A Texan Investment manager, with $3.2 billion under management, is launching a direct lending fund on the London Stock Exchange.
Ranger Capital Group is floating Ranger Direct Lending Fund to raise up to £155m. The funds will be used to buy debt from Direct Lending companies, mainly US asset finance and invoice factoring companies. The fund eventually aims to buy about £500m of debt and over three quarters of it will be secured debt.
Bill Kassul, Partner at Ranger Capital, said that the company was looking to add a fixed income product to its portfolio. Originally the company had a peer-to-peer fund, the Ranger Speciality Income Fund. However, over time the company saw that there were shifts happening in this market. Yields were becoming more compressed as more money and institutional investors entered the market. For example, Lending Club rates have dropped over three or four times over the past few years and with the drop in rates it became harder to generate their required returns. Plus the fund was very heavily invested in US consumer credit and was looking for more diversification.
The new fund is focused on Direct Lending companies. These are generally companies that have been around for years, have historical data and strong management teams. Additionally, the fund manager can actively select the loans, which Ranger feels is crucial to generate alpha.
To start there will be seven platforms in the fund and there are about nine in the pipeline, three of which are outside of the US. The fund is looking to diversify outside of the US over time. The company is looking for different types of lending, different loan structures with different terms.
The platforms the fund will be investing in include:
-Interface Financial Group, an invoice factoring company that has been around for over 40 years, the loans are short duration and Ranger is investing in the loans alongside Interface. Readers may be familiar with Interface as we last wrote about the company at the end of last year when Interface partnered with Assetz Capital to create a new invoice finance product within the UK.
-Two small business lending platforms: The first is Biz2Credit, which arranges term loans and several other lending structures and has funded over $1.2bn in loans to more than 11,000 small businesses to date. The second is AmeriMerchant, a merchant cash advance specialist founded in 2002. AmeriMerchant was one of the first companies in the merchant cash advance category.
-Blue Bridge Financial, an equipment finance company that has been operating for over five years and has a proven track record in the space.
-Princeton Alternative Funding, a fund that specialises in funding businesses that makes consumer loans in the non-prime market space.
-MicroBilt, the largest credit agency that gathers data on thin credit file customers, e.g. students, the company builds them a profile and then sells it to retail stores. It is partnered with Princeton Alternative Funding, providing it with information that allows the fund to invest in the businesses that are giving the loans.
-Sharestates, a real estate platform, that has been in operation for two years. This would usually exclude Sharestates from the fund but its parent company has been around for over ten years and Sharestates originates a large proportion of its deals through the parent company.
Scott Canon, CEO of Ranger Capital Group, commented:
“The Direct Lending Fund’s focus is on secured SME and commercial lending platforms – over three quarters of its loan portfolio is expected to be secured – that offer higher returns than most fixed-income products. Supported by Ranger’s unique, technology-enhanced ability to actively manage a diverse portfolio of loans and an experienced investment advisory team, the Board firmly believes the Ranger Direct Lending Fund to be an attractive option for investors looking to secure a strong yield from an attractive and growing asset class.”
Bill Kassul explained that Ranger are listing the vehicle in the UK for many reasons, one of which is that the UK investor market is more educated in the developments in the lending market, and are very yield focused. He added that many US investors still hadn’t heard about peer-to-peer or direct lending and so are far less interested in the fund.
The investment vehicle is similar to the P2P GI and the Victory Park Fund that floated earlier this year. The difference between the funds is that both the P2P GI and the Victory Fund are focused on marketplace lending, mainly unsecured consumer loans. Whereas most of the loans in Ranger’s fund are from Direct Lending platforms, which include secured, actively managed loans. Ranger feels that one of the best ways to drive returns is by actively selecting the loans they will invest in and the partnerships with the direct lending companies allow them to do this. Ranger is usually the only institution investing via the platform and this also allows them to spend days making a decision over whether to invest in a loan, not seconds as has become the case with many peer-to-peer platforms. This extra time allows them to question the underwriter and see 100% of the documentation behind the loans.
Scott Canon, CEO of Ranger Capital Group, observed:
“Bank lending cutbacks triggered by the financial crisis and resulting regulation have created a void which direct lenders are ideally placed to fill. The Ranger Direct Lending Fund is the first UK listed fund of its kind to offer permanent capital to the established and emerging direct lending platforms as they expand to fill this void. The application of technology and access to online credit data sources provide these lending platforms structural advantages that are enabling them to grow and create a multi-billion dollar new asset class for investors.”
The IPO is being led by Liberum and the prospectus is expected to by issued around 13th April. The float is expected to take place around the beginning of May.