations

Manager of Compliance for Mickelson Capital Consulting

Elizabeth Jordan, Office Manager

SUBSCRIPTIONS INVESTOR QUALIFICATIONS WITHDRAWALS

David Mickelson CEO dm@mickcap.com (760) 804-8056 - Office

DISCLOSURE AND CONFIDENTIALITY

CURRENT LENDING PLATFORMS

Signature Consumer Loans

Signature Consumer Loans

$1 BILLION IN CONSUMER TERM LOANS

Source: Peter Renton, Social Lending Network May 29, 2012

PEER TO PEER LENDING CROSSES $1 BILLION

1. Investors can earn double-digit returns

2. Institutional investors are moving in

3. Consumers want to get out of credit card debt

4. Banks are still not lending freely

5. The industry is gaining credibility

LOOKING FOR 10% YIELDS? GO ONLINE FOR PEER TO PEER LENDING

CHRIS BARTH , FORBES STAFF

CONSISTENT PROVEN PROFITABILITY

Federal Reserve Average Credit Card Net Return

HISTORICAL CONSUMER DEBT CHARGE-OFFS

TRENDS IN CONSUMER CREDIT

And unemployment continues to show steady improvement

Source: American Bankruptcy Institute. Data as of 11/11.

Source: US Bureau of Labor Statistics, 3/2012

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